The Budget that Alistair Darling presents on Wednesday will reveal the UK for what it is – a contender, once again, for the sick man of Europe tag it managed to shed 30 years ago. Some eurozone economies are, admittedly, hardly in better shape. The UK chancellor would not want to swap places with his counterparts in Ireland, Greece and Spain, for example. And outside the eurozone, in central and eastern Europe, some economies are in genuine crisis. But the respect, verging on awe, that the UK's post-1979 economic revival once elicited in continental Europe has now reverted to something nearer pity.
Just five months ago, at the time of his pre-Budget report, Mr Darling was forecasting a contraction in gross domestic product of 0.75-1.25 per cent in 2009-10 and growth of 1.5-2 per cent in 2010-11. This was a cynical exercise in which the government refused to retract its conceited claim to have “abolished boom and bust” or admit to the UK's singular vulnerability in a global banking crisis. The International Monetary Fund, the Organisation for Economic Co-operation and Development and the Bank of England now expect the economy to contract 3-4 per cent this year. It is highly unlikely that there will be any of the second-half growth Mr Darling promised, even if there are a few signs that the rate of decline may be starting to slow.
Having failed to stock the granaries in the boom years, the Treasury faces the highest deficits since comparable data began in 1963. Barclays Capital sees public sector net borrowing of 10.3 per cent of GDP in 2009-10 and 9.6 per cent in 2010-11 compared with the 8 per cent and 6.8 per cent Mr Darling forecast in November. The chancellor mustoutline a convincing vision for the public finances, taking into account the fact that the once high tax financial services sector – source, according to PwC of 14 per cent of total UK tax revenues in 2007 and 27.5 per cent of corporation tax receipts – is set for a structural decline in profitability. Without that, he is whistling into the wind.