David Bell: George Osborne unlikely to ease the pain

Around 100bn (77 per cent) of these changes are to come from spending cuts. The hope is that these actions will reduce the deficit to 1.1 per cent of GDP by 2015-16. Since he has already set out this strategy, his first full Budget tomorrowwill not signal any major changes of direction.

The strategy seems to have achieved one of its aims. Unlike Ireland and Greece, which had similar deficit problems to the UK, there has been no difficulty in funding UK government borrowing in the past few months. In fact, the price of borrowing fell slightly last year, reducing the costs of raising public debt. The same was not true of Greece, Ireland, Portugal and Spain. Markets are unforgiving of countries that lack the economic power or the political will to service their debts. As a result, it now costs the Irish government over 2.5 times more than the UK government to raise debt to build a hospital. Yet the coalition Budget plans do not fully explain why UK borrowing costs are relatively low. The last Irish government cut its spending drastically, well before the UK fiscal austerity measures were in place, and the US government has so far done little to deal with its massive deficit, yet Ireland pays more than the UK and the US pays less to raise cash on the bond markets.

Markets value consistency and stability. Hence this Budget will be a continuation of the plans laid out by the coalition last year. But these are already off course - though in a positive direction. It looks like borrowing in 2010-11 will be significantly lower than the Office of Budget Responsibility (OBR) 148.5bn forecast. Public sector net borrowing in the first ten months of 2010-11 was 113bn and the Institute of Fiscal Studies (IFS) has calculated that if this trend continues for the rest of 2010-11, then total borrowing would be about 139bn - nearly 9bn less than originally forecast.

This might suggest that Osborne has some room for manoeuvre tomorrow. But, beyond a few concessions such as removing the fuel-duty escalator, which would have added up to 5p on a litre of petrol, and scrapping plans to raise air passenger duty, the temptation to weaken the drive for spending cuts and tax increases will be resisted.The main reason is the growing consensus that growth will be less than forecast by the OBR last year. And lower growth means smaller tax revenues, making it more difficult to hit borrowing targets.

In my last article in The Scotsman in January, I argued that the risks to growth were all on the down side. Recent OECD and the National Institute of Economic and Social Research (NIESR) forecasts also point to a more anaemic recovery than the OBR expected. The NIESR growth forecasts are for 1.5 per cent in 2011 and 1.8 per cent in 2012. The recent OECD assessment of UK economic prospects forecasts growth of 1.5 per cent in 2011 and 2 per cent in 2012. But the OBR forecast, which is used by the Treasury to forecast tax revenues and government spending, is for growth of 2.1 per cent in 2011 and 2.6 per cent in 2012.

If future tax revenues are likely to undershoot their forecast levels, then the Chancellor will not take the chance of committing the 9bn he has unexpectedly saved to soften his fiscal stance.

Output in the Scottish economy followed the UK as a whole very closely during the recession. Data for the fourth quarter of 2010 are not yet available, but as in the UK as a whole, output fell, partly as a result of the severe weather and provoking fears of a "double-dip" recession. If this is avoided and the UK economy does grow by about 1.5 per cent in 2011, then the Scottish economy is likely to grow at around the same rate. But this means that economic output in Scotland will still be well below its 2008 level at the end of 2011. Lower output means lower incomes and we now know that most Scots experienced falling living standards in the past two years. Real living standard of the median UK household fell by 1.6 per cent between 2008 and 2011 according to research for the BBC by the IFS. But for most of the post-war period, real living standards increased by 1.6 per cent each year.

Living standards have not fallen so far for so long since the early 1970s. The Budget will do little to offset this pain. But one important change that will help the less well-paid is an expected increase in personal allowances towards the 10,000 target cherished by the Liberal Democrats. High earners - who are experiencing the most rapid fall in living standards - will not benefit as their allowances will be adjusted to offset the increased allowances.

Growth will form an important part of the language in this Budget, but this will not signal reversals of spending cuts. The coalition is aware that during its first few months its focus on deficit reduction won it few friends and exposed it to the criticism that it lacked a growth policy. Between 1997 and 2001, rapid economic growth combined with fiscal restraint on a much more modest scale than at present led to a fall in the share of government debt to GDP from 41.7 per cent to 30.9 per cent. But in 2010, the value of government debt equated to 58.8 per cent of GDP.At this level, the judgment of the coalition is clearly that tax increases and spending cuts should take policy precedence.

Nevertheless, the argument that it has been working on a growth strategy may be used by the coalition to rationalise some partial reversal of the reductions in spending on young people. It is expected that a 300 million package will be found to support 50,000 new apprenticeships. This will use up only a small amount of the unforeseen borrowing reduction of 9bn. And to combat the idea that there is now a "lost generation" of young people that are having difficulty finding jobs, money will be found to fund 80,000 places on work-placement schemes run by Jobcentre Plus. These will partly offset cuts to the education maintenance allowance in England and to the Future Jobs Fund, which was intended to create about 100,000 state-subsidised jobs for 18-24 year olds.

Since some of these measures are specific to England, the Scottish labour market will only partly benefit. But in recent months the Scottish labour market has been performing better than the rest of the UK with unemployment falling and employment rising. However, the improvement in the unemployment rates followed the period from mid-2008 to mid-2010 when the Scottish unemployment rate caught up with and then exceeded the UK rate. Recent indications from the Bank of Scotland labour market report are that it is continuing to perform well. While the Budget may not hinder its continued improvement, there is nothing to suggest it will give it a particularly strong boost.

• David Bell is professor of economics at the University of Stirling