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Chancing it

The slogan for the Budget - you mustn't grumble, it's not too bad.

Sure, the next year or two is not what we thought it'd be, but it's not all permanent damage to the economy we're facing.

In other words, while he is not dismissing the current problems as a mere blip, the chancellor is at least arguing that some of it is simply a temporary disturbance to normal service.

So, on the economy, the chancellor concedes that some growth in the next two years will be lost - and it won't come back later (which is in itself a major concession. His predecessor always assumed that any growth lost returned later).

But at least by 2010, the economy will be growing again at its normal rate. And there'll be no recession in the meantime.

The same pattern occurs on government borrowing. After several years of painfully slowly trying to bring it down, the chancellor is now actually predicting and allowing for more borrowing next year. Overall, the finances are £5-8bn a year worse than he'd expected last year.

But again, you mustn't grumble. The public finances improve with time, and there's only a modest new overall tax rise to help recoup some of the revenue lost during the slowdown.

Fair enough. But behind this scenario though, people might still find things to grumble about.

By 2010, on Mr Darling's forecasts, the economy is a little smaller than the Treasury had been expecting; prices are a little higher and while public spending will be the same, it won't go so far, in that world of higher prices.

And then above all, what if the next few years are far worse than the chancellor has allowed? With so much going on outside the UK, you really can't rule that out.

That may lead to full scale moaning.

The chancellor though, is chancing it - at least , until the next election.

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Shrinking economy

I was wrong an hour ago, to say the Golden Rule measure of borrowing was looking better than it had been in 2012. Sorry, bit rushed.

Looking at the data, the chancellor is conceding that by 2011, the economy will be 0.5% smaller than he had thought. And he doesn't appear to be thinking that "lost growth" will magically re-appear later.

That is a real concession. It’s says the slowdown is not all a blip.

This all means the Treasury have "lost" revenue and has extra costs, amounting to a five to eight billion a year deterioration in the public finances for each of the next few years. Of that, about 1.9 billion is being raised in new tax rises

But fortunately for the chancellor, the finances would be even worse than they are, but for the fact that inflation is higher than it was meant to be when he last spoke to us. Higher prices bring tax revenues in.

Perhaps the clearest way to see this story, is to look at the changing Treasury view of the year 2010. Compared to the picture in the Pre-Budget Report, the economy is half a per cent smaller, prices are 0.75% higher and the finances are 6.5 billion worse than expected, but taxes go up 2 billion to recoup some of the money lost.

Public spending is the same as before, but with prices higher, that will make the public spending settlement tougher to deliver than it was going to be.

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As expected

The Budget has the shape I expected… a downgrade of the near term, and a bounce back in the medium term. By 2012, the golden rule measure of borrowing actually looks better than it did back in October. I suspect that means it is a net tax raising budget, with the tax rises delayed.

We've already had one tax rise from 2010 - the return of a new fuel tax escalator, with the half pence per litre rise in tax each year, over inflation. The MPs barely seemed to notice it, but it is a tax rise that the next government will find itself dealing with.

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Real change of direction

Alistair Darling adopted the technique beloved of his predecessor of rattling through the borrowing figures. But the news this year was good - it seems lower than it was expected to be. The bumper tax receipts that the government received in January seem to have helped.

But the more significant thing is that borrowing is expected to rise in the chancellor's new forecasts. That marks a real change of direction. In the past few years, Gordon Brown always budgeted for borrowing to fall. Of course, his forecasts were often wrong but he always budgeted for borrowing to come down.

Mr Darling does think that by 2012 borrowing will be right back to where he thought it would be.

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Not so cautious

The economic forecast is more realistic than it was, having been downgraded this year and next. For 2008 1.75 to 2.25, for 2009 2.25 to 2.75 and for 2010, 2.5 to 3.0. The current consensus among outside forecasters is for growth of 1.7% this year, and 2.0% next.

The chancellor focuses on the bottom range of his forecasts and calls this "cautious", but in reality, the risks are mostly on the downside next year, and those risks could be quite significant. Mr Darling's forecasts appear reasonable, but not very cautious.

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