The Chancellor has postponed the 'tough choices' - but not for long

The question is whether Labour can repeat its pledge not to raise income tax in the next parliament

The little things count. When Oliver Letwin sat down after replying to the pre-Budget statement in the Commons yesterday afternoon, Gordon Brown rose to remark with amiable savagery that he had now found the answer to his sleepless nights. What made this rather routine joke genuinely funny was that, while Letwin had made some perfectly decent points, they were indeed largely obscured by a Mogadonic delivery as he read from a precooked text, in contrast with the few big dark hieroglyphs that Mr Brown had scrawled during the Letwin speech and to which he scarcely referred during his own counterblast to the new Shadow Chancellor.

If nothing else the exchange symbolised, Brown's dominance of such occasions. Here is a man who, however much he yearns for an even bigger job, has been Chancellor for so long that his political mastery across the dispatch box in that role is effortless. The statistics, whether to imply that Britain is an economic paradise compared with its competitors, or that the contrasting failures of the previous Tory government rob those who supported it of any right to criticise Labour, reel with a kind of unstoppable fluency from his lips.

Behind him the Labour backbenchers were, for the most part, quietly appreciative, while the Tory ones were just quiet. The unexpected coup de grace, a shamelessly election-minded additional £406m for local authorities to ease the pain of rising council tax, as well as make it that bit more difficult for the councils to blame the Government, could not have gone down better with his own party.

So were his own party right to be impressed? Was the promise that his higher than expected borrowing forecasts were well within his golden rule of balancing the public accounts over the economic cycle as bankable as he made it sound? There is certainly something in the argument that the forecast borrowing total for the current year of £37bn corresponds to what analysts expect it actually to be. What surprised them was that he would admit to such a figure, which appears to acquit him of any charge of seeking to fiddle the figures.

He's right, too, that the borrowing levels for France and Germany greatly exceed that of Britain. He's right, too, that his remarkable success in reducing public debt still puts it at less than 40 per cent, significantly lower than that of France, Germany the US and Japan.

They are nevertheless significantly greater than the progressively higher forecasts since 2001 have suggested. Moreover, one of the reasons that the big eurozone countries are borrowing more is because of the recession from which Brown can justly claim to have protected Britain. There is something slightly unconvincing about accusing those countries having weak economies while also unfavourably contrasting their borrowing figures. That said, the Labour MPs who lapped up his speech yesterday are unlikely to worry too much about this for now.

For two reasons. One is that the Tories' attack on high borrowing is more difficult for an Opposition that wants, as Oliver Letwin reaffirmed in The Independent yesterday, to cut taxes. And which remains palpably, and sensibly, nervous about cutting public spending in the short to medium term; a problem that goes to the heart of a still unresolved dilemma for them in the next general election. Do the Tories reject the Government's next three-year tranche of spending plans and risk being seen as ruthless state shrinkers before the electorate has given up on the case for public investment. Or do they remain ambiguous and risk being seen as not having a clear economic story to tell?

And the second reason is that the Chancellor's confident assertion that the golden rule remains intact, and the forecasts for buoyant growth on which it depends, cannot be truly tested until after the next election is safely out of the way.

Instead, they will be more immediately interested in the other announcements. They can probably relax about what looks at first sight like a concession to the indefensible lobbying against a £1.4m cap on private pensions, as if that wasn't enough for even the most grasping to live on. Instead, by asking the National Audit Office to examine just how many of the pensionable rich will "suffer" as a result, he has called their bluff. Will the CBI, for example, want to see a largely congenial deregulatory reform sabotaged by a few thousand very fat cats?

And the Labour MPs will warmly and rightly welcome the further help for children, including the poorest, by means of extra child credits and children's centres. Even if some may well question whether at a time of limited resources and colossal evidence of the glaring inequalities educational attainments of the poorest it was really necessary to produce a £50 child care tax credit for all, including for those who can afford their own provision.

Nevertheless, the borrowing projections can hardly fail to focus minds on the interesting question of what the Government will say about tax in the run-up to the next general election. The Chancellor smoulders angrily in private at what he sees as the own goal inflicted on the tax and spending strategy for the NHS by the Blairite ultrareformists whom he sees as having undermined faith in the Service by calling constant attention to its failings, as he continues to smoulder at what he sees as a woefully ill-prepared strategy for reforming university funding. But he still believes that public support for the NHS strategy will remain by and large intact through the next election; he is said to be - not unreasonably - unconvinced by the most lurid polling evidence that public tolerance of tax and spending is at an end.

That doesn't alter the fact that if Blair and Brown disagree about much, they have apparently agreed not only that they must get through to the election without raising tax but that there will be no new really big spending pledges in the next manifesto that would automatically entail a new tax rise in the next parliament.

The question is therefore whether Labour can repeat its pledge not to raise income tax in the next parliament. In 2001 it did so, leaving open the question of whether it would also raise National Insurance contributions, which it has now done, by 1p, for the sake of the NHS. This tactic cannot easily be repeated, for if it is, ministers will be dogged throughout the campaign about whether NI is covered by the pledge. On the other hand if they explicitly rule out NI contributions they are boxing a future Labour Chancellor in as no Chancellor wants to be boxed in.

There are other means of raising tax, of course like hiking the level of VAT. Nevertheless, the borrowing figures suggest that the Government will be under pressure to leave the door ajar to a further rise in progressive tax, if only as an insurance policy. The Chancellor remained master of all he surveyed in the Commons yesterday. But the tough choices, as he called them in his speech, are not quite over yet.

d.macintyre@independent.co.uk