Jeremy Warner: Gordon takes us on a fantastic voyage through his pretend world

The Chancellor again bamboozled us with a bewildering array of percentages and statistics in his Budget speech yesterday, all of it designed to give the impression that everything is fine on the ranch. The reality is that it is not and, although the Chancellor is right to make favourable comparisons with the sickly eurozone, the outlook for the economy and the public finances is a lot worse than he pretended. As for being a Budget for business, that too is so much poppycock.

True enough, he didn't appear to turn the screw on business any further than he already has, but the damage being wreaked by previously announced measures such as the increase in national insurance is quite bad enough. Anything more and the pips would start to squeak.

Affordable public spending? Well perhaps, but not nearly as affordable as the Chancellor tried to make out. For the second time in a year, Mr Brown cut his forecast of growth for 2003, but only to a still too optimistic 2 to 2.5 per cent. The fall of Baghdad will be a confidence booster but, having grown only marginally in the first quarter, the economy will need to get a move on during the remainder of the year even to reach the bottom end of that target range.

So much for this year. In the projections for next year and the year after the Chancellor enters the realms of fantasy. For these two years Mr Brown is assuming a return to the boom conditions of the late 1990s – 3 to 3.5 per cent rates of growth. You had to be listening carefully to notice it. Even before yesterday's Budget Mr Brown was projecting this "away with the fairies" growth rate for next year, but he's now extended it into 2005 as well.

If he's right, then we should party till dawn, for our troubles are over before they even began and the longest boom in history is about to start all over again. The fact that nobody is raising even so much as a glass demonstrates the incredulity that has greeted these predictions.

Mohammed Saeed al-Sahal himself, Iraq's comical and presumably now former Minister of Information, could not have succeeded better in ignoring the evidence of his eyes. But isn't that a recession I see coming up the road behind you? Rubbish, Mr Brown might have said. The economy is booming and if you don't believe me, let's go on a bus tour of the public sector where I'll show you how we are pummelling the gloomsters. The rascals will surrender or burn in their tanks.

The detail of the Government's growth forecasts does at least show some awareness of the truth. Investment spending by business is forecast to continue falling this year, as it surely will, but there's a massive 47 per cent leap in general government investment, allowing Mr Brown to forecast that overall investment across the economy as a whole will rise by between 4.25 and 4.75 per cent.

To the extent that the economy is growing at all right now, it's all down to the public sector. Meanwhile, he private sector, the bit of the economy that generates all the taxes, is contracting. In Germany and France, both the public and private sectors are contracting at the same time, which is why the Chancellor is able to make such favourable comparison.

However, to achieve 3 per cent plus growth next year and the year after, the private sector needs to start growing again soon, and at a fair old clip too. This doesn't seem at all likely with a stagnant world economy abroad and a rising burden of taxation at home. Mr Brown implicitly recognises in making this Budget fiscally neutral compared to the pre-Budget report that he can't realistically raise tax any further than he has already without danger of further squeezing productive activity and therefore reducing the size of the tax base. The consequent shortfall between projected revenues and spending will have to be paid for out of borrowing.

Quite how much more might be required, and whether the effect would be to break the Chancellor's own golden rule on the public finances, is a matter of hot debate, but that it will be a lot more than the figures shown in yesterday's Budget documents is not in doubt.

The Chancellor might be able to get away with another year or two of lacklustre growth and still keep his spending plans on course. His credibility would be dented by persistently missing his forecasts. But as he keeps pointing out, we are still a lot better off here than in France and Germany, so relatively the public finances won't look that bad. Even so, at some stage Mr Brown needs the economy to start growing robustly again or the figures won't stack up.

As ever there was plenty of business-friendly rhetoric in yesterday's Budget, but behind the words it didn't add up to a hill of beans. There's to be another bonfire of red tape, but somehow the mountainous nature of the stuff just keeps on growing.

Much thanks for the improvement in capital allowances for small and medium-sized enterprises, and for the easing of the VAT burden on small business. Meanwhile, the Government seems wisely to be playing the issue of non-domicile taxation, whereby resident foreigners who draw their earnings from overseas don't pay any tax here, off into the long grass. Even on tax avoidance, which can be a big tax bonus to business, the Government's bark seems to have been much worse than its bite.

But in the end the Government can do nothing sensible for business other than to keep cutting taxes, and here the desire to produce a dynamic, innovative and productive economy comes crashing into the Chancellor's other, nobler aims – "tackling inequality, renewing public services and pursuing social justice".

As he made clear in yesterday's speech, the Chancellor is no admirer of the rigidities of the European economic model. He is on the other hand a great admirer of the power and dynamism of the American economy. His purpose none the less seems to be that of reconciling the two here in Britain. No one can quarrel too much with the result so far. The experiment seems to be working. Unemployment is at a near-record low and living standards are at record highs. Is the Chancellor's luck about to run out?

He's pushing it to breaking point in believing he can tax and spend to the extent he is and still have a dynamic and growing economy. I may be wrong, but I can't help but think the increases in national insurance now coming through are the tipping point at which the cogs of economic activity begin to clog up.

And if that's the case, then the gamble the Chancellor has taken with the economy will fast unravel.