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The Chancellor delivered a decisive Budget that should greatly reduce worries about fiscal sustainability. The composition of the measures announced was also welcome, with an emphasis on current spending reductions and indirect tax rises that should be less damaging to economic performance.

However, the new fiscal mandate – to achieve cyclically-adjusted current balance by the end of the rolling, five-year forecast period – is unconvincing. Estimates of the cyclically-adjusted balance are highly uncertain and it is doubtful that the rule, even if monitored by the new Office for Budget Responsibility (OBR), would have constrained the fiscal policy of the last Government.

Other points:

The additional £40 billion of savings by 2014-15 announced today builds on £73 billion implied by the previous Government's plans, bringing the total to £113 billion – equivalent to 6.3% of projected GDP in that year. Spending cuts account for £83 billion, or 74%, of the overall adjustment.

While the Chancellor focused his axe on current spending, capital investment continues to bear an excessive burden of the overall adjustment, mainly reflecting the previous Government's plans. Investment is projected to fall by 42% in real terms between 2009-10 and 2014-15, accounting for two-thirds of a 7% fall in total managed expenditure excluding interest payments.

The cyclically-adjusted current balance is forecast to be in surplus by 0.8% of GDP at the end of the five-year forecast period in 2015-16, implying that the Chancellor has built in about £15 billion of leeway that he will be able to "give away" before the next election. Put differently, he could have avoided raising the standard VAT rate to 20%, raising £13 billion by 2014-15, and still achieved the fiscal mandate.

The OBR's assumptions about the longer-term impact of fiscal tightening on growth assist the Chancellor but will displease Keynesian economists. The OBR forecasts that real GDP will be 0.3% lower in 2014-15 than in its pre-Budget forecast despite a 2.0% of GDP reduction in cyclically-adjusted borrowing, suggesting a fiscal multiplier of only 0.15. (The OBR warns that its earlier forecast may have been biased up, in which case the true multiplier would be even lower.)

The OBR's forecast of public sector net borrowing of £149 billion in 2010-11 looks overly cautious in light of recent encouraging monthly numbers, suggesting an outturn of below £130 billion – further grounds for questioning whether a VAT rise was necessary at this stage.