Hamish McRae: A dud – but whoever wins in May will walk into a minefield

So there we are. It is a Budget that defines the political debate more sharply but leaves the economic outlook as clouded as ever. Voters will make up their minds about the politics, but the harsh reality is that whoever wins the election will have to produce a revised Budget very fast. There will most probably be the emergency Budget in June, as promised by the Tories. But even were Labour to get back in, it could not continue with the outline sketched yesterday. It would have to explain its deficit-reduction plan in much more detail and almost certainly revise it so that it cut the deficit faster.

There are three huge questions. First, is the growth forecast credible? Second, is the deficit-reduction plan credible? And third, what are the implications, even the time-bombs, for the next government?

Start with growth, for if growth fails to meet the forecast, the whole edifice of the Budget falls to bits. There is a widespread belief that the Treasury is being too optimistic in expecting growth of 3-3.5 per cent not just next year but right through to 2015. Alistair Darling defended the growth forecast for next year as being the mid-point of the Bank of England's forecast, but many people also think the Bank is being too optimistic.

The consensus of forecasters would have growth at around 2.1 per cent. It is possible that the Treasury and the Bank will be right and everyone else wrong, and, as far as 2011 is concerned, that may be the case. The recovery, were that to happen, would then look very similar to the recovery from the early 1980s recession.

But to expect above-trend growth of more than 3 per cent year after year is pushing at the outer limits of the credible, particularly given the load of debt the economy has to carry. So it is not going to happen. It would be nice to believe that the UK economy will bound ahead faster than it has ever grown before, and the Chancellor is correct to argue that growth is the key to getting the deficit under control, but this is not the way the world works. So the answer to the first question, alas, is no.

If growth falls short, the answer to the second question must also be no. That is because public-finance projections are predicated on this assumption of 3.25 per cent growth to 2015. So revenues are almost certain to lag behind the recovery projected by the Treasury. The tax-to-GDP ratio is expected to climb towards 36 per cent from its present 34 per cent and that seems credible. But, if GDP is lower than expected, the tax take is lower too.

Moreover, to achieve its present projected level of spending, the Government has to squeeze the spending departments harder than ever before in peacetime. To give just one example, this year net government investment is 3.6 per cent of GDP. By 2013-14 that will be cut to 1.3 per cent of GDP. In other words, public investment will be cut by almost two-thirds. And all this to get the budget deficit to 4.2 per cent of GDP under the Maastricht definition – still well above the long-term sustainable level.

The decision as to whether a deficit on this scale can be financed will not be taken by this Chancellor, nor his successor. It will be taken by global savers. Roughly half the funds to cover the Government's borrowing will come from abroad, so this is really an issue for the world's financial markets. At some interest rate a government can always get the money. The danger is that, if the deficit-reduction plan is not credible, the rate charged will be so high as to force up domestic interest rates too.

That leads to the final question: what does this mean for the next government? There will have to be another Budget, whoever wins the election. That Budget will have to assume somewhat slower economic growth than is forecast here. Then the next Budget will have to find ways of closing the gap somewhat faster than is currently proposed. That will mean finding some additional tax revenue. It will mean imposing the present schedule of cuts in public spending and then finding further ways to save money.

This will be a huge, painstaking operation. To do all this well will take months of planning, and the danger is that the government will not be allowed time to do it well. This is not about politics. It is about the mathematics of the global money markets, whose judgements, as Denis Healey remarked, governments have to live with whether they like them or not. One US fund-manager said that British debt was "resting on a bed of nitroglycerine". The next government has to defuse the bomb but it does not know the length of the fuse.