After all the usual hoopla, today's Budget from Chancellor Darling – in all likelihood his last, one way or another – was a cunning bit of politics. By announcing that public borrowing was lower than expected, at £167bn in FY09/10, as well as trumpeting a surprise £2bn haul from the bankers' bonus tax, Darling was able to offer a £2.5bn 'one-off growth' package, which is supposed to underpin the nascent recovery. This included lots of eye-catching and business-friendly measures, such as doubling investment allowances for small firms and cutting business rates for a year. Doubtless much will be made of these – and other gimmicks such as the Green Investment Bank and new 'UK Finance for Growth' organisation – in tomorrow's press, as well as by politicians of various colours in the run up to the election. Darling is daring the Tories to oppose his populist 'growth' package, and will paint them as spineless if they don't, given their previous pronouncements on swingeing cuts.

But, as a macro economist, I was distinctly underwhelmed. Two point five billion pounds sounds like a lot of money – and, indeed, it would be, if it landed on my doormat tomorrow. In fact, there were offsetting policy decisions elsewhere – so, in total, the measures in today's Budget cost a net £1.4bn, smaller than the £2.5bn package Darling trumpeted. Furthermore, the UK economy – even following the worst post-war recession on record – was still worth one thousand, three hundred and ninety six billion pounds last year. So, even at face value, Darling's package amounts to just 0.2% of GDP – hardly big beer, from a macro perspective.

Darling's various forecasts continued in a similar vein, with little real news – we basically already knew the story. He still has a reasonably sensible forecast for economic growth this year (1% to 1.5%) but is very definitely in optimistic territory from 2011 onwards, expecting growth of more than 3%. And he is still planning to more than halve the budget deficit by FY14/15, as he announced in the Pre-Budget Report. The problem, of course, is that when you start with a deficit of almost 12% of GDP now, that means it is still set to be 4% of GDP in five years' time. But Darling also expects to get structural borrowing – that bit which isn't due to the recession – down to 2.5% of GDP by FY14/15, from 8.4% this year.


Given that there was relatively little macro news in the Budget – and the after the usual overreaction on financial markets, things have already calmed down – the UK's international position looks little changed. We were fortunate enough to come into recession with a lower debt stock than most other countries, and although that advantage is set to disappear, Darling thinks we will still outperform Germany, France and the US over the next few years, at least in terms of the peak in the debt stock, if not annual borrowing. But, given a distinct lack of economic news, today's Budget will do little to relieve the pressure UK PLC has recently been under on financial markets.

However, that doesn't mean the next government should start sharpening its axe – indeed, at this juncture deep spending cuts would do more harm than good. But there is scope for the new administration to be more ambitious from, say, 2012 onwards – and, importantly, for it to be decidedly more credible in the immediate future, by spelling out more precisely where spending cuts will bite. Depressingly, I harbour few hopes of either the Labour Government or the Opposition Tories having the cojones to do this prior to the election. And as a result, we will all just have to hold our breath for a little bit longer.



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