The Chancellor set out ambitious goals of creating the most competitive tax system in the G20 and making the UK the best place in Europe for business but his ability to deliver on these aims was undercut by a negative reappraisal of the state of the public finances by the Office for Budget Responsibility. Despite an undershoot in 2010-11, the OBR raised its deficit projections for subsequent fiscal years, with the 2015-16 shortfall increasing from 1.0% to 1.5% of GDP, reflecting both lower economic growth and a worse structural position.

Mr Osborne, therefore, was forced to find further savings to finance his priorities: the net cost of the measures announced is just £10 million in 2011-12 and a cumulative £30 million by 2015-16. He managed, nonetheless, to spring some favourable surprises, including a 1 pence per litre cut in fuel duty (costing £1.9 billion in 2011-12), a faster reduction in corporation tax (£425 million in 2011-12 rising to £1.075 billion in 2015-16), reform of the controlled foreign company rules (£840 million by 2015-16) and a further £630 rise in the personal allowance from next year (£1.05 billion in 2012-13). These giveaways were financed by a higher supplementary charge on North Sea oil profits (raising £1.78 billion in 2011-12), another attack on avoidance and evasion (£985 million in 2011-12), switching to CPI indexation of direct taxes from next year (£105 million in 2012-13 rising to £1.08 billion in 2015-16), a reduction in national insurance contracted-out rebates (£640 million in 2012-13) and the introduction of a carbon price floor from 2013-14 (£1.41 billion in 2015-16).

While there is an element of "robbing Peter to pay Peter", the impression is that the Chancellor has played a poor hand skilfully, and the Budget may earn political plaudits. Its short-term macroeconomic impact, however, will be negligible.

The OBR's negative reassessment of fiscal prospects is a direct consequence of the Bank of England's failure to control inflation: the upward revision to the deficit forecasts is due to higher spending that, in turn, "primarly reflects the impact of our higher inflation forecast on social security and debt interest payments". Debt interest is now projected to rise from £43.1 billion in 2010-11 to £66.8 billion in 2015-16, £3.7 billion higher than in November and equivalent to 3.5% of GDP.

Financing plans show net gilt sales of £120.0 billion in 2011-12, only £7.8 billion lower than in 2010-11 despite a projected fall in public sector net borrowing from £145.9 billion to £122 billion. Gilt funding needs have been boosted by the surprise announcement of a £6 billion increase in the foreign exchange reserves. The sum is small but the policy change is interesting, suggesting a desire for greater protection in the event of future sterling weakness.