Brown bets the farm

The Chancellor of the Exchequer’s Pre-Budget Report (PBR) was one of the most arresting political events of modern times.

The Chancellor of the Exchequer’s Pre-Budget Report (PBR) was one of the most arresting political events of modern times. Alistair Darling’s delivery was as flat as ever, but what he had to say was truly dramatic: it amounted to a bonfire of the government’s own principles of fiscal management, and a colossal bet on the Treasury’s ability to issue undreamt-of volumes of government debt.

His package of measures was predicated on a bafflingly confident forecast that the recession will be over by the third quarter of 2009, and growth will return to its long-term trend by 2011. And it was constructed on a borrowing requirement of historic proportions, reaching a peak of £118 billion, or 8 per cent of GDP, in 2009-10, and going on to take the national debt above £1 trillion before the moment, beyond not just the next general election but the one after that, when fiscal balance might finally be achieved again.

But startling as those borrowing numbers may become in the medium term, what really matters about the PBR is its impact in the short term: whether it achieves Darling’s stated objective of making the recession shorter and shallower than it might otherwise have been. That will, of course, be impossible to know precisely, because a great many other factors will impinge — including global factors such as the state of the US economy once the impact of the $800 billion pumped into the American financial system this week becomes clear, and the Obama administration begins its work. If the recession really does prove short-lived, Mr Darling and the Prime Minister will claim credit. But if the economy is still in deep gloom as the election approaches, voters will certainly, and correctly, blame them for failing to deliver, and the Pre-Budget Report will be held against the government as the decisive opportunity missed.