The big macroeconomic question – do the sums add up?

Some Chancellors are fiscal, some are microeconomic, this one is plain cheap’ was Margaret Thatcher’s famous comeback against Denis Healey. Things have changed since then – how is it that the Chancellor nowadays announces changes in the justice system in Manchester? -- but, without getting into the price of Mr Osborne, this was a very fiscal and microeconomic budget , and that’s what will capture the headlines tomorrow. But the big macroeconomic question – do the sums add up? – may have the longest life ahead of it.

Not an austerity budget, at least in the short term -- it’s hard to believe that the £3.5 bn spending cuts by 2020 (where? when?) will make up for the cuts in capital gains and corporation tax and rises in income tax allowances. If the Chancellor really does get in another £12bn from cutting out tax avoidance, that could be another story.

The economy has turned down, only slightly, but the growth forecasts are down for the next four years too, and that does make a difference. If the economy turns down so that the tax receipts disappoint, a Chancellor can do one of three things. He can cut spending or raise tax rates to put the deficit back on course. He can make the downturn itself his priority and cut taxes or increase spending to get the economy moving again. Or he can shrug and do nothing. Roughly speaking George Osborne cut at the beginning of the last parliament and shrugged at the end.

This time it looks as if it will be the other way round. 2019/20 is the year when a £20bn deficit is going to turn round into a £10bn surplus. Until then there will be plenty of austerity for some – e.g. the disabled – but this is far from an austerity budget. Given the Office of Budget Responsibility is now forecasting a lower national debt (though higher as a share of a smaller-then-expected national income) this isn’t a surprise.

The Chancellor could have filled most of the gap in his finances now if he had gone for fewer tax cuts or less modest spending cuts. But he didn’t. The word Conservative cropped up a lot but no one would know from this that the Liberal Democrats (who the Chancellor amusingly pledged to abolish) were now out of the Treasury.