Gamblers need a bit of luck, and the gods smiled on Alistair Darling yesterday. To announce a Budget and see the stock market rise almost 10 per cent is the stuff of chancellors’ wildest dreams.

Investors were not reacting to Mr Darling, however. They were merely following a surge in US share prices. The verdict on Mr Darling’s gamble was much more mixed.

At the heart of yesterday’s package was a huge bet: that a temporary cut in VAT will give the economy a shot in the arm, help it to stagger through the downturn and emerge healthy enough to pay off its huge debts.

Mr Darling predicts that it will. But, as yesterday’s statement showed only too clearly, his predictions have proved laughably wrong this year.

Darling's £1 trillion debt gamble

Alistair Darling stored up big tax rises for the better-paid and huge public spending curbs in his fight against recession. Watch video

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The truth is that in these extraordinary economic conditions it is extraordinarily difficult to know how the economy is going to react. Those at the sharp end of high street retailing are convinced he had made the wrong choice.

The aim of the VAT cut is simple – to put more money into consumers’ pockets, which they spend, rather than save. On paper, it has many attractions. It is quick and simple – though a real headache for the shops – and because it is explicitly temporary it should in theory encourage us all to bring forward spending before the rate goes up again.

But some leading retailers have bitterly attacked the move. They point out that, with the likes of Marks & Spencer launching “20 per cent off” sales, adding a 2.5 per cent cut on top is neither here nor there. In a letter to The Times, Simon Wolfson, the chief executive of Next, described it as an extraordinary idea that “defies all economic logic”.

Even if all the cut is passed on by the retailers, some of it will be saved. Putting more cash directly into people’s pockets, through tax and benefit changes, would make it much clearer how much better off they were. That in turn might boost something as important as cold cash – confidence.

The Chancellor tried to boost business confidence by announcing a range of measures, mainly targeted at small companies. These look sensible and are welcome as far as they go. However, the most important factors for small businesses are the overall level of demand and the availability of credit. Mr Darling did unveil some modest proposals to help small companies to get access to credit. But the key for the prospects of small businesses and the economy as a whole is the behaviour of the banks. The Government has already ploughed £37 billion of taxpayers’ money into the banks. It may have to do more to keep them lending.

To pay for the bust, Mr Darling announced yesterday that he was increasing taxes for those who had done best out of the boom. The rise in income tax for those earning more than £150,000 in 2011 raised cheers from Labour backbenchers, who had been waiting for this moment for years.

But the big postdated bills in this Budget will be paid not just by fat cats but also by millions of middle-income families through a rise in national insurance contributions.

The Chancellor did offer some help to the lower-paid by scrapping national insurance for anyone earning less than £20,000. Above that level, the rate will be increased by 0.5 per cent, raising £2.5 billion a year. As George Osborne, the Shadow Chancellor, said, this is “a tax rise in all but name”.

Companies also pay national insurance and will face the same increase for each employee, which is why it is dubbed by the Conservatives a “tax on jobs”. As the head of one big employer said yesterday, this hardly seems the best way to cut unemployment as the economy starts to recover.

Combined with the changes to personal allowances for the high-paid, the new 45 per cent rate will have a big impact on the tax bill faced by top-earners. City firms said that this would affect the attractiveness of London as a place to base executives, because companies would have to increase their pay to offset higher taxes.

Preserving the appeal of Britain as a place to do business was the motive behind the Chancellor’s decision to reverse a change to the way that companies’ foreign profits are taxed. The change has prompted many large companies to move their headquarters overseas. But the head of one City institution that has been considering relocating said that Mr Darling had “done nothing to persuade people to stay in the UK”.

Although the scale of tax changes look big, they are relatively modest compared with the scale of the problem. The fiscal stimulus amounts to about 1 per cent of the economy, much smaller than the package being discussed in Washington. The Treasury estimates that it will reduce the extent of the downturn in the economy by just one half of 1 per cent.

To achieve this, the Government is contemplating a massive increase in borrowing and a doubling of the national debt over the next five years.

Mr Darling predicted that borrowing would jump to £118 billion next year, a record 8 per cent of the economy. And that prediction is based on a contraction of about 1 per cent in the economy, which many believe is much too optimistic.

Government bond prices fell sharply yesterday as investors worried that if the downturn is worse than expected Mr Darling may struggle to find buyers for all the new government debt. That may prove the biggest gamble of all.

£394bn would:

— Match the GDP of Nepal for the next 20 years

— Fund the NHS for four years and four months

— Buy 172 state-of-the-art CVF aircraft carriers, the building of two of which the MoD has had to delay

— Pay the fees for sending every British child under the age of 15 to Eton for 18 months

— Fund Great Ormond Street Hospital for the next 1,400 years

— Extend London Underground’s Jubilee Line by 1,200 miles – to Sicily

— Equal ten times the amount spent globally on developing and installing wind power generators

Source: Times archive

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