Another year another Budget!

Normally I see Budgets as over-rated events, more noise than impact. But this time around I suspect that the Chancellor's pronouncements could well prove crucial, and risk being deeply damaging, so far as UK and Scottish economic prospects are concerned.

As stressed frequently in this column, recovery across the UK from the banking-sector induced recession was slow to get underway and remains sluggish and very much unbalanced. Its sustainability remains in doubt. The latest data for UK GDP have marked up the estimate for growth in the first quarter of 2015 by a tenth of a per cent. This is no big deal. The latest estimate is only 0.4 per cent, and growth around 1.5 per cent per annum seven full years post-recession - as compared to what we always saw as a 'norm' of upwards of 2.5 per cent - remains distinctly disappointing.

The objective, our Chancellor has told us for the last five plus years, has been to achieve a new balance in our economy. Growth should be based primarily upon investment and exports, rather than the public finances (which of course remain highly constrained) and domestic consumption. Pre-recession growth had relied unduly upon domestic consumption, fuelled by an (unsustainably) buoyant housing market and ever increasing household debt; all symptomatic of the crash to come.

Sadly that rebalanced state of growth has not been achieved. Such momentum as has been achieved is based upon - guess what! - domestic consumption. We now have some growth in real earnings, thanks to ultra-low inflation rates, but the main foundation of this consumption growth has been - wait for it - ever increasing household debt. Debt is heading back above the levels which caused such concern in the late 2000s. That may be manageable while interest rates remain so low, but as and when rates start to rise, a move that may be deferred into 2016 but cannot be stalled for ever, our households will be seen once more as over-indebted, with all the associated risks.

We keep on hearing that business investment is or will be rising. However, calculations by Brian Ashcroft at the Fraser Institute indicate that, in Scotland, just about all of the investment in recent months has come from the public sector. Net business investment has been around zero. That is a major concern as low business investment goes hand-in-hand with low innovation, low productivity growth and reduced international competitiveness.

It comes as no surprise that exports have also much disappointed, at UK and Scotland levels. We are well used to seeing the UK current account, the balance between exports and imports, in negative territory. That negative balance has, quite remarkably, been the case in each quarter over the past 15 years. The problem is that the deficit keeps increasing. The latest estimate for Q1 2015 puts the UK deficit at 5.8 per cent of GDP, close to our all-time record.

Improving this story requires more exporters, with exporters old and new becoming more competitive. The data on investment, innovation and productivity suggest this is unlikely. Moreover, the international outlook is clouded with uncertainties. These relate to not just the impact of events in Greece across the EU and the financial markets, but also developments in China where sudden readjustments in the property market and some financial institutions could further threaten the pace of growth. Fortunately the decline in output in the USA in Q1 2015 looks to have been simply a blip, and the outlook there is robust. But that is likely to lead to a first interest rate increase from the US Federal Reserve sooner rather than later. Where the Fed leads the Bank of England and European Central Bank will be pressed to follow.

Of course in Scotland the objective is not just faster growth and more balanced growth but also 'inclusive growth', with an emphasis on moving to reduce inequalities. Achieving all such objectives will require that move to higher business investment and innovation, with better use of skilled labour resources and consequent hikes in productivity.

While these remain the longer-term objectives, in the short to medium term we are worryingly reliant upon the consumer. That takes me back to the Budget. Mr Osborne has delivered a number of budgets over the past five years or so. But this one looks set to be different, in that it will be the first under a majority Conservative administration. No longer will there be any constraints from the social consciences among the Liberal Democrats. This will be Osborne-unconstrained, a rather scary thought.

We know he is committed to swingeing cuts in the welfare programme. These cuts look set to reduce disposable incomes of the 'working poor'. These are people who perforce spend the great majority of their disposable income. Loss of income for them equates to loss of consumption for the economy. Any moves which tend to increase disposable income at the upper end of the spectrum will have far less - relatively - of an impact on consumption. Budget measures from Osborne-unconstrained could both further exacerbate inequalities and dampen the one significant source of momentum in our stuttering economy.

If only the Budget could focus on the longer term necessities and announce a 'pause' in the austerity measures while we struggle to achieve more balanced, inclusive and sustainable growth. We can only wait and see, but not expect.

- Jeremy Peat is visiting professor of the International Public Policy Institute at Strathclyde University.