Jeremy Warner's Outlook: If the public finances look this bad at the top of the cycle, what will they be in a recession?

It's Budget day next week, but don't expect fireworks from Gordon Brown's last Budget as Chancellor. I'm sure he'd like to go out in a display of pyrotechnics, but his room for manoeuvre has never been more limited. He can neither cut taxes nor deliver any further increases in public spending without breaching his self-imposed rules to govern the public finances. If we were deep in the trough of recession, the situation wouldn't look too bad, and to be fair, by comparison with some of our peers, it still seems relatively good. Yet we are not in recession. In fact we are very likely close to the top of the cycle. To be seriously in deficit at a point when we should be clocking up big surpluses does not bode well for the future. There's no ammunition in the public armoury to deal with a prolonged downturn.

EDF makes its nuclear pitch

Would Electricité de France be allowed to buy British Energy, which owns and manages the bulk of what's left of Britain's nuclear power industry? In some respects, it would be a perfect solution to Britain's nuclear future.

EDF is keen to engage in new nuclear build in Britain. It's got the expertise, it's got the balance sheet, and it's got the ambition. It also already has a substantial British presence. The purpose of buying British Energy in pursuit of this endeavour would be for its sites. From a planning perspective, it would be much easier to build on existing nuclear sites than seek clearance for completely new ones.

Yet even if it were thought politically acceptable for France's state-owned energy company to acquire such a key strategic asset, it is not altogether clear EDF would want to. EDF's interest is first and foremost in building new PWRs, not owning a fleet of ageing AWRs until their point of closure some 10 years from now.

If EDF were allowed to build new nuclear power stations alongside the existing ones, the effect in speeding planning consents might in any case be the same without having to go to the expense of buying the pre-existing infrastructure. This is what EDF Energy's chief executive, Vincent de Rivaz, is lobbying for.

Yet the roadblocks to new nuclear build remain profound. Number one is political and public opinion. There's no cross-party support for new nuclear, a prerequisite for investment which has a 30-year or more lifespan. Nobody is going to start building new nuclear power stations if there is any possibility of a change in the policy framework.

Number two is waste disposal. Again, there could be no privately financed nuclear build until the site of a deep repository is decided on. Any such decision is fraught with political difficulties. Nobody wants such a thing on their front doorstep.

Condition number three is that alternative forms of power generation from fossil fuels are made to pay their proper carbon costs. It might be possible for EDF to build without government subsidy or other forms of market subvention, but that other forms of power generation pay their carbon costs would be non-negotiable. This ought to guarantee that non-carbon emitting nuclear is sustainably price-competitive.

All this is a big ask. Yet unless these and other issues are settled within the next year, there is virtually no possibility of new nuclear power stations being ready for when the old ones start to switch off. Instead, Britain will become increasingly beholden to imported Russian gas. Not a pleasant prospect, especially for a Government committed to reducing emissions by 60 per cent by the middle of the century.

Sir George makes the case for separation

Why everyone should be surprised that Sir George Mathewson, former chairman of the Royal Bank of Scotland, has come out in support of the Scottish National Party is a complete mystery to me. For as long as I can remember, Sir George has been a Scottish separatist. He's also a longstanding friend of Alex Salmond, leader of the SNP.

His position is as much an emotional as a rational one. Sir George is a fiercely proud Scot who has always worn his disregard for Westminster rule well tattooed on his arm. It was a mentality that coloured much of his reign at the Royal Bank of Scotland, just a smallish regional bank when he took over as chief executive in the early 1990s.

To prevent RBS falling prey to some unwanted sassenach from south of the border, he forged an unholy alliance with Banco Santander of Spain. Better to fall to the Spaniard than the English was his attitude. Later, he turned the tables by fighting a famous battle with his opposite number at Bank of Scotland, Sir Peter Burt, for the prize of National Westminster Bank.

The original idea was that the two would divide up NatWest between them, but he was later to tell Sir Peter that like rival clans, they were destined to fight.

His victory helped to establish RBS as one of the biggest and most successful banks in the world. Still run out of Edinburgh, it is a monument to Sir George's belief in Scotland's ability to punch above its weight. Sir George's position is only surprising in that so few other businessmen north of the border seem to share it.

This is odd, for as Sir George points out, globalisation means that small countries can have a perfectly viable future as independent economic and political units. It is very unlikely that independence would drive away English business. That would only happen if the tax and regulatory regime became uncompetitive. And if separation exorcises the "dependency culture" which Sir George complains "is all-pervasive at every level of Scottish life", that in itself would be a galvanising and liberating force.

But we shouldn't stop at just Scotland. What about the creation of a separate city state of London and the South-east, a region which these days has about as much in common with the rest of the country as Timbuktu? A complete break-up of the UK might be no bad thing in a world where international laws and markets, not national ones, stand to make all the running.

An Indian takeaway for J Sainsbury?

The Sainsbury bid situation is hotting up. The existing private equity consortium of CVC Capital, Blackstone, KKR and Texas Pacific is planning to make public some sort of a conditional offer early next week. It's unlikely to be enough to convince the board that it should open its books.

Still, no matter. There now appears to be a completely separate collection of private equity players lining up the finance for a bid, raising the possibility of an auction. To top it all comes the rumour that Mukesh Ambani, chairman of Reliance Industries, India's largest privately owned business dynasty, might be interested in pitching in as well.

This latter story is not actually as far-fetched as it might seem. If Ratan Tata can make a multibillion-pound bid on British soil, so too can Mr Ambani, who has enormously ambitious plans for bringing about a retail revolution on the Indian subcontinent. Already, he's let it be known that he's interested in buying the Halley family's 13 per cent stake in Carrefour, the French supermarkets group, though as yet no approach seems to have been made. All the same, he's plainly got ambitions in the European retail sector, if only for the purpose of giving himself the template and expertise for his Indian roll out.

Yet perhaps the biggest motivation is that of pride. The rivalry that exists between the big Indian business dynasties should never be underestimated. Mr Ambani will be spitting tacks over all the glowing publicity Ratan Tata has received for his successful takeover of Corus. So there may be something in the suggestion that he's seeking a stake, or even outright ownership.

Yet if he really is interested, he will have to move fast. Sainsbury seems to be in hot demand.

j.warner@independent.co.uk