17/08/2011 Newsnight Scotland

thousands of work opportunities. Joining Bass are the chief

executive... -- us. Tonight on Newsnight Scotland: Unemployment is

up for the first time since the autumn. As the economies of the

western world grind to a halt, is there anything we can do to

insulate ourselves from the global economic malaise. I'll be asking

the First Minister for his prescription. Good evening. It's

difficult to discuss the economy these days without sounding like

Dad's Army's Private Frazer, and today's figures have provided more

evidence to the doom-mongers. Scotland's labour market statistics

may show that we are outperforming some other parts of the UK, but

unemployment is up across the board and the crises in the eurozone and

the US economy are bound to have an impact here, as Catriona Renton

The small increase in Anaheim in his column between April and June

was the first since last autumn. -- unemployment. Scottish unemployment

was up by 1000, to 209,000. The number claiming jobseeker's

allowance in Scotland rose by 2600 to almost 145,000. There was a much

sharper and unexpected rise in unemployment across the UK - up by

over 37,000. The biggest increase for more than two years. There was

better, if slightly paradoxical news, about the numbers in work.

There were 24,000 more people in employment in Scotland. The

Scottish government was quick to point at that figure is almost

equivalent to the 25,000 more people who are working across the

UK. That is true. These are net figures. Employment also grew

strongly in other areas of the UK. The Scottish employment rate is

higher and the unemployment rate Of course the worries about the UK

are only one facet of growing alarm about the state of the economy

across the western world. In the eurozone, Greece, Ireland and

Portugal are a life support with the crisis threatening to spread to

Spain and even Italy. New figures yesterday showed the German economy,

which grew by a healthy 3.6% last year, has ground to a halt.

Yesterday, President Sarkozy of France and Chancellor Mackle of

Germany, called for more tax co- ordination across the eurozone and

tried to put a brave face on the crisis.

TRANSLATION: Our first proposal is to create the real economic

government for the eurozone. It will be made up of heads of state

and government. It will elect the stable President for 2.5 years.

Almost no one believes the troubles Now that might just about be OK if

America were paying its usual role as the engine of the world economy

but it is not. Gross bet this flat and unemployment is stuck at just

over 9%. -- growth there. That will affect the chances of President

Obama of for re-election next year. The budget deal cobbled together

have recently was a messy compromise. As for the eurozone,

nobody believes the underlying issues have gone away. Both in

Europe and America, we are seeing is slowing economy, Clyde to with

fractures politics in what could turn out to be a highly toxic mix.

-- fractious. They believe they cannot solve the eurozone because

their voters and those in other European countries will not

tolerate bail out the weaker Mediterranean economies. -- outs

for weaker Mediterranean economies. Many Republicans do not believe in

fiscal stimulus. On the contrary they believe that cutting the

deficit is a matter of principle. George Osborne is helping -- hoping

the devalued pound will help the manufacturing industry. It is fine

if the rest of the world starts growing, which it is in Asia. In

Europe and America, the destination for most of our exports, it is not.

Where is the growth going to come from? A short while ago I spent the

First Minister, Alex Salmond, and asked him if his idea for a Plan B

are ignored by George Osborne. What are his fears for the Scottish and

British economies? We should suppose it will not be ignored

because it is common sense. Our ideas are more akin to those of the

Cabinet Secretary, who famously incidentally last December, coined

the term, Plan B. It was coined with explicit purpose if the

projected recovery looks like it was not going to be achieved any

had to show economic flexibility. The Chancellor himself, a couple of

months back, started talking about flexibility. I do not really care

whether you call it flexibility or Plan B, I think he has to do it.

Time is getting short. That plan has to be produced and organise and

develop for the economy. We have to have some sort of growth strategy,

replacing the absence of any Saturday at the present moment.

you worried there could be another recession? Well, clearly, if you

look at the employment data in Scotland, we are doing remarkably

well over the last year. There were -- they put on 60,000 jobs in

Scotland. A 25,000 job again across the United Kingdom, 24,000 of them

came from Scotland. That is because they are netted off. Some areas of

England had lots of job gains as well. East Midlands, for example,

the north-east of England, 22,000 extra jobs. In other areas of

England there was a cataclysmic decline. Scotland was 24,000 up and

England was 17,000 down as the country. I'm just pointing out, out

imminent position of 25,000, 24,000 job gains came from Scotland. You

can argue about that if you like. That is a pretty strong performance.

The reason for some of that economic success has been our

ability to accelerate forward capital investment. That is why our

construction sector is up by about 10%, compared with the flat line

across the rest of the UK. Some investments made in the tourism

infrastructure, the National Museum of Scotland, the Burns Museum, they

are undergoing record attendances at the moment and boosting the

visitor industry. Some things we have been able and have chosen to

do have paid off in terms of job numbers. You say it is one country

against another. The reason I mentioned regions of England is

there may well be some truth about what you have been saying about

capital spending and creating jobs. It is not an open and shut case.

Some areas of England have been doing well and they have not

benefited from the Scottish policy. Either someone is doing something

right or it is not your policies that something that is helping

overall to cause these things to happen. I take the view that

Scotland is a country are not a county. We can develop economic

analysis within Scotland where there are regional differences. It

is an open and shut case. If you invest in capital investment, you

would not scare the markets, you would not scare the horses because

it would be seen as a capital investment and not revenue

expenditure. Secondly you would create jobs. More than cutting tax.

Twice as many. You create jobs and very substantially in the economy.

You get spectacular value for money at the present moment. This is the

first time ever to invest in capital projects. If George Osborne

thought he could invest several percentage points of GDP, it would

have to be that kind of level of intervention across the UK in

capital spending, without speaking the bond markets, that he would

have done it. I think they are two problems he has. He is far too

cautious. The UK is currently borrowing at its lowest rate for 50

years. It does not have a problem in terms of borrowing. It is idea

about spooking the markets with capital investment. Far more likely

that lack of growth in the UK economy. There is a characteristic

of Whitehall departments. One difficulty which the Chancellor

himself has said, it is very difficult to get capital spending

through the Whitehall machine. It takes ages and ages and ages. In

Scotland we have managed to turn up their capital investment at a very

quick pace, in time to help the economy at their time of difficulty.

The one to keep doing that and keep the Scottish recovery contract. --

we want. I can see why, for example, some of the spending needed in

social housing can be cranked up very quickly. That can act as a

fiscal stimulus in the very short term. We took also agree with Ed

Balls that, the best way to really give a stimulus to an economy which,

let's face it, looks as if cities grinding to a halt, is cut VAT,

such -- cut something like national insurance, perhaps as well as what

you are suggesting. You need a sharp shock now. If you're doing it

as well there might be an argument. It is an either/Or, then Ed Balls

might remember that in 2008, the then Labour government reduced an

exact comparison between the effect of reducing VAT or increasing

capital spending. In that study they identified that in terms of

job creation, capital spending was twice as infective. It is about

timing as well. The last Labour government have the same problems

as the Tory government. Getting capital spending through the

English sausage machine takes an inordinate amount of time. There

might be a case, I would think, for cutting back in certain sectors.

For example home improvements to be an excellent initiative. To get the

stimulus in that part of the sector. There are two other vital things

the Chancellor needs to do. He has to get the transmission system

working. You have large companies with piles of money that of

brighten to invest because you do not see growth in the economy. They

have small and medium sized businesses. What are you

suggesting? You keep pointing out the banks set aside money for

lending to small businesses. Viewpoint but they do not lend all

of that money. From the point of view of the banks, where investing

in businesses is extremely hazardous in the state of the

economy, you are not suggesting an dating that banks lend money to

risky propositions that they consider are not going to work, are

you? No. There are plenty of propositions which are not whisky.

Any bank lending is a risk of course. There was plenty of solid,

substantial, small and medium-sized businesses. He seemed to suggest it

should not be the banks. This has already been done in Project Merlin.

After having agreed targets that were government set, they have not

managed to meet them. The Government is unable to conjure up

a way to make sure the banks keep to a covenant. We have two banks

effectively in public ownership at the moment. Perhaps George Osborne

should start worrying about the competition that is available in

terms of business bank lending in Scotland. These are all key matters.

The third thing is economic consumer confidence. Again you keep

saying the Scottish government has a policy of no compulsory

redundancies. It is boosting demand in the economy. You have operated

that for staff under your direct control. You say you have worked

with partners across the public sector to extend his agreement

across the public sector. As a matter of fact, have you done that?

What proportion of public sector jobs in Scotland, outside your

direct control, are now protected by agreements that you have

encouraged? Yes, we have. We have extended the agreement that started

with Scottish governance stuff to the National Health Service of

Scotland which encompasses some hundreds of thousands of people and

extended it to government agencies in Scotland. We have not extended

it to local authorities because we have not had a crewman from every

local authority it is something we should do. A slight change of

subject. RBS today have said they have come up with a proposal that

they want, for the poor people with basic bank accounts, withdraw their

ability to access rival banks teller machines. You would have to

be a paying customer to do this. Cash machines worried banking

innovation in Scotland which I'm sure everybody is grateful for. The

exchange of networks has been a great thing. It is always a richer

group stepped to have any policy that introduces charging for

customers who are at the lower end of the income scale. We see too

much of that. For example, in the energy industries, I do not think

it has been introduced to the banking side. So your message to

And joined by profession Brian Ashcroft and the executive editor

of the Scotsman. -- professor. You think there are something of a

bounce back? There was a loss in Scottish employment between the end

of 2009 and the beginning of 2010, about 50,000. We have had a 60,000

job increase which has taken us back to where we were roughly at

the end of 2009. The job loss over the recession has been greater,

about 4.5 per cent. It was too 0.5 per cent in the UK. We are still

two percent below well peak and the UK is about one per cent below its

peak. The labour market is not doing better here. So you think

Scottish employers and is estimated and laid off too many people

relative to English employers -- miscalculated. On top of this we

are seeing the working population growing in Scotland. It grew

100,000 over the recession so when you look at the labour reserves in

Scotland we are still about 4.5 per cent below the peak. So the labour

market is slack and the reason for that is a lack of demand in the

economy. You look relatively calm. According to the front page of the

Scotsman tomorrow, you are angry. am not all that angry because the

first minister has left me a note here on his table saying that we

should not reach for the bottle of whisky and the loaded revolver, and

has given me a load of reasons why I should not. I think what worries

me is the latest indicator in Scotland of the labour market. That

is a figure for the claimant the character for July, which shows an

increase of 2600. A sharp increase and the first one for 10 months. I

think it is probably the more accurate indicator of where the

labour market and the economy is likely to go, certainly for the

rest of the year. Notwithstanding the fact that the achievement so

far has been quite singular. In Scotland we have done quite well

over the past year in sustaining the employment rate and getting

more people into employment. But the feeling is this will not

continue into the future. We lost more jobs than the UK. The labour

market is moving into line. The output in the economy is weak.

want to broaden this out because while everybody's attention has

been diverted by the riots, the world economy looks like it is

growing. We have the euro-zone crisis which has not got better but

we also have what appears to be figures showing that the and Matt -

- the American, Nick -- the American economy is in trouble.

have had a credit crunch, global crisis, household are not spending

Households are not spending. The reason they're not spending is

because of the debt overhang. We also have policy makers putting in

place a fiscal contraction which is reducing demand in the economy, the

opposite of what we did in 2008. So it is scary. The hope for

investment and export... In tis the 1930s all over again? It is

worrying. On top of that we have structural problems with US debt

and the euro-zone. They lifted the stimulus too fast in the mid- 1930s.

That's right. They had a banking crisis and in 1937 they pulled the

stimulus back to Worley. It was not until the Second World War that the

expenditure took the cup -- took the economy out of recession.

problem here is this is not just technical discussion amongst

Economists, the reason this is happening is because we now have a

rather toxic mix of northern European voters saying we look on

this as bailing out Mediterranean countries that have not manage

their finances properly, and people in Mediterranean countries are

saying we are not going to accept the austerity programmes being

imposed on us by a Germany that has made itself rich by selling goods

to us. There is a toxic mix here. There is. I thought Katrina brought

that out well in her report. It is not just an economic crisis, there

is a big political crisis as well which we saw America, deep

divisions in Congress over the debate about raising the budget

ceiling. And in Europe between on the one hand people like to got my

scene, the senior figure in the German economic development saying

there is no political Damos, if you like, for a single fiscal union. It

has to be ratified, or legitimised by the voters. On the other hand,

if you do not move towards that you do not solve the problems presented

to the euro-zone. You need to take the people with you, you need to

have compliance, support. Otherwise you feed the fires of a huge revolt

in Germany and across the northern euro-zone countries when you say

why should we take this on? That is probably correct. The problem is

there is an implicit fault in the euro-zone. One is that it is not an

optimal currency area, but on top of that, basic countries like Italy,

Portugal, Greece have been allowed to borrow at German rates of

interest. That implied to the markets that they would be bailed

out as the German people did not know about it.

To be continued. We have to leave it there. Thank you both. The front