Optimistic and steely-eyed
A Budget of rose-tinted realism is my view of the chancellor's efforts on Day Two.
Optimistic the Treasury certainly is - about the economy, about the appetite for government debt, and about much else besides. But on the scale - and permanence - of the hole in the public finances, this Budget is quite steely-eyed.
In my previews of the Budget (see Monday's piece and Tuesday's piece for the Ten O'Clock News), I flagged up that the OECD and others believed that a lot of this year's budget deficit was structural, and couldn't be expected to go away as the economy recovered. It turns out that things are worse than the OECD - or anyone else - thought.
The Treasury now thinks that the structural deficit will be 9.8% of GDP this year - out of an overall deficit of 12.4% of GDP. Almost all of that has appeared in the last two years: the Treasury claims the structural deficit was a mere 2.7% of GDP as recently as 2007-8.
As Martin Wolf comments in today's FT, dividing the deficit into "structural" and "cyclical" portions is heroic guesswork at the best of times. When the numbers are this large, and when they change so radically from year to year, you start wondering whether there's much point in maintaining the distinction at all.
For all of us, the key point is that the public finances are going to be in dire shape for nearly a decade, even if all of the chancellor's economic forecasts come true. The pain which follows from that basic truth was spelled out more clearly by the experts at the Institute for Fiscal Studies this afternoon.
As they point out, if you add yesterday's budget squeeze to the measures announced last November, the government is now planning to tighten the budget by well over 6.4% of GDP by 2017-18 - or £90bn a year in today's money. Whether through lower spending or higher taxes, that translates into £2,840 a year for every family in the UK.
Looking at the components of that squeeze, the IFS analysis shows that the chancellor has left a lot of the hard work undone, although since it applies to the parliament after the next one, you can see why he might not have thought it was worth his time.
According to the IFS, the tax rises already announced would only raise about £300 per family per year, slashing public investment will net £400 per family per year, the squeeze in spending would raise about £700 per family a year.
The Budget Book shows that more than half of the total squeeze pencilled in by 2017-8 will be achieved through unspecified tax rises or cuts in current spending. All we know is that it won't be through cuts in public investment - there won't be much of that left after annual cuts of more than 17% a year between 2012-14.
I mentioned yesterday that the spending plans would certainly mean real cuts, given the rising cost of servicing the national debt and rising expenditure on social security and other things the government can't do much about.
Once the government has paid those bills, the IFS expert Gemma Tetlow says, the new plans suggest that departmental spending will have to fall by 2.3% a year in real terms - the tightest outcome for spending over a sustained period since at least the late 1970s, probably earlier. As she points out, if you applied those cuts across the board to existing expenditure plans, only the Department for International Development would emerge with real growth in resources over that period.
I wonder whether the cross-party consensus on expanding foreign aid can possibly survive the onslaught ahead.