PM needs Darling to pull a rabbit out of his hat

PM needs Darling to pull a rabbit out of his hat

Unkind opposition MPs have been telling Alistair Darling ahead of today's big Commons statement that he has inherited a "poisoned chalice" in succeeding Gordon Brown at the Treasury after the new prime minister had spent a decade bending it to his will.

Even Labour MPs say privately that one of Mr Darling's urgent tasks is to restore normality to the Treasury, which was run very tightly by Mr Brown and his immediate entourage - and also became a spending department, as well as a revenue department, through running the tax credits system.

The new chancellor's task today is twofold (threefold if you count the politics which will see him try to close some unpopular tax loopholes for the very rich - private equity moguls and non-domiciled residents - and perhaps to tweak inheritance tax to thwart David Cameron's popular policy).

· He is delivering the traditional annual autumn statement, now renamed the pre-budget report (PBR), setting out revised growth, spending and borrowing predictions for the year ahead.

· But he is also unveiling the comprehensive spending review (CSR), a Brown innovation whereby departments get their spending totals for the next three years, thereby enabling them to plan better.

The CSR was due to have been published in the summer, but Mr Brown took over from Tony Blair on June 27 and postponed it to allow Mr Darling to take stock and - who knows - take delivery.....continued below

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of the awkward circumstances that attend the event.

Why? Because the economy has sustained a growth pattern without a typical British recession for well over a decade. The despised Norman Lamont got it started, Ken Clarke sustained it and Mr Brown kept it going.

But it is due for a dip - a cooling down - and the US sub-prime crisis that hit Northern Rock and the UK housing market this year makes it more likely to be a dip we all notice. No one yet predicts a UK recession, but Alan Greenspan, retired guru of the US Federal Reserve, says America is at 50/50 risk of one.

So Mr Darling is expected to downgrade Mr Brown's growth forecasts for next year - from the expected 2.5% that the then-chancellor predicted at the budget in March to 2% or 2.25% perhaps. Still pretty healthy, though he may have to admit that borrowing may be higher.

Chancellor Brown always underestimated borrowing, but he was lucky on the revenue side; taxes kept pouring in as the economy grew and grew. Failed Tory predictions of recession killed off half a dozen shadow chancellors. Mr Brown got out in time. Now it will be trickier.

Tax revenues so far this year are weaker, borrowing is up, though still lower as a total share of GNP than many EU states and still lower than in 1997. But public spending has been growing at 3.2% a year since 1997. That will stop.

The CSR will say that for the next three years public spending will grow by 2% above inflation. At a time when there is wages pressure from unions, that will hurt, though many of those unions - notably in the NHS - have seen huge growth in staff since 1997 and higher real pay too.

Are they grateful? No more so than the City fat cats whom Mr Brown also nurtured. It is a mug's game to make detailed predictions on PBR day, though some facts we do know. For instance, we know that defence will get 1.5% above inflation, that education will get 2.2% and the Home Office/Ministry of Justice a mean 0.7%.