This is a phoney Budget. Bring on the genuine one (includes video)

Norman Lamont & , : {}

There is much speculation about todays Budget. It is a waste of time because the Budget is a pretend one. It will never be implemented.

If there is a Conservative government, there will be a different Budget after the general election. If there is a Labour government with Liberal Democrat support there will also be a different Budget.

Even in the unlikely event of a Labour overall majority, the Budget will be supplemented by other measures. Within a week or two, Parliament will be dissolved and legislation will be passed to allow the continued collection of taxes. That is about all that will survive from today.

Having been in a similar position in 1992, there is only one way to do it. Alistair Darling has to believe that Labour will win or he has to pretend that Labour can win. At the same time, the Chancellor must balance the needs of prudence with political demands for sweeteners. If it sounds like an impossible task, thats because it is.

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In 1992, I opted for a modest tax cut that, at the time, I believed to be affordable. Undoubtedly it helped us to win that years election by focusing on Labours planned tax increases. Nonetheless, events forced me to eat my words and I had to put up taxes in 1993 because government borrowing rose faster than I had expected. In 1993 I actually legislated for tax increases for three years to bind the hands of the Government to give certainty and confidence to the market that the deficit was on a downward trend.

Mr Darling is in a much worse position. Because the deficit is something like three times what is was then as a percentage of GDP, in effect he is delivering a 1992 Budget while pretending it is a 1993 Budget.

After the collapse of Gordon Browns golden rule of borrowing only for investment, the Chancellor tried to re-establish credibility by outlining a 77 billion fiscal consolidation stretching out to 2018. He told us about 16 billion of tax increases. But we dont know where 31 billion of spending reductions will come from as the Government has not published any detailed spending plans for the period from April next year.

On top of that, there is another 30 billion of tightening. And no one knows where that will come from either. No politician can pretend that these colossal sums can be found without hurting very large numbers of people. At the same time, the markets need to know how the public finances are going to be stabilised.

Making this clear will improve confidence and do more for recovery than anything else. But it would make life harder for Labour in the general election. There are many examples from the past of how public spending cuts have improved confidence and created a multiplier effect leading to economic recovery, including Geoffrey Howes 1981 Budget. Indeed, last year the Government of the Republic of Ireland set a courageous example with a stern budget and public expenditure cuts that is likely to mean that Irelands recovery comes far faster than Britains.

In recent days we have seen better than expected numbers for government borrowing. But nobody can sensibly believe that this gives the Government any wiggle room. If the figure for this year is even 10 billion below forecast, a borrowing requirement of 160 billion to 170 billion still remains an appalling figure, not so very different from that of Greece, which has been so severely punished in the markets, And the undershoot would quickly disappear if the Treasurys growth assumptions turn out to be too rosy.

We can expect the Chancellor to repeat the charge that the Conservatives will wreck the recovery by premature cuts. But how long does the Government seriously believe that it can delay filling in the acres of blank space in its fiscal plans?

Failure to do so in todays Budget would be tantamount to inviting voters to elect a party that will answer the challenge and give the country the leadership it is looking for. The Conservatives rightly say that if they win the election there will be an emergency Budget within 50 days.

There is one further similarity between the present situation and the early 1990s the fall in the value of sterling. In 1992, after Britains exit from the ERM, when I was Chancellor, sterling depreciated by about 15 per cent on a trade-weighted basis. In the 12 months to the end of last year sterling had depreciated by 22 per cent. Of course, we are not in a fixed currency system as we were in the early 1990s, the pound is floating and so there is no sense of a currency crisis.

But it should be remembered that in 1976, when Britain was forced to go to the IMF, the pound was also floating. Todays overseas investors hold many more gilts than in 1976, only slightly less than domestic holders. Any farther fall in the value of sterling caused by worries about the threat of creeping inflation or borrowing could cause a sharp rise in financing costs as overseas investors see the value of their holdings fall.

One difference between now and the early 1990s is productivity growth. The three years before the early 1990s recession was the best three-year period since records began. Thatcherism really worked. By contrast, productivity growth in the three years before the current recession was sluggish. With overborrowed households doing what they can to deleverage, productivity is the key to long-term growth.

If the economy grows less quickly than the Governments highly optimistic forecast next year then interest payments would become a bigger burden. Deficits could become self-perpetuating and the Governments debt position would be unsustainable. This may sound alarmist and unlikely, but the Institute for Fiscal Studies has pointed out, that if growth falls and interest rates rise simultaneously, the Government will be uncomfortably close to a situation where the cost of servicing its debts could be become unmanageable. The UK would then be like Greece but without Germany as a backstop.

Thus the task of the real rather than the pretend 2010 Budget is to have a credible plan to put the public finance back on a sustainable basis within one parliamentary term and does so in a way that restores productivity growth. It doesnt need a former Conservative Chancellor to say that, on both counts, Labours record does not inspire confidence.

Lord Lamont of Lerwick was Chancellor of the Exchequer in 1990-93