Will common sense and basic arithmetic figure in 'stability' Budget?

When Chancellor George Osborne presents his so-called "stability Budget", he is also likely to highlight his continuing deep cuts in other public spending. The name of this Budget might seem almost comical, given that its impact is likely to be quite the opposite of stability from an economic perspective.

But, of course, it is not funny at all, given the further grave consequences for the most vulnerable in society that will flow from Mr Osborne's latest swingeing cuts in welfare provision.

Unveiling the latest economic commentary from Strathclyde University's Fraser of Allander Institute, Mr Ashcroft warned yesterday that we should not underestimate the threat to the UK's recovery from crucial factors including "the dark shadow of further austerity".

It is pretty much a matter of simple arithmetic. However, even after five years of grinding austerity and all the misery that has gone with it for so many people, Mr Osborne does not compute that there is a problem with his economic policies. Rather, he continues to see austerity not as a huge part of the problem but as a solution. This is quite remarkable.

Mr Ashcroft has reiterated the simple point that cuts in welfare hit the economy hard because they reduce the amount of money coming into households with the lowest incomes. The people in these households generally have to spend what they have to live. This means that cuts in welfare feed through, in the most direct of ways, to reduced demand in the economy.

This situation can be contrasted with the impact of Mr Osborne's cut in the top rate of income tax from 50p to 45p in the pound, when the Conservatives were in their Coalition with the Liberal Democrats. People who were liable to the 50p top rate of income tax tend not to have to spend all they are earning to make ends meet. They have the option to save. So cutting the top rate of income tax for those earning more than £150,000-a-year was always unlikely to feed into much of an increase in demand in the economy.

Spelling out the impact of austerity, Fraser of Allander says: "With more austerity, households can expect a further reduction in their incomes, on average. What that means is that household spending will also be reduced and the fall is likely to be greater the more quickly the Chancellor seeks to bring the UK Government's budget into balance.

"Austerity will continue to be a major drag on capacity utilisation and economic recovery in Scotland and the UK."

Fraser of Allander warns in its commentary that "sustainable recovery is being threatened by a combination of unbalanced growth that relies unduly on household spending that depends mainly on rising and potentially unsustainable personal debt".

It notes that the UK's trade performance has been "weak".

Exports were supposed to be the central plank of the UK economic recovery, or so Mr Osborne told us when he spelled out his vision of "a Britain carried aloft by the march of the makers" in his March 2011 Budget.

The UK economy is certainly not being carried aloft by anything. Rather, many people have been ground down by years of economic misery.

Bank of Scotland's latest quarterly business monitor, published this week, signalled a continuing fall in the overall turnover of production companies north of the Border in the three months to May. The makers are not marching, Mr Osborne.

It is difficult to imagine that the impending further welfare cuts will not have a very significant impact on consumer spending, which has been supported recently on what appears likely to be only a temporary basis by a mini-boom in the housing market. This mini-boom has been fuelled in large part by UK Government measures to boost residential property prices.

Worse still, the welfare cuts would seem likely to exacerbate significantly already worrying levels of household debt, thus increasing the imbalances in the economy and heightening still further the risks when UK base rates are eventually raised from their record low of 0.5 per cent.

Again, surely this is all pretty basic arithmetic.

Fraser of Allander also highlights the "rising possibility" of Greece exiting the eurozone as another threat to the UK economy. At least, in terms of an assessment of how Mr Osborne has performed, this particular threat to UK recovery, unlike that created by ill-judged austerity from the Conservatives, is not one of the Chancellor's own making.

In contrast to the risks posed by the Greek situation, the grave domestic danger arising from the looming referendum on whether the UK should remain a member of the European Union is entirely of the Conservative Government's own making. Prime Minister David Cameron, seemingly pandering to the right of his party amid a burst of support for UKIP that fizzled out somewhat, had ahead of the General Election promised such a poll. He is now, most unfortunately from an economic stability perspective, delivering on this pledge.

We remain in a difficult economic situation, and there are various major threats to the UK's delayed, unbalanced and unconvincing recovery, some of them undoubtedly of the Westminster Government's own making.

At a time when the "logic" of the Conservatives on the economy is as baffling as ever, it is reassuring to hear Fraser of Allander talking basic sense.

Mr Ashcroft says that the Chancellor should consider, "at a minimum", a slowing in the pace of his fiscal consolidation plans. The professor's use of "at a minimum" is most apposite.

Unfortunately for all of us, Fraser of Allander's calls for restraint on austerity are almost certain to fall on deaf ears.

All that the think-tank will have to show for its efforts on this front will be the consolation of being able to point out that it told Mr Osborne so, when things take another lurch for the worse.