This will go down as one of the most controversial Budgets of modern times...but it could have been even more dramatic

Already George Osborne's first Budget is being marked out as one of the more controversial and dramatic of modern times. This is not unusual for the first Budget of an incoming administration - just look back to Gordon Brown in 1997 or Geoffrey Howe in 1979, or even (I shudder at the memory of the economic disaster that followed) Anthony Barber in 1970. You have to remember that Budgets are as much political events as economic events and it is the twin political pressures of wanting to mark out the new government's territory and to set a course that delivers a hoped for prosperity nicely timed for the next General Election that does as much as anything to shape a Budget.

There is alot that is bold about Osborne's first Budget but, equally, there is alot that is cautious, giving him crucial room for manoeuvre later on in this Parliament. He has, for instance, left himself scope to push Capital Gains Tax rates higher if he needs more revenue in the next couple of years. Another area where he could potentially look for additional money is the bank levy now he has made the first steps by introducing it (alot there will depend on what other major financial centres such as Germany and the USA do). On the other hand, if it all comes right and the deficit falls as far and as fast as predicted over the next five years there looks to be enough room for cuts in personal taxation to be back on the agenda in 2015.

He has also shifted a little from his original intention to achieve deficit reduction through 80% expenditure cuts and 20% tax rises to a mix that is nearer 75:25, partially, I suspect, a nod towards his coalition partners.

The coalition has managed to present a united front over this self-styled "tough but fair" Budget although there seemed to be hints of unease from among the Liberal Democrats last night and this morning, especially over the 2.5% addition to the rate of Value Added Tax. This is hardly surprising given the vigour with which they campaigned against such a move in the General Election campaign just two months ago. I also think that alot of Lib Dem's will be shocked by the Treasury's own analysis which suggests a disproportionate burden falling on the poorest 10%, and that is before we see where the predictably savage public expenditure cuts really bite. The coalition won't fragment over the Budget but the strains might build up to breaking point by the time we get to the Autumn Statement on public spending.

Economically, Osborne is on a tightrope but then whoever ended up as Chancellor would have been in the same position. The challenge is clear: cut the deficit without pushing the UK economy back into recession. This isn't just a cold calculating game of numbers: it is as much about mood, especially in the financial markets that seem so nervous about any national debt that seems to them to be excessive and out of control. Osborne has won that first battle as the markets have given the Budget the thumbs up.

The economic effects are much more difficult to judge and are already dividing economists. Again, a lot will depend on how the 25% cuts in some some departmental budgets are achieved. If they involve heavy jobs losses, then unemployment will soar (and the benefits bill with it despite yesterday's trimming of some benefits) and this will feed through into depressed demand just in time to coincide with the increase in VAT next January. This could dash hopes of a private sector-led recovery.

Are Osborne and the coalition still on the tightrope? At the moment, probably yes but the autumn and the first quarter of 2011 are going to be the key crunch times for the government's survival. Politically hard to swallow expenditure cuts followed by poor economic data could tip them off the tightrope.

History will be the judge of whether Osborne's first budget leads to a decade of economic recovery and relative prosperity as Geoffrey Howe's did at the start of the 1980s or a decade of high unemployment, increasing poverty and social dislocation as we had in the 1970s following the Heath government's ill-judged gambles on assuming office in 1970.