Alastair Darling is set to deliver what could be the final Budget of New Labour’s government today.

Recent economic news has surprised a pessimistic City of London. Inflation fell in February, while public sector borrowing over the month was around £1bn lower than market expectations.

Government borrowing as a whole now looks likely to undershoot Treasury estimates in December’s pre-budget report. The deficit for the whole financial year looks set to be somewhere between £160 and £170bn, rather than the £177bn Treasury forecast.

Tax receipts have held up better than expected, while unemployment has risen less sharply.

Wriggle room

This gives Darling more wriggle room in his announcements.

Brown used the 2005 Budget to dish out a few, relatively minor, pre-election goodies, including a £200 Council Tax rebate for pensioners, a doubling of the stamp duty threshold, and some increases in tax credits.

No doubt there will be pressure from Number 10 for something similar this time. Press speculation has suggested a freeze on petrol duty, or measures related to youth unemployment.

A £1bn “green investment bank” has been mooted, as part of Peter Mandelson’s turn to a more hands-on approach to industry.

A fine balancing act

But so far Darling and the Treasury have pushed back on Number 10, fearing the City’s reaction to any prominent increase in public spending.

The UK’s national debt, significantly greater than most other major economies, threatens to push up the cost of borrowing. As lenders become more concerned about the possibility of default, they can charge more for lending.

Demonstrating a credible plan to reduce the debt is one way to keep borrowing costs down.

However, cutting too fast may push the economy deeper into recession, as less money will be spent. With less money spent, fewer goods are sold and unemployment rises. This was John Maynard Keynes’ key insight, back in the 1930s.

And it is on this terrain that mainstream debate now takes place: how fast to cut, and by how much. For the ruling class, this is a very fine balancing act.

The Institute of Directors, traditionally to the right of the biggest bosses’ organisation, the CBI, has called for “faster and deeper” cuts. They cite rather spurious figures from Labour’s first term, “proving” that spending cuts promote private sector growth.

But the Tories have been pushed back on their earlier plans to immediately attack public spending when in office.

Darling appears to have won a broad ruling class consensus on more limited cuts in the short term, at least.

A firm grip

Truthfully, it’s hard to imagine a better Chancellor for British capitalism in this crisis – of the plausible options available. George Osborne lacks credibility, and Vince Cable’s sheen of popular appeal cuts little ice in the City.

Darling, thus far, has rather deftly negotiated his way through choppy waters around some gnarly rocks. The Bank of England’s mania for interest rate rises has been squashed by the Treasury, while Number 10’s demands for better news and bigger spending have been rebuffed, calming the City somewhat.

Potential currency and debt crises have, for the time being, only loomed distantly through the fog.

The Budget is likely to now steer as unadventurous a course as possible. Darling will not be wanting nasty pre-election surprises. And nor will the British ruling class in general.

A surprisingly steady hand is gripping the macroeconomic tiller. Business has some reason to be grateful.

Against the consensus

But what British capitalism wants, and what’s good for the rest of us, are not the same thing.

The entire mainstream debate now hinges on the need for spending cuts. The only arguments are over when, and how deeply.

Billions upon billions have been flung at the failed banks. The National Audit Office estimates that the immediate cost for the UK, in this financial year, will be £130bn.

And despite the public largesse, banks are still cutting back on their lending to households and small businesses. They are taking our money, and sitting on it: except, of course, for the bonuses and the renewed gambling.

In autumn 2008, when Lehman Brothers disappeared in a puff of derivatives, bankers across the world feared that the game was up.

But within weeks the bail-outs were announced. And just months after that, the bonuses started rolling once more.

Already, the Bank of International Settlements, supposed global finance watchdog, has had to call in senior bankers from the major investment houses to warn them about excessive risk-taking.

The bankers think they’ve gotten away with it. It’s as if the crisis never happened.

Their losses have been pushed onto the rest of us.

The failure of the Left

This didn’t have to happen. In the aftermath of Lehman Brothers’ implosion, chaos reigned in the financial markets. The ruling class was divided amongst itself on the best course to follow, creating a space to argue for an alternative.

The Left, however, failed to seize the initiative. We did not present an organised, credible alternative to the bail-outs and the bonuses.

The entire mainstream argument is now not over whether to cut services, or squeeze bankers, but only how much to cut services by. A sharp, political campaign against the bankers and financiers could have helped shift the terrain of the present debate.

But the space is still open

The shaky state of British – and world – capitalism means that these issues are unlikely to fade any time soon. The prospect of another financial crisis has not yet receded. And once the cuts begin to bite, many tens of thousands more will be demanding to know why the City prospers amidst the misery.

Already, campaigns are springing to life around the issue of financial institutions, their wealth, and their power. The Robin Hood Tax is being proposed to take a small slice out of each financial transaction they conduct. Even the Tories have suggested a bank tax.

But we have to move beyond patching up small parts of a rotten system. The power of the City of London, having crippled the national economy, needs breaking.

It means no more bonuses. It means swingeing taxes for over-paid bankers. It means ending the scandal of the non-doms.

It means introducing capital controls to stop speculation. It means ending the Bank of England’s dubious “independence”, putting the interest rate back under democratic control.

It means removing Treasury mandarins and senior bankers from the board overseeing the nationalised banks, and replacing them with elected and accountable representatives.

It means running the nationalised banks in the public interest. That is quite different from trying to return them to profitability as fast as possible: it means cheap loans for green investment projects, for example, or for council house-building, instead of gambling on financial derivatives.

The space is out there for a radical and broad-based campaign against finance and the profit system it serves. A campaign against the banks and corporations could start to undermine some of the damage finance and capital now inflict, pointing the way to more fundamental arguments about the system as a whole. It is up to the Left to make it happen.