Leading article: The glaring hole in this pre-Budget report

Rarely has a pre-Budget report promised so much and delivered so little. Many were expecting – indeed hoping – for a substantial statement that would set a clear course for Britain's fiscal future. In the end the Chancellor of the Exchequer, Alistair Darling, delivered a speech shaped more by politics than economics.

Of course, the Chancellor managed to pad it out with plenty of detail. There were tax rises here and there. We were told that VAT will revert to 17.5 per cent next month. National insurance will rise by a further 0.5 per cent in 2011 on those earning more than £20,000 a year. There was a special tax designed to discourage investment banks from paying their staff exorbitant bonuses and a partial reversal on the scheduled inheritance tax break.

There were also a handful of austerity measures, notably a 1 per cent cap on public sector pay rises and pension contributions from 2011. There were even a few spending pledges and fresh tax breaks designed to help businesses. A boiler scrappage scheme will encourage people to trade in their old inefficient home heaters. There will be tax breaks for those with domestic wind turbines. And smaller companies will be allowed to defer corporation tax payments.

As one would expect, some of these moves are decent, some misconceived. But the point is that they are all small potatoes in the larger scheme of things. The Chancellor revealed yesterday that the Government is expected to borrow some £178bn by the end of this financial year, a slight increase on what he forecast in his April Budget. And the Treasury projects borrowing to remain at similarly elevated levels the year after. It has been estimated that, among these headline borrowing figures, lurks a structural deficit of up to £90bn.

Nothing that was announced yesterday comes close to filling this hole. The national insurance rise is projected to bring in £3bn a year. The public sector pension cap will save £1bn a year. These numbers are simply too small to meet the fiscal challenge that lies ahead. We remain none the wiser about precisely how the Government would meet its goal – which we are told will be enshrined in law – of cutting the deficit in half in four years.

Mr Darling is right that the timing of fiscal consolidation is crucial. If it is done too hastily it could destroy confidence and plunge the economy back into recession. The plight of Japan is, as the Chancellor said, a warning.

The need for a credible plan

But what international investors in British state debt need is a detailed and credible plan of where the Government believes the axe should fall over the coming years – even if ministers reserve the right to be flexible about the timing of the consolidation in view of the health of the wider economy. And what the country needs is a clear indication from the Government over what areas of public spending it thinks should be protected.

Yet it is increasingly clear that there will be no such plans – from either of the two main parties – until after the next general election. The Liberal Democrats, to their credit, have been more open with the electorate about their thinking on how to close the deficit. But it plainly suits both Labour and the Conservatives to go into that contest with a haze of ambiguity surrounding their spending plans.

So in the absence of significant new details on spending cuts or tax rises, what we had yesterday was a heavily political statement from Mr Darling, designed to draw dividing lines between the parties in the run-up to the next election. The central goal of this pre-Budget report was to paint Labour as the party of growth and fairness and the opposition as austere defenders of privilege.

Yet the Conservatives saw it coming. The shadow Chancellor, George Osborne, refused to rise to the Government's bait by attacking the moves on bankers' bonuses and inheritance tax. And the opposition have been subtly shifting their rhetoric in the economy in recent weeks in any case. They have eased their fixation on the size of the deficit and have finally begun to talk about the need to restore robust growth too.

The main thrust of the shadow Chancellor's attack on the pre-Budget report yesterday – alongside the familiar denigration of the Government's record of economic management – was criticism of ministers for not doing enough to support businesses. This evolution of the debate is overdue. But the fact remains that until we know what the parties' spending priorities are, this will remain a somewhat fraudulent contest.

The battle lines for the next election are evolving as the parties circle each other, probing for weakness. The pity of the situation is that it looks, at the moment, as if the British public are going to be asked to make their choice next year on the basis of a sideshow, rather than the main event.