:00:04. > :00:12.thousands of work opportunities. Joining Bass are the chief
:00:12. > :00:15.executive... -- us. Tonight on Newsnight Scotland: Unemployment is
:00:16. > :00:19.up for the first time since the autumn. As the economies of the
:00:19. > :00:22.western world grind to a halt, is there anything we can do to
:00:22. > :00:26.insulate ourselves from the global economic malaise. I'll be asking
:00:26. > :00:28.the First Minister for his prescription. Good evening. It's
:00:28. > :00:31.difficult to discuss the economy these days without sounding like
:00:31. > :00:35.Dad's Army's Private Frazer, and today's figures have provided more
:00:35. > :00:38.evidence to the doom-mongers. Scotland's labour market statistics
:00:38. > :00:41.may show that we are outperforming some other parts of the UK, but
:00:41. > :00:45.unemployment is up across the board and the crises in the eurozone and
:00:45. > :00:55.the US economy are bound to have an impact here, as Catriona Renton
:00:55. > :00:58.
:00:58. > :01:06.The small increase in Anaheim in his column between April and June
:01:06. > :01:14.was the first since last autumn. -- unemployment. Scottish unemployment
:01:14. > :01:21.was up by 1000, to 209,000. The number claiming jobseeker's
:01:21. > :01:27.allowance in Scotland rose by 2600 to almost 145,000. There was a much
:01:27. > :01:33.sharper and unexpected rise in unemployment across the UK - up by
:01:33. > :01:37.over 37,000. The biggest increase for more than two years. There was
:01:37. > :01:42.better, if slightly paradoxical news, about the numbers in work.
:01:42. > :01:47.There were 24,000 more people in employment in Scotland. The
:01:47. > :01:50.Scottish government was quick to point at that figure is almost
:01:50. > :01:56.equivalent to the 25,000 more people who are working across the
:01:56. > :02:01.UK. That is true. These are net figures. Employment also grew
:02:01. > :02:11.strongly in other areas of the UK. The Scottish employment rate is
:02:11. > :02:21.
:02:21. > :02:24.higher and the unemployment rate Of course the worries about the UK
:02:24. > :02:30.are only one facet of growing alarm about the state of the economy
:02:30. > :02:33.across the western world. In the eurozone, Greece, Ireland and
:02:33. > :02:40.Portugal are a life support with the crisis threatening to spread to
:02:40. > :02:47.Spain and even Italy. New figures yesterday showed the German economy,
:02:47. > :02:51.which grew by a healthy 3.6% last year, has ground to a halt.
:02:51. > :02:55.Yesterday, President Sarkozy of France and Chancellor Mackle of
:02:55. > :03:00.Germany, called for more tax co- ordination across the eurozone and
:03:00. > :03:04.tried to put a brave face on the crisis.
:03:04. > :03:09.TRANSLATION: Our first proposal is to create the real economic
:03:09. > :03:18.government for the eurozone. It will be made up of heads of state
:03:19. > :03:28.and government. It will elect the stable President for 2.5 years.
:03:29. > :03:31.
:03:31. > :03:36.Almost no one believes the troubles Now that might just about be OK if
:03:36. > :03:41.America were paying its usual role as the engine of the world economy
:03:41. > :03:50.but it is not. Gross bet this flat and unemployment is stuck at just
:03:50. > :03:54.over 9%. -- growth there. That will affect the chances of President
:03:54. > :03:58.Obama of for re-election next year. The budget deal cobbled together
:03:58. > :04:06.have recently was a messy compromise. As for the eurozone,
:04:06. > :04:11.nobody believes the underlying issues have gone away. Both in
:04:11. > :04:19.Europe and America, we are seeing is slowing economy, Clyde to with
:04:19. > :04:26.fractures politics in what could turn out to be a highly toxic mix.
:04:26. > :04:31.-- fractious. They believe they cannot solve the eurozone because
:04:31. > :04:40.their voters and those in other European countries will not
:04:40. > :04:44.tolerate bail out the weaker Mediterranean economies. -- outs
:04:44. > :04:49.for weaker Mediterranean economies. Many Republicans do not believe in
:04:49. > :04:58.fiscal stimulus. On the contrary they believe that cutting the
:04:58. > :05:05.deficit is a matter of principle. George Osborne is helping -- hoping
:05:05. > :05:10.the devalued pound will help the manufacturing industry. It is fine
:05:10. > :05:15.if the rest of the world starts growing, which it is in Asia. In
:05:15. > :05:21.Europe and America, the destination for most of our exports, it is not.
:05:21. > :05:28.Where is the growth going to come from? A short while ago I spent the
:05:28. > :05:32.First Minister, Alex Salmond, and asked him if his idea for a Plan B
:05:32. > :05:36.are ignored by George Osborne. What are his fears for the Scottish and
:05:36. > :05:42.British economies? We should suppose it will not be ignored
:05:42. > :05:46.because it is common sense. Our ideas are more akin to those of the
:05:47. > :05:52.Cabinet Secretary, who famously incidentally last December, coined
:05:52. > :05:56.the term, Plan B. It was coined with explicit purpose if the
:05:56. > :06:01.projected recovery looks like it was not going to be achieved any
:06:01. > :06:06.had to show economic flexibility. The Chancellor himself, a couple of
:06:06. > :06:11.months back, started talking about flexibility. I do not really care
:06:11. > :06:16.whether you call it flexibility or Plan B, I think he has to do it.
:06:16. > :06:21.Time is getting short. That plan has to be produced and organise and
:06:21. > :06:25.develop for the economy. We have to have some sort of growth strategy,
:06:25. > :06:30.replacing the absence of any Saturday at the present moment.
:06:30. > :06:34.you worried there could be another recession? Well, clearly, if you
:06:34. > :06:42.look at the employment data in Scotland, we are doing remarkably
:06:42. > :06:48.well over the last year. There were -- they put on 60,000 jobs in
:06:48. > :06:54.Scotland. A 25,000 job again across the United Kingdom, 24,000 of them
:06:54. > :06:59.came from Scotland. That is because they are netted off. Some areas of
:06:59. > :07:04.England had lots of job gains as well. East Midlands, for example,
:07:04. > :07:11.the north-east of England, 22,000 extra jobs. In other areas of
:07:11. > :07:15.England there was a cataclysmic decline. Scotland was 24,000 up and
:07:15. > :07:21.England was 17,000 down as the country. I'm just pointing out, out
:07:21. > :07:25.imminent position of 25,000, 24,000 job gains came from Scotland. You
:07:25. > :07:30.can argue about that if you like. That is a pretty strong performance.
:07:30. > :07:35.The reason for some of that economic success has been our
:07:35. > :07:38.ability to accelerate forward capital investment. That is why our
:07:38. > :07:43.construction sector is up by about 10%, compared with the flat line
:07:43. > :07:49.across the rest of the UK. Some investments made in the tourism
:07:49. > :07:52.infrastructure, the National Museum of Scotland, the Burns Museum, they
:07:52. > :07:57.are undergoing record attendances at the moment and boosting the
:07:57. > :08:02.visitor industry. Some things we have been able and have chosen to
:08:03. > :08:07.do have paid off in terms of job numbers. You say it is one country
:08:07. > :08:11.against another. The reason I mentioned regions of England is
:08:11. > :08:16.there may well be some truth about what you have been saying about
:08:16. > :08:20.capital spending and creating jobs. It is not an open and shut case.
:08:20. > :08:24.Some areas of England have been doing well and they have not
:08:24. > :08:28.benefited from the Scottish policy. Either someone is doing something
:08:28. > :08:31.right or it is not your policies that something that is helping
:08:31. > :08:36.overall to cause these things to happen. I take the view that
:08:36. > :08:41.Scotland is a country are not a county. We can develop economic
:08:41. > :08:45.analysis within Scotland where there are regional differences. It
:08:45. > :08:48.is an open and shut case. If you invest in capital investment, you
:08:48. > :08:53.would not scare the markets, you would not scare the horses because
:08:53. > :08:59.it would be seen as a capital investment and not revenue
:08:59. > :09:04.expenditure. Secondly you would create jobs. More than cutting tax.
:09:04. > :09:09.Twice as many. You create jobs and very substantially in the economy.
:09:09. > :09:16.You get spectacular value for money at the present moment. This is the
:09:16. > :09:20.first time ever to invest in capital projects. If George Osborne
:09:20. > :09:27.thought he could invest several percentage points of GDP, it would
:09:27. > :09:31.have to be that kind of level of intervention across the UK in
:09:31. > :09:38.capital spending, without speaking the bond markets, that he would
:09:38. > :09:43.have done it. I think they are two problems he has. He is far too
:09:43. > :09:48.cautious. The UK is currently borrowing at its lowest rate for 50
:09:48. > :09:53.years. It does not have a problem in terms of borrowing. It is idea
:09:53. > :09:57.about spooking the markets with capital investment. Far more likely
:09:57. > :10:01.that lack of growth in the UK economy. There is a characteristic
:10:01. > :10:06.of Whitehall departments. One difficulty which the Chancellor
:10:06. > :10:11.himself has said, it is very difficult to get capital spending
:10:11. > :10:15.through the Whitehall machine. It takes ages and ages and ages. In
:10:15. > :10:19.Scotland we have managed to turn up their capital investment at a very
:10:19. > :10:25.quick pace, in time to help the economy at their time of difficulty.
:10:25. > :10:32.The one to keep doing that and keep the Scottish recovery contract. --
:10:32. > :10:37.we want. I can see why, for example, some of the spending needed in
:10:37. > :10:41.social housing can be cranked up very quickly. That can act as a
:10:41. > :10:46.fiscal stimulus in the very short term. We took also agree with Ed
:10:46. > :10:52.Balls that, the best way to really give a stimulus to an economy which,
:10:52. > :10:56.let's face it, looks as if cities grinding to a halt, is cut VAT,
:10:56. > :11:02.such -- cut something like national insurance, perhaps as well as what
:11:02. > :11:07.you are suggesting. You need a sharp shock now. If you're doing it
:11:07. > :11:11.as well there might be an argument. It is an either/Or, then Ed Balls
:11:11. > :11:17.might remember that in 2008, the then Labour government reduced an
:11:17. > :11:20.exact comparison between the effect of reducing VAT or increasing
:11:20. > :11:25.capital spending. In that study they identified that in terms of
:11:25. > :11:30.job creation, capital spending was twice as infective. It is about
:11:30. > :11:34.timing as well. The last Labour government have the same problems
:11:34. > :11:38.as the Tory government. Getting capital spending through the
:11:38. > :11:43.English sausage machine takes an inordinate amount of time. There
:11:43. > :11:50.might be a case, I would think, for cutting back in certain sectors.
:11:50. > :11:55.For example home improvements to be an excellent initiative. To get the
:11:55. > :11:59.stimulus in that part of the sector. There are two other vital things
:11:59. > :12:04.the Chancellor needs to do. He has to get the transmission system
:12:04. > :12:08.working. You have large companies with piles of money that of
:12:08. > :12:12.brighten to invest because you do not see growth in the economy. They
:12:12. > :12:18.have small and medium sized businesses. What are you
:12:18. > :12:22.suggesting? You keep pointing out the banks set aside money for
:12:22. > :12:26.lending to small businesses. Viewpoint but they do not lend all
:12:26. > :12:31.of that money. From the point of view of the banks, where investing
:12:31. > :12:36.in businesses is extremely hazardous in the state of the
:12:36. > :12:40.economy, you are not suggesting an dating that banks lend money to
:12:40. > :12:46.risky propositions that they consider are not going to work, are
:12:46. > :12:52.you? No. There are plenty of propositions which are not whisky.
:12:52. > :12:56.Any bank lending is a risk of course. There was plenty of solid,
:12:56. > :13:03.substantial, small and medium-sized businesses. He seemed to suggest it
:13:03. > :13:07.should not be the banks. This has already been done in Project Merlin.
:13:07. > :13:12.After having agreed targets that were government set, they have not
:13:12. > :13:18.managed to meet them. The Government is unable to conjure up
:13:18. > :13:23.a way to make sure the banks keep to a covenant. We have two banks
:13:23. > :13:27.effectively in public ownership at the moment. Perhaps George Osborne
:13:27. > :13:32.should start worrying about the competition that is available in
:13:32. > :13:39.terms of business bank lending in Scotland. These are all key matters.
:13:39. > :13:44.The third thing is economic consumer confidence. Again you keep
:13:44. > :13:50.saying the Scottish government has a policy of no compulsory
:13:50. > :13:54.redundancies. It is boosting demand in the economy. You have operated
:13:54. > :13:59.that for staff under your direct control. You say you have worked
:13:59. > :14:03.with partners across the public sector to extend his agreement
:14:03. > :14:07.across the public sector. As a matter of fact, have you done that?
:14:07. > :14:11.What proportion of public sector jobs in Scotland, outside your
:14:11. > :14:18.direct control, are now protected by agreements that you have
:14:19. > :14:21.encouraged? Yes, we have. We have extended the agreement that started
:14:21. > :14:25.with Scottish governance stuff to the National Health Service of
:14:25. > :14:29.Scotland which encompasses some hundreds of thousands of people and
:14:29. > :14:33.extended it to government agencies in Scotland. We have not extended
:14:33. > :14:43.it to local authorities because we have not had a crewman from every
:14:43. > :14:47.local authority it is something we should do. A slight change of
:14:47. > :14:55.subject. RBS today have said they have come up with a proposal that
:14:55. > :15:02.they want, for the poor people with basic bank accounts, withdraw their
:15:02. > :15:12.ability to access rival banks teller machines. You would have to
:15:12. > :15:14.
:15:14. > :15:19.be a paying customer to do this. Cash machines worried banking
:15:19. > :15:24.innovation in Scotland which I'm sure everybody is grateful for. The
:15:24. > :15:28.exchange of networks has been a great thing. It is always a richer
:15:28. > :15:31.group stepped to have any policy that introduces charging for
:15:31. > :15:36.customers who are at the lower end of the income scale. We see too
:15:36. > :15:41.much of that. For example, in the energy industries, I do not think
:15:41. > :15:51.it has been introduced to the banking side. So your message to
:15:51. > :15:56.
:15:56. > :16:05.And joined by profession Brian Ashcroft and the executive editor
:16:05. > :16:12.of the Scotsman. -- professor. You think there are something of a
:16:12. > :16:18.bounce back? There was a loss in Scottish employment between the end
:16:18. > :16:21.of 2009 and the beginning of 2010, about 50,000. We have had a 60,000
:16:21. > :16:28.job increase which has taken us back to where we were roughly at
:16:28. > :16:33.the end of 2009. The job loss over the recession has been greater,
:16:33. > :16:39.about 4.5 per cent. It was too 0.5 per cent in the UK. We are still
:16:39. > :16:44.two percent below well peak and the UK is about one per cent below its
:16:44. > :16:52.peak. The labour market is not doing better here. So you think
:16:52. > :16:59.Scottish employers and is estimated and laid off too many people
:16:59. > :17:03.relative to English employers -- miscalculated. On top of this we
:17:03. > :17:09.are seeing the working population growing in Scotland. It grew
:17:09. > :17:15.100,000 over the recession so when you look at the labour reserves in
:17:15. > :17:19.Scotland we are still about 4.5 per cent below the peak. So the labour
:17:19. > :17:28.market is slack and the reason for that is a lack of demand in the
:17:28. > :17:36.economy. You look relatively calm. According to the front page of the
:17:36. > :17:40.Scotsman tomorrow, you are angry. am not all that angry because the
:17:40. > :17:44.first minister has left me a note here on his table saying that we
:17:44. > :17:49.should not reach for the bottle of whisky and the loaded revolver, and
:17:49. > :17:53.has given me a load of reasons why I should not. I think what worries
:17:53. > :18:00.me is the latest indicator in Scotland of the labour market. That
:18:00. > :18:06.is a figure for the claimant the character for July, which shows an
:18:06. > :18:10.increase of 2600. A sharp increase and the first one for 10 months. I
:18:10. > :18:15.think it is probably the more accurate indicator of where the
:18:15. > :18:21.labour market and the economy is likely to go, certainly for the
:18:21. > :18:27.rest of the year. Notwithstanding the fact that the achievement so
:18:27. > :18:31.far has been quite singular. In Scotland we have done quite well
:18:31. > :18:36.over the past year in sustaining the employment rate and getting
:18:36. > :18:43.more people into employment. But the feeling is this will not
:18:43. > :18:49.continue into the future. We lost more jobs than the UK. The labour
:18:49. > :18:53.market is moving into line. The output in the economy is weak.
:18:53. > :18:59.want to broaden this out because while everybody's attention has
:18:59. > :19:04.been diverted by the riots, the world economy looks like it is
:19:04. > :19:09.growing. We have the euro-zone crisis which has not got better but
:19:09. > :19:15.we also have what appears to be figures showing that the and Matt -
:19:15. > :19:20.- the American, Nick -- the American economy is in trouble.
:19:20. > :19:30.have had a credit crunch, global crisis, household are not spending
:19:30. > :19:32.
:19:32. > :19:37.Households are not spending. The reason they're not spending is
:19:37. > :19:42.because of the debt overhang. We also have policy makers putting in
:19:42. > :19:49.place a fiscal contraction which is reducing demand in the economy, the
:19:49. > :19:53.opposite of what we did in 2008. So it is scary. The hope for
:19:53. > :19:57.investment and export... In tis the 1930s all over again? It is
:19:57. > :20:03.worrying. On top of that we have structural problems with US debt
:20:03. > :20:08.and the euro-zone. They lifted the stimulus too fast in the mid- 1930s.
:20:08. > :20:14.That's right. They had a banking crisis and in 1937 they pulled the
:20:14. > :20:18.stimulus back to Worley. It was not until the Second World War that the
:20:18. > :20:21.expenditure took the cup -- took the economy out of recession.
:20:21. > :20:26.problem here is this is not just technical discussion amongst
:20:26. > :20:34.Economists, the reason this is happening is because we now have a
:20:34. > :20:40.rather toxic mix of northern European voters saying we look on
:20:40. > :20:44.this as bailing out Mediterranean countries that have not manage
:20:44. > :20:49.their finances properly, and people in Mediterranean countries are
:20:49. > :20:54.saying we are not going to accept the austerity programmes being
:20:54. > :21:01.imposed on us by a Germany that has made itself rich by selling goods
:21:01. > :21:06.to us. There is a toxic mix here. There is. I thought Katrina brought
:21:06. > :21:09.that out well in her report. It is not just an economic crisis, there
:21:09. > :21:14.is a big political crisis as well which we saw America, deep
:21:14. > :21:20.divisions in Congress over the debate about raising the budget
:21:20. > :21:25.ceiling. And in Europe between on the one hand people like to got my
:21:25. > :21:31.scene, the senior figure in the German economic development saying
:21:31. > :21:38.there is no political Damos, if you like, for a single fiscal union. It
:21:38. > :21:42.has to be ratified, or legitimised by the voters. On the other hand,
:21:42. > :21:47.if you do not move towards that you do not solve the problems presented
:21:47. > :21:53.to the euro-zone. You need to take the people with you, you need to
:21:53. > :21:57.have compliance, support. Otherwise you feed the fires of a huge revolt
:21:57. > :22:01.in Germany and across the northern euro-zone countries when you say
:22:01. > :22:08.why should we take this on? That is probably correct. The problem is
:22:08. > :22:12.there is an implicit fault in the euro-zone. One is that it is not an
:22:12. > :22:18.optimal currency area, but on top of that, basic countries like Italy,
:22:18. > :22:24.Portugal, Greece have been allowed to borrow at German rates of
:22:24. > :22:28.interest. That implied to the markets that they would be bailed
:22:28. > :22:33.out as the German people did not know about it.
:22:33. > :22:43.To be continued. We have to leave it there. Thank you both. The front
:22:43. > :22:46.