The Budget will not solve any of the UK's fundamental problems

Is the forthcoming budget going to tackle any of the fundamental weaknesses of the UK economy? Unfortunately, almost certainly not.

Philip Hammond will tweak a few things, but it won't solve the key long-term problems facing the country. Our investment is too low. Our productivity is too poor. And our economy is too unbalanced. If we're going to solve these problems, then much deeper, more radical changes are required than those we will probably see from the Chancellor.

Is the Budget likely to get investment up? No, there are no policies in prospect to get this done. At present the UK invests barely 16% of its GDP in the future compared to a world average of 26% and around 45% in China.

Worse still, we get a dismally low overall return on the resources we do devote to investment. Between 2005 and 2016, the UK achieved 8% compared to a world average of 14% - and 25% in China. This is far the most important reason why our growth rate is only about 40% of the world average and why most of the UK population have had no real increase in their living standards for well over a decade.

And why is our performance so poor? It is because productivity improvement and economic growth depend on a narrow range of investment opportunities – essentially in technology, mechanisation and power, and very little else – and we invest practically nothing, net of depreciation, in these areas.

These are all activities which find a natural home in the private sector, mainly in light industry, so they have to have a reasonable prospect of profitability to take place. They also tend to produce internationally tradeable output, which means that they have to be internationally competitive.

The UK’s problem is that these conditions are a mile away from being fulfilled because our economy and our international trading stance is dominated by the service sector, in which we have natural advantages – our language, geography, legal system, our universities and our most skilled labour force – which are not shared by our manufacturing sector.

An exchange rate of $1.50 to the pound works okay for services but is lethal for manufacturing, which needs around parity between the pound and the dollar to thrive. This is why manufacturing – where far our best growth prospects are located – has shrunk as a percentage of GDP from nearly one third as late as 1970 to less than 10% now.

The collapse of UK manufacturing has also left us with not nearly enough to sell to the rest of the world to enable us to pay our way. This is why we have a huge balance of payments deficit every year, averaging about 5% of GDP, financed by borrowing and selling UK assets in a completely unsustainable fashion. It has also led to massive regional imbalances between London and the rest of the country. Average gross value added per head is more than twice as high in London as it is in Wales and the North East.

These are the imbalances which we really need to tackle, but dealing with them is nowhere on the agenda we are likely to see next week. Expect, therefore, the economy to continue growing – at best – at a snail’s pace, with incomes remaining stagnant or declining for most people as far ahead as we can see.

What is this going to do for our future, not just economically, but also from a social and political perspective? Not a pretty picture. If, however, we can’t produce an environment which makes investment in machinery, technology and power profitable and attractive, this is what will be in store for us.