Wednesday’s Budget could be more significant than is generally expected. The centrepiece of the financial year has been written off even before it has been delivered. Now, economists and commentators agree, is not the time for dramatic new initiatives. The outlook is too uncertain, and the fiscal options too limited. So Alistair Darling has almost no freedom of manoeuvre in his first spring Budget - not least because Gordon Brown used his last Budget a year ago to announce big changes to income and corporation tax that take effect next month. Consequently, the sages argue, Mr Darling should be as brief as possible. But the doubts about the economy and the public finances are precisely why the Budget is so important.

In marked contrast to the Panglossian optimism of Mr Brown’s speeches (the “longest period of sustained growth since 1700” and the like), Mr Darling will be more downbeat. Admittedly, he will be able to claim that Britain should avoid an outright recession and is better placed than some other countries and than in the past. But he will have to revise downwards the forecast for expected growth this year for the second time in six months. After trimming the forecast by a half a point to between 2 and 2½ per cent in early October, it is likely to be reduced to 1.7 per cent on Wednesday. And, as Mr Darling has already admitted, this is hedged with enormous uncertainty for the prospects of recovery next year. That is why you will hear no one near the Treasury talking about a 2009 general election.

These forecasts are certain to mean that borrowing will be higher than previously forecast over the next two years as tax receipts decline, notably those raised from business and City financial services. (This is leaving aside the very large potential liabilities from taking over Northern Rock.) No one is arguing that Mr Darling should take remedial action in the coming year to get borrowing back on track: bringing in a big tax increase this spring or cutting spending plans could make a tricky situation worse.

However, many economists are worried that the weakening in public finances is not just because of global economic problems (as ministers claim) but reflects an underlying deterioration because of fiscal laxity and overoptimism about tax receipts in the last years of the Brown Chancellorship.

The real question on Wednesday will be how far Mr Darling announces measures taking effect in later years to address the rising levels of borrowing and debt. This is seen as the real test of his credibility. Consequently, Mr Darling is likely to announce sizeable, staged tax increases. Some, such as above- inflation rises in duties on beers, wines and spirits, will come in immediately but the rest, notably green taxes, are likely to come in later. Everyone will also be watching for “stealth” tax increases that featured in most of the Brown Budgets. The other main test will be how far Mr Darling can repair relations with business and the City after the rows over his now-modified proposals on a charge for nondomiciles and an 18 per cent flat rate of capital gains tax. Despite CBI pleas for decisions on these plans to be deferred, both will be confirmed on Wednesday though probably with amendments to provide reassurance that the Government is not antibusiness or against foreigners working and investing in Britain.

Mr Darling has had a very rough few months. And while his standing remains higher among Labour MPs than in the business world, he knows that Wednesday is the crucial test for whether he has a clear, credible recovery plan and is not just at the mercy of events.

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