Bad economic news does not always create good political opportunities for opposition parties. If Alistair Darling’s options in what is likely to be the gloomiest Budget since 1993, are very narrow, so are those of George Osborne and Vince Cable.

After being badly burnt a number of times in predicting downturns that did not materialise, the Tories are being shrewder now. In warning about the credit crunch and falling disposable incomes, Mr Osborne has concentrated on Labour’s failure to prepare for tougher times. The loose fiscal policy of past years has resulted in a sizeable budget deficit – larger than in other countries. So Mr Darling does not have the freedom of manoeuvre of other finance ministers to cut taxes or raise spending.

Mr Cable, by instinct a downbeat realist, has been cautioning for some time about the dangers of the sharp rise in personal debt and the overextended housing market. But saying you would not start from here is only the beginning of the debate. The real challenge is saying what you would do now: as everyone accepts, short-term options are limited. It is partly about not making things worse, and relieving acute pressures. Hence, the Tory call for corporation tax cuts to help business and the Lib Dems’ rescue plan for households facing repossession.

But the main constraints are longer term. The high budget deficit means there is little scope for big cuts in spending or taxes in the next couple of years. Hence, the main emphasis is on shifting around within existing plans. The Lib Dems have announced a big increase in green taxes to fund a cut in income tax, partly offset by the replacement of council tax by local income tax.

Background

• UK novice bosses 'ill-equipped' for slowdown

• Hospital and road plans hit by credit crunch

• Tax rise for drinkers in a Budget for trouble

• Powerful MPs attack the Chancellor's domain

• UK financial status under threat

Darling and the ghosts of Chancellors past

With limited horizons and little room for manoeuvre, Darling is in territory familiar to most post-war Chancellors

Background

• Alistair Darling’s budget will appease non-doms

• Darling under pressure over non-doms and CGT

• Bankers warn Treasury on Rock backlash

• Non-dom rule proposals 'old Labour'

• Chancellor to exclude Rock in Budget

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However, some of the Tories’ tax ideas (for instance, on nondomiciles and inheritance tax) have been taken up by Mr Darling, though in a very different form. Both the costs and revenues raised under the Treasury plan would be less than under Mr Osborne’s proposals. The Tories have to decide whether to go back to their original plan. They are likely to wait until much nearer the general election before announcing the scale of any rise in green taxes to finance what are called cuts in “family” taxes, notably on the treatment of married couples.

Mr Osborne has made himself unpopular with some by sticking to Labour spending plans for the next two years and placing fiscal conservatism before promises of tax cuts. His focus is on shifting money around, and hoping to achieve savings by having welfare-to-work, prisons and schools partly delivered by the private sector, though still financed by the taxpayer. So the focus is as much on the structure of the State as on its size.

At present, there is an economic and political limbo. There are plenty of gloomy warnings, but the pain has so far been felt by only a minority of people. That may explain why Labour’s poll rating has held up. But this will certainly change if the pessimists are right.

Explore Economics

• Autumn Budget 2007

• Budget 2008

• World Economic Forum

• The Times MPC

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