Main points | Speech in full | Reaction | Eco-worrier on plastic bags | Podcast: winners and losers | Video: Anatole Kaletsky | Economic perspective | Video sketch

The Brown Government is still in a recovery, not a pre-election, stance. What we heard yesterday from Alistair Darling was a holding operation, modest in its rhetoric, scope and consequences. His strategy rests on the hope — a pretty optimistic one — that the slowdown will be neither severe nor long-lasting. As so often, virtue, in terms of improving public finances, is not now, but at least a year away.

The Budget Red Book suggests that we face several years of belt-tightening. Not only is public spending growth due to slow sharply to an average of 2.2 per cent in real terms for the next three years, but — in perhaps Mr Darling’s most important remark — the assumption is that it will continue to grow after 2011 at a rate of 1.9 per cent a year. So there will be no loosening of controls on spending or public sector pay. The Tories have pledged to match Labour’s plans up to 2011, but George Osborne was non-committal about their plans after that.

However, consumers should not expect better times either. Household spending is expected to be sluggish this year, and thereafter to expand much more slowly than in recent years.

The Budget itself has attracted most attention for the increases in duties on alcohol and petrol-guzzling cars to finance the initiative on child poverty and help for pensioners: a mixture of puritanism (sin taxes) balanced by modest social democratic moves to alleviate child and pensioner poverty. And Mr Darling sought to rebuild bridges with the City and business after a bruising few months. The CBI, which has been very critical recently, admitted, with relief, that there were no new shocks.

But no Budget should be viewed in isolation. Yesterday’s should be seen as the third, and not the most important, part of a series of announcements: starting with Gordon Brown’s last Budget a year ago and continuing with Mr Darling’s ill-fated Pre-Budget Report (PBR) in October, with its proposal on non-domiciles and capital gains tax.

Yesterday’s announcements involve much smaller total tax changes than the earlier measures: the transferable inheritance tax allowances in the PBR, and the big income tax changes announced a year ago to come into effect next month (removing the lower starting rate and cutting the basic rate of income tax).

For the following two years, yesterday’s increases in duty, in combination with the Pre-Budget changes, will boost the tax burden by £1.1 billion and £2.8 billion respectively, largely offsetting the tax cuts announced a year ago. This will reinforce the widespread, and often justified, impression that Chancellors take back with one hand what they have given away (of our money, that is) with another. The relative share of taxes of national income is due to continue to rise from 36.8 per cent to 37.4 per cent by the start of the next decade, the highest for 20 years, compared with a recent low of 35 per cent.

What matters is not just the level of taxes but the widespread sense registered in polls that the big increase in spending of recent years has not produced an equivalent improvement in service standards.

Mr Darling’s line was that Britain was better placed than other countries to withstand the slowdown thanks to structural reforms since 1997 (as well as those, he did not mention, of the Thatcherite years). Many outside economists are more pessimistic about the outlook. This obviously has a big bearing on the public finances.

David Cameron argued, in one of his most effective Commons performances, that Britain’s public finances are less healthy than in many other countries because of earlier fiscal laxity. In attacking the Government’s failure to prepare for the slowdown — “in the years of plenty they put nothing aside” — he sought to shift the blame from Mr Darling to his inheritance from Mr Brown.

Public borrowing for each of the next four years is higher than forecast last October, by £7 billion in 2008-09 alone. Some of this is allowing the normal pressures of a downturn to work through with lower tax receipts, notably from stamp duty and property taxes, pushing up borrowing. But even adjusting for these cyclical factors, borrowing is higher than previously estimated and only due to decline modestly from next year onwards. Yesterday only amounted to a small start to the adjustments necessary to get public finances back on the right course. Public debt is due to bump along perilously near the upper limit of the Treasury’s golden rule.

So, even on Mr Darling’s forecasts, there will be little room for manoeuvre next year, and there are big risks if the slowdown is worse and recovery is delayed longer than expected.

The immediate pain from yesterday’s tax-increasing measures will no doubt be unpopular, but this will be less significant in the longer term — that is, in electoral calculations — than the state of the economy. The Budget may not have been inspiring, but it represented the Government’s best, or least-worst, case scenario.

Buzzwords

Brown 2007

Investment 35

(Tax) credit 16

Family 18

Education 14

Environment 18

Carbon 14

NHS 3

Security 5

Inflation 10

Employment 15

Incentive 10

Saving 12

Darling 2008

Investment 24

(Tax) credit 4

Family 15

Education 5

Environment 10

Carbon 26

NHS 0

Security 1

Inflation 18

Employment 8

Incentive 6

Saving 7

New words

Northern Rock 1

Global/World economic slowdown/downturn 5

Nondomiciled 1

Long and short of it

— Mr Darling used the traditional battered red dispatch box first used by William Gladstone in the 1860s. Only James Callaghan and Gordon Brown have broken the protocol

— The speech lasted 50 minutes, shorter than any given by Gordon Brown. According to Hansard, Mr Brown’s average speech length was 58 minutes and 38 seconds

— Gladstone gave the longest unbroken speech, in 1853, at 4 hours and 45 minutes. Benjamin Disraeli gave the shortest speech, in 1867, at 45 minutes

— The Chancellor is alone in the House in being allowed to drink alcohol when giving his Budget speech. Mr Darling opted for water

— Gordon Brown delivered 11 Budget speeches, the most by a Chancellor in the past 100 years

— Iain Macleod is the only Chancellor since 1900 not to have delivered a Budget. He died on July 20, 1970, a month after being appointed

— In 1947 Hugh Dalton had to resign as Chancellor after leaking the contents of the Budget to the Evening Standard newspaper

Source: Times database

Explore Economics

• Autumn Budget 2007

• Budget 2008

• World Economic Forum

• The Times MPC

Times Recommends

• BA chief waives bonus after T5 fiasco
• Prospects of cheaper loans hit as Libor soars
• Rice price dives as US and Japan set to unlock grain pact