The Scottish economy [February 1983]

In three weeks' time the Chancellor of the Exchequer will introduce what is politically the most important budget of the last four years. This is so because it is the last budget before the next general election. It is therefore likely to be framed primarily with a view to realising political rather than economic objectives. Whatever the details of the budget, its impact on the economy may be limited. So far as a stimulus to aggregate demand is concerned, the Chancellor's options are extremely limited if he sticks to his previous plans. The difference between planned revenue and planned expenditure for 1983/84 is some £7 billion while the Chancellor's previously announced target for the PSBR in 1983/84 is that it should amount to £8 billion (2.75% of GDP). Thus the Chancellor has only about £1 billion to hand out if he is to keep to his original borrowing targets. However this is distributed, its effect as a boost to spending is almost inconsequential. It would cost £1.2 billion simply to index income tax allowances and thresholds. Yet to deviate further from his pre-set targets will be interpreted as a departure from the path of monetary orthodoxy, a course from which the government has firmly established its determination not to deviate.

A modest improvement in output levels in Scottish manufacturing should be
possible in the next few months. Following the very depressed levels of output in the final quarter of 1982, increased consumer demand and the increasing competitiveness of Scottish exports should engender a small improvement in business confidence. Prospects in the labour market will not improve. Further analysis and forecasting of Scottish economic conditions over the next quarter are provided.