Robert Chote: Gordon, Actually: an epic in three parts coming soon to a screen near you

From The Matrix to The Lord of the Rings, vast trilogies are in fashion at the cinema these days. With a little less crowd-pleasing potential, Gordon Brown will begin his own three-part epic on Wednesday with his pre-Budget report to the House of Commons.

Together with the Budget next spring and the Spending Review next summer, this will map out the tax and spending strategy on which the Government will fight the next election. With voters still dissatisfied with public services and the Government's finances once again in worse shape than the Chancellor expected, we can expect drama until the final reel.

The pre-Budget report itself promises to be more Love, Actually than The Fellowship of the Ring. Not in its warm glow of festive cheer, but in the sheer number of subplots. Mr Brown has commissioned independent reviews on everything from house building to health spending, and from regional statistics to rescuing art for the nation. And as well as commenting on some or all of these, he must find time to announce a new inflation target.

Taxpayers have already swallowed an £8bn increase in national insurance contributions this year to provide a generous long-term settlement for the NHS. There seems little appetite either in the Treasury or in Downing Street to confront voters again with significantly higher taxes to fund further big spending increases. Taxes might have to rise anyway for the sake of the public finances. There is no crisis - by historic and international standards, the Government's debt is modest. But Mr Brown is constrained by the rules he set himself in 1998 to convince people that he would avoid the fiscal fiascos of the past.

The "golden rule" is the most binding. It says the Government should only borrow to invest, and that tax revenues should therefore be sufficient to cover "current" spending. Sensibly, and in contrast to Europe's recently deceased Stability and Growth Pact, the golden rule does not have to be met every year, only on average over the ups and downs of the cycle. It seems likely that Mr Brown will say this week he can meet the golden rule without more tax increases. But many independent commentators disagree, partly because they are looking at the rule over a different timescale.

The Treasury focuses on what it thinks of as the current cycle. This began in 1999-2000, when economic activity was thought to be at a sustainable level (in the sense it was consistent with stable inflation). Strong growth pushed activity above this level for a couple of years, and as a result buoyant tax revenues and subdued social security costs gave the Government a surplus of tax revenue over current spending.

Growth then slowed and the surplus shrank, and moved into deficit last year. The Chancellor predicted this April that as stronger growth brought economic activity back up to potential, the current budget would return to surplus. Adding the surpluses and deficits over the cycle, he predicted the golden rule would be overachieved by £32bn.

Events since make that look optimistic. In April Mr Brown predicted that the deficit would fall by a third between the last financial year and this. But over the first seven months, far from shrinking, it has been running at twice last year's levels. Government spending is growing more strongly and tax revenues more weakly than the Treasury predicted for the year. The latter will be of particular concern to the Chancellor because he cannot just blame a weak economy. Indeed, on Wednesday he will no doubt trumpet the fact that his Budget forecast of 2 to 2.5 per cent growth this year no longer looks as unrealistic as many thought.

With the cumulative current budget surplus since 1999-2000 down to £23bn, meeting the golden rule over this cycle looks less certain. Forecasters at Goldman Sachs and the Royal Bank of Scotland still expect the Chancellor to scrape home, but with cumulative surpluses less than £10bn. But does it make sense to focus on how the public finances perform between two arbitrary dates? Much better to ask: with current tax rates and spending plans, can we expect to meet the golden rule in the future?

Mr Brown thinks we can. In April he predicted that after adjusting for how far the economy is running above or below potential, the current budget would be in surplus by around 0.6 per cent of national income - currently around £7bn a year - in the medium term.

We are not so sure. In January we thought the underlying position would be a deficit of 0.3 per cent. That implied taxes would have to go up - or that spending plans would be cut - to be confident of meeting the golden rule. The widening in the deficit since this year's Budget would seem to reinforce that verdict.

The Organisation for Economic Co-operation and Development reached a similar conclusion last week. It conceded that the golden rule might be met on the Treasury's preferred timescale, but added that "either an increase in taxes or a slowing in expenditure growth would be prudent before the end of the current cycle" to clarify how the fiscal position could be sustained in the long run.

If the Chancellor argues that there is no need to raise taxes or cut spending plans, that will pose an awkward challenge to the Conservatives and Liberal Democrats. The more cynical among them believe that Mr Brown knows that taxes will have to rise, but that by focusing on the cycle ending in 2005-06, he can put off the evil day until after the election.

But if the opposition parties argue that he is going to break the rule, he can simply turn round and ask what they intend to do about it: ditch the rule, cut public services or increase taxes?

It may be that Mr Brown's position will turn out to be correct and that tax rates and spending plans are consistent with the fiscal rules looking backwards and forwards. But it is hard to argue that this is the sort of assumption a prudent Chancellor would make.

The first part of the Matrix trilogy was well received. But cinema-goers tired of the special effects and realised the story was not that convincing. Mr Brown must be careful to avoid the same fate.

Robert Chote is director of the Institute for Fiscal Studies