One red book; one massive heap of fiscal and political calculations. Here’s my ten-point guide to help you make sense of it all:

1) The deficit, as always

Graph 1

We all know the story by now: George Osborne is reducing the deficit – be it by his preferred measure, the structural deficit, or the wider measure of public sector net borrowing – but it’s taking longer than he originally envisioned. In fact, the process continues well into the next Parliament. The graph above shows the latest (Decemeber 2013) forecasts from the Office for Budget Responsibility, which will be updated tomorrow.

And we all know how that story is rewritten: growth, which has knock-on effects for the Exchequer’s incomings and outgoings. After the vertiginous improvements to the growth forecasts announced in the Autumn Statement, I don’t expect much change this time around. Which means, in turn, that the deficit forecasts should stay roughly where they are. The Chancellor’s tale is likely to be one of steady but unspectacular progress. Boring.

So why is the deficit at the top of this list? Well, aside from being the base ingredient for any Osborne Budget, the deficit has extra piquancy this year. There are two reasons why:

  • Osborne’s plan. At the last Autumn Statement, the Chancellor suggested that he may, later this year, tighten the parameters of his deficit reduction plan. Instead of a five-year margin for victory, he could reduce it to two or three years to strengthen the idea that the deficit will be gone by around 2018. But what if there’s a downgrade, even just a small one, to the forecasts tomorrow? Osborne’s new parameters could look suffocatingly, corset tight before they’ve even been put in place.
  • Balls’s plan. And Ed Balls does actually have a plan! I wrote about it after his speech to the Fabian conference in January. It involves, in his words, “get[ting] the current budget into surplus as soon as possible in the next Parliament”. For the first time, really, tomorrow’s Budget will put two fiscal plans in direct comparison with each other.

The basic point is that, with the election almost a year away, tomorrow’s deficit numbers are of heightened political significance. Osborne has set the public finances on a particular course – we’re reaching the junction where voters will decide whether to stay to it, or depart.

2) Post-election cuts…

How much do we know about the austerity that awaits after the next election? The annoying answer is: a lot and not much at all.

“A lot” because the OBR provides quite precise forecasts – now stretching towards the end of the next Parliament –for total spending and its main constituent parts, Annually Managed Expenditure (broadly speaking, social security spending, which ebbs and flows with the economy) and Departmental Expenditure Limits (the set budgets that ministers get to spend). You can see them on, for instance, page 124 of last December’s Economic and Fiscal Outlook. These numbers will change in response to the policy measures announced by George Osborne.

And “not much at all” because… dude, it’s after the next election. The OBR is only making estimates based on other estimates about growth and the average direction of the current Government’s fiscal policy – it’s not determining what the next Government will actually do. This is why the IFS does further calculations, using the OBR forecasts as a starting point, to describe what sorts of spending balances could be achieved. On its account, for example, the next Government would need to cut an extra £12 billion from the AME budget to prevent DEL cuts from accelerating.

Which is where we get on to how Osborne envisions things. We already know that he wants to cut that extra £12 billion from the welfare budget – but will he make something out of it tomorrow? I imagine he’ll be itching to, if only to draw a thick, charcoal line between the Tories and Labour. Balls’s plan doesn’t yet contain many specific cuts, and particularly not benefit cuts.

3) …and pre-election tension

But the truth is, Osborne will probably have to contain his eagerness for post-election welfare cuts. He is, after all, in a Coalition Government, and the other part of the Coalition – the Liberal Democrats – just doesn’t agree with them. In fact, the closer we get to the election, the queasier the Lib Dems seem about signing up to any fiscal contracts that stretch into the next Parliament. After the Autumn Statement, Tim Farron told Polly Toynbee:

“Nothing we agree can go beyond 2015. If we voted for Osborne’s bill, that would write most of our manifesto, so I have no intention of signing up to those kinds of cuts.”

And, although Nick Clegg and Danny Alexander don’t share Farron’s disapprobation, it’s easy to imagine how this could pick at the ties that bind the Coalition together. As I wrote in December, Osborne’s Budgets are becoming a focus of Lib Dem confusion and angst.

4) Middle-class taxes

Talking of tension, the numbers contained in this graph have plenty of Tory backbenchers straining against their party loyalties:

Graph 2

They show that, under the Coalition, the number of people paying the 40 per cent rate of income tax has increased by an estimated 1.4 million, from 3.02 million to 4.40 million. The IFS reckons that the total could reach 5 million next year.

Why has this happened? Because Osborne has reduced the 40p threshold from £43,875 in 2010 to £41,451 now, largely to offset the money that the Exchequer is losing (and taxpayers are gaining) from raising the personal allowance. I reckon this is understandable at a time of fiscal restraint. Besides, higher-rate payers have gained from policies elsewhere, including changes to National Insurance.

But, whatever the arguments for and against, it seems that the Chancellor will keep on as he is – he’d rather target the Government’s tax cuts at the lower-paid. One of the biggest political stories after the Budget could be the same as one of the biggest political stories before it: Tory disgruntlement.

5) A Giving Budget?

Osborne’s reluctance to make sweeping tax concessions to the middle-classes (for want of a better term) is likely part of a broader reluctance to undermine his deficit reduction plan. Sure, there’ll be some sweeteners here and there, but the overall emphasis will be on keeping the borrowing down. There are some practical considerations behind this: the economy is still just one American fiscal crisis, or one Eurozone blow-up, from trouble. But there will also be some political considerations: as I’ve written before, the Chancellor will want to preserve the idea that the public finances are still in a precarious state, so that people don’t feel comfortable enough to vote Labour. A Giving Budget – that is, one that isn’t at least fiscally-neutral – could simply be a gift for Balls.

6) But they gotta give something, right?

Like I said, there will be some sweeteners, and one has already been announced this morning. I’d also keep an eye on the personal allowance – which could be raised to £10,500 earlier than originally planned, or even beyond that – as well as on some smaller areas of spending and taxation. Judging by the white noise of Westminster, alcohol and stamp duties are clear candidates for cuts.

7) National Insurance

Another thing to keep an eye on is National Insurance. It’s barely remembered, because it’s barely mentioned, that Osborne has already advocated merging National Insurance with the income tax system – subject to a “long-term” review. I doubt that moment will arrive with this Budget, but the Chancellor still might take steps towards that destination, such as by raising the threshold at which low-income earners make NICs.

Alternatively, Osborne already has a National Insurance policy that he can rely on: cutting the NICs made by employers who hire young people. Good for business, good for youth employment statistics, this scheme might be extended in various ways. In fact, it could become a totemic policy for the Conservatives. Just like the personal allowance increases, it’s easy to sell on the doorstep.

8) The employment miracle

Graph 3

My old boss Fraser Nelson called it the “British employment miracle” last Friday – and you can see what he means. The graph above shows the OBR’s forecasts from last December. Employment levels are expected to increase from just under 29 million at the last election to almost 30.5 at the next.

But it’s not just the quantity that’s impressive, but also the quality. If you don’t mind me just linking to some of my past posts, the current jobs recovery…

Question is: will the OBR’s forecasts strengthen, tomorrow?

9) George the Builder?

You’d think that there isn’t much more the Coalition could say about infrastructure, given that it’s already got a mega-multi-£billion National Infrastructure Plan in place. And yet it does: with Osborne’s announcement of a new garden city at Ebbsfleet being only the latest example of this Government building beyond its original blueprints. The way the Chancellor has gone about it, since the Autumn Statement of December 2012, has been to find further savings in departmental budgets and then allocate that money for capital spending. If he does so again, I’d like him to pay a bit of attention to Britain’s roads. Potholes may be the most boring subject in the world, but they’re politically significant and, erm, an enemy of the free.

10) Osborne, man of limitations

Ahead of the Autumn Statement, I wrote:

“The Chancellor, as a good conservative, shouldn’t over-sell what the Government can achieve. One mini-Budget won’t allay everyone’s worries about the cost of living, particularly with the prospect of rate increases in future. And one man isn’t responsible for economic growth. It’s the people who create jobs, who take jobs, who shoulder tax increases and benefit cuts, who deserve the credit. Let the main message of this Autumn Statement be: thank you.”

And dyaknow what? He – ahem – did just as I advised. His Autumn Statement speech gave “thanks to the sacrifice and endeavour of the British people”. And then his New Year address noted that “there’s no point pretending that there’s some magic wand a Chancellor can wave to make the whole country feel richer than it actually is”. It got to the point where I wrote a post headlined “Osborne, man of limitations,” because the Chancellor was doing so much to highlight the bounds of his job.

Some may see this, particularly in the current atmosphere, as Osborne jostling for voters’ affections by showing humility rather than hubris. But, whatever, it suits him. Let’s see whether he keeps it up tomorrow.