Steve Richards: Darling has staked everything on a recovery this winter

Alistair Darling yesterday delivered a Budget that was ghoulishly compelling for a single reason. Could a Chancellor in an economic straitjacket and with a general election coming into view make any moves to help him, his long-serving Government and the rest of us break free?

We knew in advance that the public-sector borrowing figures would be dreadful. Most of the proposals were no surprise because they had been leaked. Ministerial energy had been focused less on preparations for the Budget than usual because of the intense build up to G20 summit in London earlier this month. The Chancellor himself is no orator, delivering bad and good news in the same understated manner. And yet the event was curiously gripping.

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It was the conjunction that was so extraordinary. This was a pre-election Budget. Darling might deliver one more next spring but then the election will be weeks away. This is the Budget that sets the course for the Government. At the same time, Darling was doomed to deliver relentlessly bad economic news.

In terms of whether Darling could make any moves to lift the economic gloom in the short term, the answer was clear before he had sat down and, in truth, before he stood up. He could not do so. Already public spending faced a tight squeeze. Now the squeeze will be tighter still and for many years to come. The cuts will unavoidably extend well beyond savings on "bureaucracy".

Taxes will also rise, but this time there will be no benevolent link between a tax increase and more investment in the National Health Service as there was when Gordon Brown announced popular rises in National Insurance contributions in 2003. Instead tax rises will be accompanied by spending cuts.

The constraints on Darling were almost comically intimidating, an economy facing frightening levels of debt, the markets watching like hawks to judge whether a route towards more balanced budgets was credible, the wider electorate wondering about the impact on their lives, the users of creaking public services fearing that they will creak more in the years to come.

Partly because he needed to convince the markets that he had a credible path to what he somewhat vaguely described as "more balanced budgets", the tax rises were precise and, in the details published later, so were the cuts on the overall public spending limits, although not how individual departmental budgets will be effected.

Darling broke up the gloom with new measures, some of them significant and worthwhile. Like a prisoner being allowed out on day release, he preceded each positive announcement of more cash for certain groups and causes with the words "I am going to give more to help... pensioners on low incomes/ the unemployed/poorer pensioners/small businesses/green initiatives".

Fleetingly during these sections of his speech, he gave the impression of a figure with spare cash to spend but, of course, the broader context was already established. Here was a Chancellor offering a little help while having to find ways of paying back billions. He was firmly in his straitjacket.

But in terms of the political challenge, Darling wriggled a little. He took some of the attention away from the bleak economic figures by delivering the most overtly left-of-centre Budget since Labour came to power in 1997. Gordon Brown was capable of stealthy redistribution when he was Chancellor, while miraculously generating headlines that suggested no one had lost out from his measures. In contrast Darling's announcements on tax were not hidden, but in his understated way he shouted them from the rooftops.

The tax increases on those earning more than £100,000 are substantial and some of them will be implemented a year earlier than planned. Meanwhile, those on low incomes, poorer pensioners and families in particular will be better off at least during the recession. Darling and Brown hope to play the fairness card in the run-up to the next election.

When Darling announced in his pre-Budget report last December a 45p rate of tax for those earning more than £150,000, he generated several headlines about the "death of New Labour". Brown was so alarmed at the time that he contacted several newspaper editors to assure them this was not the case. No doubt there will be many more such headlines now: a re-burial if that is possible. Brown will be on the phone again.

On one level, the funereal metaphor is obviously correct. The pledge not to change the rates of income tax, which was made with such a flourish in the build up to the 1997 election, became totemic, although even then Brown had been keener for a new top rate of tax for high earners than Tony Blair. But there is still a distinct new Labour dimension to the announcement. Its pioneers never acted without checking the opinion polls and the focus groups first, before proclaiming that they were boldly implementing policies. All the recent surveys suggest that a 50 per cent rate on high earners would be popular.

This is not surprising, given that the economic situation is transformed from the mid-1990s when New Labour made its cautious pledges. There is now a populist line on tax that was not available then, that it is fairer for those who are earning more in the recession to pay their share.

Nonetheless, the turnaround in prime ministerial strategic calculations is breathtaking. In his final Budget as Chancellor in 2007, Brown announced a tax cut which, I suspect, he hoped would be a springboard to an election in the spring of 2008. Now he contemplates an election in which a tax rise would have been implemented, with more to come afterwards.

The Conservatives have responded cautiously and a little evasively. Their slightly convoluted position is that, while they are theoretically opposed to increases in marginal rates of tax, they will not regard the scrapping of the increase as a priority. Darling and Brown calculate that such a position will not go down well with Tory activists addicted to tax cuts rather than increases. Probably the Tory leadership will be able to say and do whatever they choose if the Conservatives are well ahead in the polls. If the gap diminishes, the Government's political calculations may well be vindicated. The Tories have had issues with "tax and spend" since 1997 which are far from resolved.

Indeed, one of the questions that arise from the Budget is for the Conservatives to answer. David Cameron was in sparkling form as he tore into the Budget in the Commons yesterday. It is often said that responding to the Budget speech is one of the most politically challenging tasks for a Leader of the Opposition who has no advance notice. As we all had so much advance notice this time, the job was fairly easy, but Cameron made the most of the opportunity to highlight the bleak economic situation and blame the Government for it.

But what he did not specify then, or elsewhere, is what he would do to remedy the situation more speedily and fairly. Calling for more spending cuts is easier than detailing what form they will take. The Conservatives have made this "Labour's debt crisis", but if Britain faces unique problems we await to hear their distinct solutions.

Probably the scale of the economic crisis will overwhelm expedient political calculations, not least when a government seeks to serve for a fourth term. The only hope for Labour MPs relates not to any of the policies outlined yesterday, but in one of Darling's forecasts. He predicted that the economy would start to recover by the end of this year. If that were to happen, the Government would cling to the "green shoots" and claim credit for their cultivation.

But in December, Darling forecast that the recovery would start this summer – one of many forecasts that have been revised in an even gloomier direction. If the Chancellor proves to be optimistic once more about the chances for growth, he will have no wriggle room, politically or economically, between now and the election.

s.richards@independent.co.uk

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