WEDNESDAY’S Budget will be about naked politics, not the economy. Yes, I know the papers at the weekend were full of calculated leaks from Number 11 claiming Chancellor Osborne will present “a budget for the long term”. That is so much flannel, as my Mom used to say. With Labour and Tories still neck-and-neck in the polls – each with a derisory one third of the popular vote – the government is going to try and buy the election – literally.

Underneath his new, Caesar-like hairdo, George Gideon Oliver Osborne knows that living standards for the average UK household have barely returned to where they were seven years ago. And only then by sheer fluke, because global deflation means price rises are no longer swamping miserly wage hikes. We have endured the longest decline in living standards in a century – a catastrophic indictment of the neoliberal economic model, not to say of the competence of George Osborne and his LibDem sidekick Danny Alexander.

The pain has been unequally distributed. A pre-budget study by the Institute for Financial Studies shows that the median income for young adults aged 22 to 30 is 7.6 per cent lower than in 2008, and 2.5 per cent lower for those aged 31 to 59. Only people aged 60 and over have seen any improvement in incomes, enjoying a modest 1.8 per cent rise. Regarding pensioners, don’t be taken in by averages. Britain’s state pension ranks 23rd out of 27 in the EU by share of average earnings.

Knowing this, Osborne will offer Budget giveaways designed to boost take-home pay in the short term. City analysts reckon he has a bit of cash to spare thanks to higher than expected tax receipts since December. This could run to £5bn. In his Autumn Statement last year the Chancellor said he would raise the income tax personal allowance to £10,600 from this April. It now looks as if he will trump that by raising the tax-free earnings limit to £11,000. That puts more hard cash into peoples’ pay packets the month before the General Election.

But there is more to this than meets the eye. The sad fact is that in the low-pay culture (for non-bankers) fostered in Britain since the Thatcher era, millions of workers – especially women, the young and those in part-time jobs – don’t earn anything like £11,000 a year. So while raising the personal tax allowance gets you headlines in the Tory press, it is actually a very expensive way of helping the working poor. Reason: raising the starter for paying income tax generally means raising the threshold for the 40p band at the same time. As a result, most of the Treasury giveaway goes to better-off families, while those on low incomes keep only a third of the tax cut. So Osborne’s help for the poor is really a subvention for middle-income earners.

Cunning Osborne knows this and may well be preparing his alibi for Wednesday. The Treasury is busy leaking to friendly journalists that he is toying with the idea of raising the threshold for National Insurance contributions paid by employees. National Insurance is, of course, a back-door form of income tax. Gordon Brown was a master at cutting income tax while raising National Insurance, to bamboozle Labour voters.

Workers currently pay National Insurance on earnings above £153 a week, or £7,956 a year, at a rate of 12 per cent. Cutting National Insurance would instantly benefit the 1.2 million workers who earn too little to gain from any increase in the personal income tax allowance. Here is the sneaky part: where to find the £1bn or so needed to pay for this? Labour is worrying that Osborne will find the money by scaling back the existing generous tax relief that wealthy people can pay into their lifetime pension pot – currently £1.25m. This would be an easy fix for Osborne but it would torpedo Labour’s plan to use the very same reform to pay for a reduction in English student fees from £9,000 a year to £6,000.

When Ed Balls announced he was planning a raid on wealthy pension tax relief – which is long overdue, if truth were told – he was castigated by the Tory press. Don’t expect the same criticism of Osborne. Instead, the Tory media will unite to congratulate the Chancellor for freeing pension savings from the grip of the state. Osborne has already trailed the fact that he intends to let existing pensioners turn their current annuity into ready cash. This follows last year’s Budget, in which he let people take their defined contribution pension as cash, rather than be forced to buy an annuity.

Just what are pensioners going to do with this cash? Invest it themselves in a volatile stock exchange? Let me warn you: the global economy is about to enter a new critical period. It cannot be long before America raises interest rates – possibly as early as June. This will precipitate company bankruptcies across the developing world, a 1930s-style war of currency devaluations, and the end of the bull market in share prices that was contrived through the British and US central banks printing money. Against that background, folk are going to liquidate their annuities and pension pots and spend, spend, spend. So much for the economic long-term.

But then, George Osborne is more worried about getting re-elected than about economic planning. He will try to disguise that fact on Wednesday by giving the go-ahead for a high-speed link between Manchester and Leeds; by waxing lyrical about hi-tech clusters and ultra-fast broadband; and offering more funding for energy research. I’m sure there will be a few sops for Scotland – perhaps a reduction in spirit duty to help whisky exports. But the stark truth is that under George Osborne, none of Britain’s long-term economic fundamentals have improved. Most of the UK’s much-vaunted growth has been due to a bigger population, not rising productivity. Growth per capita, a key measure of living standards, is still way below its pre-financial crisis peak. Weak manufacturing output and a contraction in business investment over the past two quarters prove that Britain remains dangerously dependent on consumer debt as the driver of the economy.

All of which suggests we will need to go back to the economic drawing board sometime soon. If Labour ends up in government after May 7, you can expect an emergency budget within the month. If the global economy takes a tilt, then this year’s Autumn Statement will require a virtual clean sheet.

I suspect that the era of constant tax cutting is drawing to a close, as public services crumble under the strain of coping with an increasingly elderly population. Hopefully, this budget will mark the fag end of Margaret Thatcher’s fantasy that cutting taxes and abolishing the public realm was the sure route to eternal prosperity. Instead it led to financial corruption and a decline in living standards. As wise old Abe Lincoln noted, you can fool the people only some of the time.