TOUGH, ISN'T IT? The country’s been driven to ruin by an austerity chancellor obsessed with cutting debt, and with it government spending on vital public services.

But this isn’t quite the true picture, is it? Public spending continues to rise, and with it the budget deficit.

In July, traditionally a good month for the Treasury kitty as tax receipts flood in, the public finances have plunged into the red by £600 million – a £3.4 billion deterioration on the picture this time last year.

The figures are shockingly bad. They mean that, so far this year, setting aside the one-off exceptional item credit of Royal Mail pension fund assets, total public borrowing has soared to £44.9 billion, a year-on-year increase of £11.1 billion in the space of just four months.

The credibility of chancellor George Osborne takes another big knock. It’s hard not to agree with the grim assessment of Dr. Tim Morgan of the brokers Tullett Prebon: “Britain”, he declared yesterday, “is edging closer to a vortex in which government borrowing escalates whilst economic output spirals downwards.”

But if it is challenging for the coalition chancellor, how much more so is it for Labour’s shadow chancellor Ed Balls? His persistent critique for the past two years is that Draconian spending cuts and obsession with deficit reduction has driven the economy back into recession from which it is unlikely to escape while the Mad Axe Man of Number 11 continues to pursue his baleful austerity policies.

There is just one thing wrong with this attack. It is the opposite of the truth.

Public borrowing and public spending continue to rise. And while the bulk of July’s shortfall can be laid at the door of lower than expected corporation tax receipts, the chilling fact is that fiscal policy, far from being as tight as a drum, is conspicuously loose.

Indeed, George Osborne could fairly be accused of doing exactly what Mr Balls has been urging him to do with barely a break since the coalition took office: ease up on public spending cuts and let the deficit rise. But what the deficit and overall debt figures would now be like under a Balls chancellorship one shudders to imagine. Such is often the way of these things, Labour governments are not exactly inexperienced in running tight fiscal policies when survival demands. But these latest figures should give the opposition much pause for thought.

Are we heading towards a vortex, as Tim Morgan warns? Over the past 18 months his analyses of the state of the UK have been apocalyptic. And he has consistently warned of a coming moment of truth for the UK.

You would hardly know it from the level of the UK stock market. Unfazed by the appalling figures on the UK public finances, the FTSE100 Index climbed 33.15 yesterday to 5,857.52. Just a few months ago it was below 5,400. Despite all the miserable news hurled at it – the economy in double dip recession, Purchasing Managers Index confidence readings not at all good and now wretched figures on the public finances – the market has shaken all these off.

What is going on? What is the market seeing that we are not?

Remember, this is August, when trading volumes are significantly lower than normal. For the moment investors are squeezing what comfort they can out of that declaration by European Central Bank President Mario Draghi that the bank will do “whatever it takes" to save the Euro.

And equity investors may sense they could be in for a run if, as is likely, the ECB, the Federal Reserve in the US and the Bank of England here all resort to further monetary stimulus. A money splurge would help shares initially – before inflation catches up.

But we have been here before – the 1970s to be precise. And when I see stock market rallies in August – and there have been a number of them since 2006 – I cannot help but be reminded of that haunting painting by Herbert James Gunn - On the Eve of the Battle of the Somme. Nothing at this time is quite as it seems or can be taken for granted. As with those figures on the public finances, a deadly reckoning is building.