Bill Jamieson: You can muffle it, but the elephant is still in the room

FOR a Chancellor with a trumpeting elephant of debt before him, Alistair Darling did well to disguise it yesterday.

In an adept pre-election Budget performance, there were good measures to help small businesses, a big lift for savers, and even something approaching a rabbit out of the hat for first-time house buyers with a lifting in the stamp duty exemption to 250,000.

The 2009-10 borrowing forecast was cut by 11 billion and also lowered for future years.

The theme that ran through the speech was that government could not stand aside, and that he had taken the right decisions for the economy and the country.

But here's the funny thing: despite the muffling blanket stuffed up the trunk and the demonic spraying of Shake n' Vac to disguise the odour, the elephant's still in the room.

And in case we doubted the mess that debt elephants can make, Portugal's credit rating was downgraded yesterday, sending the euro into a spin.

Seldom has a Chancellor made such a virtue out of record levels of deficit and debt, or more earnestly sought to persuade us that he has been acting in the nation's interest.

For all the air freshener applied to turn the odour of elephant poo into the lingering perfume of prudence – the haunting hint of Je Reviens – the elephant is still there.

A budget deficit of 167bn (11.8 per cent of GDP) may be 11bn down on the forecast last December. But this is a jumbo's mere toenail clipping set against the latest deficit number of 167bn – and the 733bn aggregate deficit projected between now and 2014-15.

As for public sector net debt, this is still projected to rise from 776.6bn this year to 1,406bn (a massive 74.9 per cent of GDP) in 2014-15. You can send all the civil servants to the Shetland Isles on permanent loop and still not begin to make a dent in these sort of figures.

And with the debt, of course, comes the annual debt interest bill, set to hit 41.6bn in the new fiscal year. That is what will eat deeply into the budgets of spending departments next year and for years to come.

Mr Darling also unloaded an impressive minutiae of detail about current-year government efficiencies. It poured out of the Budget speech like a deafening rush of pea shingle.

But what happens afterwards, when the debt and deficit mountains are still there? Where is the longer-term plan? Are we any the wiser as to how exactly that long arc of borrowing will keep bending downwards?

Mr Darling showed courage in shading down his forecast for economic growth in 2011. This is shaved from 3.25-3.75 per cent to 3.0-3.5 per cent. But it is still well above the 2.5 per cent expected by independent commentators.

Sadly, this is a Budget predicated yet again on a belief that the economic cycle has been suspended – that there will be "no more boom and bust".

To expect growth to be sustained at 3 per cent plus for the following three years – a period during which monetary policy will almost certainly be tightened – is to stretch our already fractured faith in economic forecasting to breaking point.

This matters, because if the recovery is as frail and fragile as Mr Darling insists it is (to justify his decision not to cut spending for now) and that his growth forecast is not achieved, then his narrative of declining deficits also unravels.

The Centre for Economics and Business Research calculated that another 35bn of fiscal action, in terms of spending cuts and tax rises, will be required to bring the budget deficit down to the Chancellor's target of 4 per cent of GDP by 2014-15.

A decade of Budget red books should have alerted the Chancellor to the track record of declining deficit projections: they have rarely been met, and the mirage of the balanced budget has constantly disappeared over the horizon.

Mr Darling's real tragedy is not that he may be turfed out of office before this reality hits home, but that he may have to face it fully on 7 May.