The course is already set. The fate of the Coalition was sealed one way or another in the immediate aftermath of the election when it agreed to cut fast and deep. Yesterday, in his second Budget, George Osborne opted to take a small dance on the new terrain he marked out last year.
His first Budget was titanic in ambition and sweep. Along with the related Comprehensive Spending Review, it established the perameters. His follow-up was limited to a few tentative steps because of the decisions taken then.
In urgent practical and political need for a narrative that goes beyond the looming cuts, the Budget was presented as one for growth. In case there was any doubt, a dense and worthy document was produced in addition to the normal Budget papers that focused solely on this more uplifting theme.
Indeed, with premature chutzpah, Osborne claimed that he had already rescued Britain's economy, and now it was time to move on to recovery. The chutzpah was underlined when, at the beginning of the Budget, he announced that the Office for Budget Responsibility had revised its growth forecast downwards. Growth predictions were higher before Osborne had come to the rescue. The chutzpah was outdone when the Chancellor proclaimed earnestly that, having taken tough decisions in his first Budget, he did not need to ask for more sacrifices in his second. It was as if we had all fought a successful war under his command, were back from the trenches, and could relax. He did not explain that a lot of the decisions announced in the earlier spending review only come into effect next month, along with some tax rises to accompany the VAT increase at the start of the year.
Forget about returning from the trenches, the war has not even begun. Once again it strikes me that when Gordon Brown was spending money like Santa Claus he went out of his way to seem miserable, and probably was. When George Osborne is cutting spending and putting up taxes he contrives to sound upbeat – as if he had waved his Thatcherite wand and the economy was booming again.
He calculates, or hopes, that the recovery will come about with the expansion of the private sector. In the Budget there were lots of sensible, facilitating measures, as there were in the 1980s, some of them quite similar – from Enterprise Zones to carefully targeted tax breaks. But in the 1980s our biggest market – the rest of Europe – was growing faster than it is now. Osborne waves his wand in less propitious and more fragile international economic circumstances.
He also does so with no control over interest rates. I am not surprised he emphasised that over time the forecast is for inflation to fall. One of his more robust defences for spending cuts is that interest rates are low. If the Bank of England panics in the face of a temporary inflation rise, brought about at a time when, unlike the 1970s and early 1980s, there is no significant wage inflation, the Chancellor will become more exposed. I am sure the Treasury view is that the Bank has no need to raise rates significantly. But the Bank will decide whether to panic or not.
The rest of the Coalition is keeping its fingers crossed too, although its potential fragility has little to do with economic policy. The Liberal Democrats, at least in the Commons, are more or less united behind Osborne. They have signed up to the principle of wiping out the deficit in four years, and know they must face the short-term consequences.
On the economy, the unity of the Coalition should not be underestimated. Yesterday, during Ed Miliband's politically astute reply to Osborne, I noted that Lib Dem MPs were shouting "What would you do?" with at least as much zeal as Cameron and Osborne, who were grinning – with a hint of misjudged, transparent frivolity – on the front bench.
Having signed up to the deficit reduction package in the days following the general election, Nick Clegg was given a fair amount of input into the Budget. Clegg and his close ally Danny Alexander met with David Cameron and Osborne alone on at least six occasions to discuss the proposals, and as Chief Secretary to the Treasury, Alexander is engaged on a daily basis.
The moves to take more of the low-paid out of tax come from their Party, as does the Green Investment Bank. The Coalition will come under strain perhaps because of the electoral and social consequences of the economic policies, the related public service reforms and the outcome of May's referendum on the Alternative Vote. On the Budget they all join hands with Osborne in his dance. The two parties at least are both in it together.
There were two hints as to how they plan to vary their steps in the run-up to the election. Osborne announced that he was reviewing the impact of the 50 pence top rate of tax. He is clearing the ground for reducing it. Wisely, and a little out of character, he has not rushed into an announcement, as he did with his proposal to cut child benefit. Instead he plans to accumulate evidence before he makes the move.
If it is found that the higher rate of tax does raise significant levels of revenue, he may have difficulties. That is the problem with evidence. But, sensibly, he will seek to shape the debate in advance of an announcement of a cut. Similarly, his tentative move to merge National Insurance contributions with income tax is an attempt to re-frame the wider tax-and-spend debate.
If he succeeds, I suspect the change will not be as significant as Osborne hopes in political terms. Gordon Brown managed to get in the contradictory position of being famous for his stealthy tax rises. There will be nowhere to hide for future governments that wish to put up taxes. They will have to make the case more openly, whether National Insurance is scrapped or not. In his Budget, Osborne cited Nigel Lawson as a great radical tax reformer. In his brutally effective response, Ed Miliband described him as Norman Lamont with an iPod. Miliband's speech was ruthlessly calculated to deliver the minimum required, a witty onslaught that highlighted repeatedly the ominous growth revision. He has been around long enough to know that his sole task on these occasions is to give his MPs a boost and to get a good soundbite on television.
But he must know too that he cannot hide behind attacks for much longer. The forecasts from the OBR suggest that in the longer term things will be looking up, and that feeling might be taking hold by the time of the next election. Miliband faces tough decisions as he seeks a credible, popular, alternative route.
The scale of his task will become clearer by the time Osborne delivers his next Budget in 12 months' time. By then, even the Chancellor might be struggling to sound upbeat. He is neither Lawson nor Lamont, but, uniquely, sets out on his path amid economic fragility and in a hung parliament where no party won an overall majority.
George Osborne delivered some well-meaning measures yesterday, but they change little compared with the revolution unleashed by his Comprehensive Spending Review and the Coalition's public-service reforms. Oddly, the Chancellor's much-hyped dance seemed like a break from the noisy music that preceded his appearance – and the noisier tunes that are about to play.