Leading article: George Osborne's economic gamble

George Osborne might be the youngest Chancellor of the Exchequer in more than a century, but there was nothing callow about the delivery of his emergency Budget yesterday. It was a confident performance. And the speech itself was clear and well structured. So much for the style; what of the substance?

Mr Osborne called it the "unavoidable" Budget. But we should be clear that the Chancellor has made a controversial choice here. The report from the new Office for Budget Responsibility earlier this month indicated that the previous government's fiscal plans would have eliminated the bulk of the structural deficit by 2015, which was what the Tories also promised in their manifesto. Yesterday Mr Osborne decided to go further and faster. The Chancellor feels that the medium-term economic gains of this voluntary austerity will outweigh the short-term pain. We now wait to see the results in the hope (if not great confidence) that he will be proved correct.

In terms of the shape of the consolidation, this Budget was a mixed bag. This is true on taxation, which Mr Osborne told us would take 23 per cent of the deficit reduction burden. The increase in the personal income tax allowance, taking 880,000 low earners out of the tax net, is welcome. So is the levy on the balance sheets of banks. The Chancellor deserves credit for moving unilaterally on this despite the protestations of the banking lobby. And the reforms to Capital Gains Tax are a step in the right direction.

The rise in VAT, however, has to be considered a blow. This is a regressive levy, hitting those on low incomes hardest. And it could have been avoided by raising property taxes along the lines of Vince Cable's mansion tax. The Government has also missed an opportunity to make a switch to green taxation. The Budget gave us a weak pledge to "explore" an aviation tax levied per plane, rather than per passenger. And there was no mention of a carbon tax, even though this would have been just as simple to collect as a hike in VAT.

On the benefits front, Mr Osborne, in some ways, pulled up short of expectations. Child benefit is frozen for three years, but there will be no means testing. There is an increase in child tax credits for low income families, but reductions for families earning more than £40,000 a year. This can be said to pass the fairness test. Indeed, Mr Osborne might have gone further in pruning expensive universal benefits such as child benefit and the winter fuel allowance. Yet small schemes – maternity and pregnancy grants – will be pared back. A weekly cap will be imposed on housing benefit. These might seem like relatively small reforms in isolation, but the total savings in the welfare bill – £11bn by 2014/15 – will not be painless. And of course it tends to be the poor, not the wealthy, who benefit from such schemes.

This was a more or less neutral Budget as far as businesses are concerned. Corporation tax will be steadily reduced, but this will be mostly offset by a cut in firms' tax allowances for capital expenditure. It is welcome that the Government will not slash capital spending further than Labour planned and that transport infrastructure projects in the North will continue to be funded.

But individual departmental spending cuts are the other, heavy, shoe that is yet to fall. Mr Osborne confirmed yesterday that most budgets will be reduced by around 25 per cent over the next four years. The comprehensive spending review in the autumn will give us a clearer idea of which public sector jobs will be cut and in which regions unemployment is likely to rise as a result. It will also tell us what public services are going to go.

If this Budget is something of an economic gamble by the coalition, it is also a political risk. The Government is hoping for a robust private-sector rebound before the end of the parliament. But there is no shortage of potential shocks out there. There could easily be another lurch in the domestic banking crisis, or a violent twist in the eurozone emergency. Business confidence here in Britain might simply turn out to be weaker than Mr Osborne hopes. Under such circumstances, the Chancellor could find himself delivering yet another emergency Budget.

There are dangers for the Liberal Democrats, too. The Budget response of Harriet Harman, the interim Labour leader, contained some wounding attack lines. The smaller partner in the coalition can, of course, point to policies such as the rise in the income tax threshold, capital gains tax and the restoration of the pensions and earnings link which it has long championed. They can also, legitimately, suggest what the Budget might have looked like if they had not been in the coalition. But the rise in VAT, against which they campaigned strongly in the recent election, is, at the very least, a severe embarrassment.

The hands of the Liberal Democrats are now well and truly "dipped in blood" on the Government's tax and spending plans. And Mr Osborne is firmly in economic control. The Liberal Democrats – and indeed the country – need to pray that the Chancellor's judgement will turn out to be as assured as yesterday's performance at the Despatch Box.