The 'make or break' Budget

The Chancellor achieved this objective as he outlined a series of painful measures – far more painful than originally envisaged – to wipe out the deficit.

The increase in VAT to 20 per cent will win the Government few friends, especially as the Tories repeatedly ruled out such a move during the election when the Liberal Democrats, now Mr Osborne's coalition partners, were vehement in their condemnation of any such move. How times change.

Of course, Mr Osborne and the new Government could not have foreseen the shocking scale of the deficit bequeathed to them by Labour. Gordon Brown's recklessness must not be forgotten when yesterday's statement is appraised.

Yet, given the scale of the pay, tax and benefits clampdown, there must be a possibility that the Government has gone too far with its VAT rise, and that this measure becomes counter-productive with any increase in revenue offset by a slump in consumer spending. It will particularly hit small businesses.

It is a decision – a brave one – that will make or break Britain's recovery, and determine this fledgling coalition's fate. In many respects, this was not a Budget that can be endorsed or condemned instantly. The more reasoned judgment will come in five years time when Mr Osborne hopes to have eradicated the deficit. If he is successful, it will be hailed as a political and economic master stroke – and that the short-term pain will have justified the long-term gain. If he fails, the consequences are too dire to contemplate. The stakes are that high.

The major short-term test will be the ability of the Government to survive the political onslaught, in spite of the safeguards offered to the less well-off, following the U-turn on VAT. It will come on three fronts.

First, the excesses of the public sector need to be tackled, but the consequence will be a "summer of discontent" on the part of Labour and the trade unions. Many public sector workers consider themselves to be "middle class", and these are the people who will be paying the heaviest price under this Budget.

Second, welfare reform remains a massive conundrum. For the past two decades, every Budget has contained "get tough" measures. Yet the consequence has been an even greater welfare bill. Tough talk has not worked. If Mr Osborne's plans fail, or are watered down, he will have to find even greater savings elsewhere to achieve his deficit targets.

And, thirdly, it is impossible to see how the Treasury can implement an additional 30bn of savings each year, over the duration of this Parliament, without cutting investment and jobs.

Mr Osborne's response is to point to the measures, like the corporation tax reduction, which will stimulate a private sector-driven recovery. They are welcome. So, too, is his acknowledgement that more needs to be done to create jobs in regions, like Yorkshire, that are too state-dependent. Yet this assertion remains at odds, for example, with the decision to withdraw the 80m loan to Sheffield Forgemasters.

It is also difficult to envisage how the Government intends to create sufficient new jobs for the number of benefit claimants who are now expected to seek employment, and those public sector staff set to be laid off, when the economic growth forecasts remains so modest – even for five years hence.

Yet, while the level of detail was, perhaps, surprising for an administration in office for just seven weeks, Mr Osborne cannot afford one of his revenue-raising policies to fail.

The Chancellor appeared surprisingly calm, and resilient in the Commons. He hopes that his Budget "pays for the past and it plans for the future". It also, he says, protects the most vulnerable, and particularly pensioners. His ambition cannot be faulted, given that this country has spent beyond its means for too long.

The question now is whether George Osborne's desire to accelerate the eradication of the deficit, including a contentious VAT increase, helps or hinders the recovery. It is why a firm judgment cannot be made on Britain's "make or break" Budget until the next election.