The BBC's Economics Correspondent, Evan Davis

So, What Really Happened?

In fact, the FTSE reaction is rather perverse. In this Budget, Mr Brown had to put up taxes. He was under intense market pressure to do so; he knew he had to stash money away for a rainy day, and to prepare for a relaxation of the spending constraints imposed by the last government in its financial projections.

But in raising taxes, Mr Brown had to make a choice between betraying the hopes and aspirations of business or the hopes and aspirations of the middle class swing voters who brought Labour to power. And he very clearly chose to stand with the middle classes.

In all, the Budget tax rises - excluding the windfall tax - ultimately fall about two-thirds on business, and one third on households. The big revenue raiser was of course, the reform of the ACT tax credits. A reform that is at best arguable in terms of the logic of the tax system.

But let us explore an important consequence of this choice of tool of fiscal tightening. Any squeeze through the tax system tends to reduce the overall level of spending in the economy - and reducing spending was a key government goal, to stop firms from becoming too busy and raising prices. A tax rise represents a withdrawal of cash.

But any fiscal squeeze has to operate through an effect on one of the components of demand or spending in the economy, and there are only four main components of demand: consumption, investment, government spending, or foreign demand for our products.

Which component of demand will the tax squeeze on pension funds affect? It certainly does not affect government spending; it does not directly affect the level of export demand. So it can only work on consumption or investment. Which one will it work on?

We consumers may spend less, on account of the reduction of the value of our pension funds. We may say to ourselves "ah, my pension is not worth what I thought it was; I'd better save a bit more and spend a bit less, to re-build my savngs". This is known in technical jargon as a "wealth effect" - the Budget reduces our wealth, so we try to restore it. Wealth effects do exist, but the view of most economists is that they are rather modest in impact, and rather slow to operate.

No, it is not consumption that takes the hit from the Budget, it is that last component of spending in the economy - investment. Corporate cash flows are diminished, city funds are diminished. As a result, one would expect the volume of investment to diminish as cash flows do appear to have an effect on how much business chooses to spend.

In effect, therefore, the Budget did tighten fiscal policy modestly; it did so in a way that takes a small amount of pressure off interest rates. But it did not deliver one of the key things it said it would - an improved environment for investment. For all the rhetoric, this was in fact, a Budget for the short term.