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Nation building?

The habitual chorus of unsolicited advisers is crescendoing ahead of Chancellor George Osborne's last Budget before the Scottish independence referendum, and second last before the UK General Election.

The degree of harmony is particularly marked this year.

From the TUC to the CBI, the message is that under-investment, like low productivity, is now so deeply ingrained a feature of the UK economy that even growth predictions outstripping the rest of the G7 don't inspire confidence that the UK can make and sell enough goods and services to out-run the shadow of debt and deficit.

Before he stands up at the despatch box on Wednesday, Osborne will have to decide whether to revive his 2011 riff about the UK economy being "carried aloft by the march of the makers"or whether he should avoid leaving a hostage of fortune that will - as happened last time he tried this theme - be used as ammunition if things don't work out as planned.

Although Osborne's political showmanship will have some useful statistical props to hand, the background is by no means all positive, and not just because previous promises on the workshop-of-the-world theme came to nothing.

Last week's trade figures showed Britain's goods exports in January falling to an 18-month low, pushing the goods trade deficit to £9.793 billion from December's £7.662bn. The dip only aggravated concerns that the UK economy is failing to rebalance away from that consumption-led recovery.

Indeed, more consumption fever this year means more imports and a widening trade deficit, especially as our biggest export markets remain averse to spending - and the strong pound is not helping.

As the TUC has pointed out, despite the Coalition's longstanding promises to boost investment and rebalance the economy, investment has fallen as a share of GDP since mid-2010.

Meanwhile, the gap between planned and actual investment levels continues to rise. The gap between current investment levels (14.5% of GDP) and those originally forecast by the Office for Budget Responsibility (17.8%) has grown to £12.4bn a quarter - an annual gap of almost £50bn.

The TUC said: "This investment gap has held back the UK economy and, unless addressed, could cause permanent damage to its economic prospects."

The trades unionists point out that the UK guarantees scheme - which provides £50bn worth of funding guarantees to infrastructure projects - is less than half the value of Help to Buy (the £130bn Government guarantee scheme for housing deposits), a ratio which the TUC said "perfectly illustrates the Government's failure to back the infrastructure projects that are needed throughout the UK".

The need to focus on boosting infrastructure was also central to the Scottish Government's pre-Budget polemic, which was essentially a call for the Chancellor to "change course" and spend more on welfare, coupled with accusations of Westminster disdain for the needs of Scottish industry.

The need for Scotland to follow an industrial strategy, boosting productivity and exports, and increasing ''innovation and participation in the workforce" was a theme of the independence White Paper published last November, but details of exactly what form Finance Secretary John Swinney would like it to take remain tantalisingly vague, leading to expectation that he might be holding back for a game-changing pre-referendum alternative budget of his own.

Reports of the decline of manufacturing in Scotland are, of course, much exaggerated. North of the Border, the manufacturing sector contributed turnover of £47.3bn in 2013, making it the second largest after mining, quarrying and utilities with £62.7bn. Turnover in the sector rose more than £4bn from 2012 and the sector employs almost 200,000 people in Scotland, the second highest after retail.

There is universal agreement that measures to boost the sector could provide real economic growth, so there is everything to be gained from incentives that will give Scottish business leaders the confidence and support to grow, by encouraging local investment in people, capital assets and exports.

Not for the first time, lack of investment has emerged as a central theme of pre-Budget commentary. The CBI's submission to the Chancellor points out that, while business investment is expected to grow by 6.6% in 2014 and 8.3% in 2015, it will still be 9% below its pre-crisis peak by the end of 2015.

The employers' group said: "The Government should sharpen its focus on encouraging further growth in business investment to cement the recovery. The ratio of private-sector investment to GDP in the UK has been lower than international competitors for decades. This indicates low business investment is a structural problem which has been compounded by the financial crisis."

Martin Bell, tax partner at BDO LLP, has suggested some options that might cheer the Scottish manufacturing sector enough to start driving up those percentage growth rates.

These include reintroducing the tax allowance for expenditure on industrial buildings, which would encourage manufacturers to invest in new factories or upgrades. This in turn should result in increased production capacity to meet demand at home and abroad.

Bell also proposed that recruitment could be encouraged with the introduction of a temporary reduction in employers' national insurance contributions for the manufacturing sector from the current 13.8% level, which would help bolster employment and support the Government's rhetoric of doubling exports by 2020.

Finally, as has been repeatedly observed throughout the painfully slow recovery, businesses have been hoarding cash even as the market improves, one of the surest signs of how comprehensively a Grade A financial crisis can mess with the normal patterns of business behaviour. But as Bell said: "Any business that fails to invest will eventually find itself in trouble, and the danger is particularly acute for manufacturers."

Even the TUC and the STUC would it find it hard not to applaud Budget measures that could be shown to increase capital investment in manufacturing capacity. Osborne has already done more than he is credited for in this respect. In the 2012 Autumn Statement, he increased the annual investment allowance (AIA) for expenditure on plant and machinery, providing businesses with 100% tax relief on expenditure on plant and machinery up to £250,000.

A permanent and substantial increase in AIA (Bell suggests £1 million) would be a headline-grabber - and, more importantly, a powerful incentive to manufacturers, currently struggling with the European slowdown, that they are being encouraged to grow.

The CBI suggests that even keeping the AIA at £250,000 beyond its current deadline of January 1, 2015 would "extend a valuable form of support for capital spending in plant and machinery to support the new appetite for investment.

"Such a move would cost around £67m in the fiscal year 2015-16 before rising to £754m in 2018-19."

Whatever the rate of incentives for manufacturers Osborne decides on, a Budget that focuses on grimy shopfloor brass tacks rather than the accustomed political gimmickry of pre-election Budgets would be as welcome as it is - let's face it - unlikely.

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