Weighing the risks
I just asked Danny Alexander what the government would do if Mr Osborne - and the governor of the Bank of England, and all those bond market vigilantes who wanted to see this kind of attack on the deficit - if all those people turned out to be wrong. What would he do if the economy responded as Japan's did to an increase in consumption taxes, years after its financial crisis?
Surprise surprise, I didn't get an answer: Mr Alexander stuck to his conviction that it would be even riskier to the recovery to delay.
Mr Darling used to say that any unexpected improvement in the public finances would be channelled into reducing the deficit. There was no corresponding promise from Mr Osborne today, saying that he would use any good news on borrowing to cut spending less - or take back the rise in VAT.
But speaking to us, the chief secretary did not deny that the new OBR forecasts in the Budget show growth a bit weaker in 2010, and unemployment about 100,000 higher.
As I said in last night's post, it's difficult to draw straight conclusions from the revisions in the forecasts because last week's predictions, in effect, incorporated assumptions about interest rates which might not have panned out if Labour had won the election. We'll never know.
However, very few people would argue that tightening on this scale would NOT affect growth, at least in the short run. That is probably why Mr Alexander didn't quibble with the figures I put to him.
It is also quite clear, from the forecasts in the Budget book, that the economy will now be operating with spare capacity for longer than we thought - in the parlance, there will still be a positive output gap in 2014-15 because the recovery, over this period, is expected to be a bit weaker than we thought.
Interestingly, that means that cyclical borrowing - the borrowing due to slower growth - has actually gone up in this red book, by £9bn a year in 2014-15, even as Mr Osborne has cut spending or raised taxes by £37bn. Expect Labour to make much of that figure - and don't expect them to put in the crucial caveats.
The government view is that all the short-term pain - economic and political - will be worth the long-term gain, in Britain's credibility with the markets and possibly its long-term potential growth. So, presumably, does Mervyn King. But Mr Darling isn't the only one who worries about the economic consequences of tightening policy on this scale. We have all to hope that they are all wrong - and Mr Osborne is right.
Update, 08:30, 23 June: Almost every page of the Budget book [2.73MB PDF] has information on it that on any other day would be a front page story. Heaven knows when any of us will have time to read them all. But if you've only got time for two, here are the two charts I'd pick:
The first is on page 15. It shows how far the chancellor has had to stray from his desired 4:1 ratio of spending cuts to tax rises, especially in the first few years of this Parliament.
True, he has stuck to a nearly 4:1 ratio for the new measures introduced today. But as we know, that is not the half of it, because you have also to include all the measures previously announced by Mr Darling.
When those are taken into account, spending accounts for only 57% of the tightening in 2011-12, and 64% in 2012-13. The number only gets up to 77% in 2015-16, as a result of (presumed) further spending cuts in that year which will not be part of the autumn review.
As Robert Chote has concluded, the government seems to have looked at the implications of sticking to 80% spending cuts in filling the slightly larger structural hole identified by the OBR last week and decided it couldn't be done. Bad though it will be for Whitehall in the next few years, departments can console themselves that it could have been even worse.
The second chart is on page 67, and shows the impact of the measures announced by Mr Osborne on different parts of the population, as a share of income. This supports the chancellor's claim that the pain is being evenly spread - and the richest are paying most.
However, as many have pointed out, the chart cannot and does not include the impact of spending cuts, which will tend to fall heaviest on poorer households and regions. And there is an even more obvious point to make about this table - which is that the bottom decile may not be suffering the biggest relative hit to income, but they are still taking a larger hit than almost any other group.
As a share of income, the highest earners will pay the most. But because the charts, somewhat conveniently, compare the system today with the system of taxes and benefits that will be in place in 2012-13, they include the impact of Labour's National Insurance rise (though presumably not Labour's other tax rises, like the introduction of the 50p rate, which would greatly increase the hit on top earners.)
Regardless, it's clear that the worst off will be hit worse by these changes than the middle classes, primarily because of the rise in VAT, which is only very slightly offset by the income tax cut. That is probably because relatively few people at this point in the income distribution earn enough to be paying income tax now.
PS An earlier version of this post had different charts on it, these have now been changed.