By Jeremy Peat

LAST week the David Hume Institute was graced with the presence of Lord Nicholas McPherson, formerly Permanent Secretary to the Treasury.

I took the opportunity to ask him: “If you were still head of the Treasury, what advice would you be giving to the Chancellor in advance of a budget in which he knows (a) that the Office for Budget Responsibility [OBR] will sharply downgrade its forecast for UK productivity, GDP growth and, critically, tax revenues; (b) there are massive clamours for more funds for our suffering public services and for investment to help boost ailing productivity; while (c) he is under severe pressure to keep reducing the Budget deficit but not to raise taxes; and (d) Brexit uncertainties grow day by day.

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“Not to mention a wide-spread perception of a need to start the process of reducing gross inter-generational inequities.”

That stands as a decent context for considering the Budget Philip Hammond presented. The OBR duly downgraded its growth forecasts, on the back of accepting that there are no grounds for anticipating an early bounce-back in productivity. In fact, the OBR downgraded its forecast to even lower than the new – reduced – growth forecast from the Bank of England earlier this month. Economic growth is expected to dip below 1.5 per cent, with that latter rate seen as the best we can expect until productivity bounces back to historic levels.

Consequently, tax revenues have been marked down significantly. If he had retained his deficit targets from the Budget earlier this year, the Chancellor would have had to raise taxes to a greater extent than he increased public expenditure. In practice, he increased those annual deficit targets, triggering quite a sharp fiscal loosening.

This allowed him to increase expenditures without raising taxation. Perhaps he is being imprudent but at least his (that is, the OBR’s) forecasts do point to total public-sector debt hitting a peak this year.

Having found a way to release some funds for increased expenditure, he needed to decide how best to spread those limited funds across three priority areas: funding the NHS; assisting the suffering younger generation; and working to increase business investment and productivity. He chose to spread the funds thinly across these areas.

His increase in funding for the NHS in England was below demands from within the sector. (And less than the extra £3 billion he reluctantly allocated to Brexit preparation.) This does not matter directly for Scotland, but it means that the Barnett Consequentials via the block will be lower than might have been hoped for. Next month’s Scottish Budget will require another complex balancing act, with only a net additional £2bn available from the block.

For the younger generation, Mr Hammond’s major delight was to remove stamp duty in England for all first-time house purchases below £300,000 and to reduce such duty for first-time purchases up to £500,000. That will be a boost to those seeking to clamber onto the housing ladder. Will the Scottish Government be able to match this generosity? This is another challenge for the Scottish Budget.

It was evident from the Chancellor’s speech that he was giving major priority to efforts to boost productivity and prepare the UK economy for the major and rapid changes ahead. Measures included more funds for training and key skill development, a boost to the Productivity Investment Fund and efforts to raise public and private investment.

Nothing appeared to be of such significance or substance to make us anticipate any early leap up the productivity curve. For the time being we are stuck in the economic slow lane. If only we knew how to stimulate higher business investment and enhanced productivity. At least the duty on Scotch was not increased this time.

Jeremy Peat is Visiting Professor in the University of Strathclyde International Public Policy Institute.