The biggest peacetime deficit in history was an unlikely political weapon with which to whack the opposition, but Alistair Darling came out fighting yesterday.
Instead of shamefacedly mumbling the budget numbers, he claimed that if the Conservatives had been in charge, Britain would have paid an even heavier price in the global downturn.
Having "kitchen-sinked" December's forecasts – assumed the worst would happen, in other words – Darling was able to announce that this year's deficit will be £11bn smaller than he expected. In total, the Treasury believes its finances will now be a cumulative £100bn healthier by 2013-14.
Lower-than-expected unemployment has helped, by cutting the cost of out-of-work benefits; so have shoppers, by returning to the high street more rapidly than the government expected, boosting the VAT take, while corporate profits have been stronger than anticipated, bringing in extra corporation tax.
In turn, the national debt will now peak at 75% of GDP, instead of the 78% the chancellor pencilled in before Christmas; and this year, the cost of interest on our debt will be almost £3bn lower.
Darling wielded these numbers, which are still staggering by historical proportions, to argue that the modest improvement is proof of government success. Without Labour's support over the past two and a half years – from the Northern Rock bailout to the VAT cut – he insisted the recession would have been deeper, and the public finances even worse. Nurturing recovery has helped the Treasury to bring home the bacon.
If he had heeded the Conservatives' calls to cut back spending hard a year ago, Darling said: "I believe we would still be in recession. I am also certain that the pain caused would have been worse and more widely felt."
He stuck carefully to the Treasury's now-familiar mantra of halving the deficit over the next four years, from 11.8% in this financial year, to 5.2% in 2013-14. The underlying, or structural deficit, will also come down sharply – though not as fast as the Conservatives would like – from 8.4% of GDP, to a much more respectable 2.5% by 2014-15.
Of course, we still don't know exactly how Labour will get us there: £19bn-worth of tax rises had already been announced before yesterday, including the national insurance rise due next year, and the 50p top rate, and the chancellor said his various spending cuts, including £11bn of "efficiency savings" and a promise of public-sector pay restraint, added up to about £20bn. But there was little new detail, apart from tired promises to dispatch civil servants to the outer reaches of the kingdom, and sell the same assets – the Tote, the Dartford Crossing and so on – which the Treasury has been promising to flog for years.
But even on the eve of an election, it's not Darling's way to obfuscate, and he was blunt about the fact that the next spending round – due in the autumn – will be the tightest in decades. Have no doubt, voters, it's going to be tough.Clearly, this was a chancellor with one eye on his legacy, reluctant to squander the plaudits of history for a few cheap cheers from the backbenches.
Any sign that he had thrown caution to the wind to win a few extra votes would have gone down like a lead balloon in the City, risking a gilts sell-off, which in turn could fatally undermine public confidence.
So the net giveaway yesterday for the year ahead was just £1.4bn – mostly accounted for by the phasing of planned rises in petrol duty, and the stamp duty holiday for the first-time buyers – with much of it clawed back in future years. Given that the finances now look a chunky £14.5bn healthier for 2010-11 than the Treasury expected, that's a very modest handout.
There were other measures, including a pro-business package, but many were either paid for from within existing plans – Lord Mandelson, and Lord Adonis at transport, will have to "reprioritise" £230m of spending, for example – or using earmarked cash. The heavily trailed "green infrastructure fund" will use £1bn from the proceeds of selling off the Channel Tunnel rail link. The stamp duty plan will eventually be paid for from the proceeds of a new 5% top rate on £1m-plus properties, once it kicks in next year.
So with little showmanship, and no Brown-style sleights of hand, Darling was able to present an undeniably grim set of public-finance forecasts as a symbol of Labour's commitment to holding the public's hand until economic recovery is well and truly assured, unlike his opponents across the house. History is likely to judge yesterday's statement kindly; it's just a shame it almost certainly won't save his job.
