Alastair Darling's pre-budget report has been something of a disaster. It has failed on three counts:
1. From an official Treasury viewpoint, the main short-term objective was to stabilise the markets. But there has been a flight from gilts.
2. It has not provide a platform for a Labour revival, given that it has managed to upset a range of target voters.
3. It has failed to provide a credible plan for dealing with the structural deficit.
Indeed, the fiscal position has got worse because Ed Balls and Yvette Cooper managed to persuade Gordon Brown that there should be a real increase in capital spending on school buildings. The more programmes are ring fenced, the harsher the axe that has to fall elsewhere to the extent that it is likely to do real and lasting damage. The authoritative Institute for Fiscal Studies has estimated that public spending will be have to be cut by as much as a fifth in areas such as defence, higher education, housing and transport.
Gordon Brown is also reported to have vetoed a VAT increase, meaning that there had to be a national insurance increase which in terms of the addditional levy on employers is a tax on jobs. The Conservatives are likely to increase VAT and possibly broaden its range, although targets such as children's clothing, books and newspapers would be controversial.
The IFS has also pointed out that the government's calculations do not really take account of the effects of an ageing population which would mean high public sector debt levels for a generation or more unless taxes were raised substantially or public spending was cut further.
Stand by for ten years of 'fiscal consolidation'.