0:00:09 > 0:00:16silence. Not many have faith that Tonight on Newsnight Scotland, a
0:00:16 > 0:00:19more on the depressing inflation statistics. Almost everyone is
0:00:19 > 0:00:28feeling the pain but of course this is only the latest in a slew of
0:00:28 > 0:00:35depressing news. Could be broken economy lead to a broken society?
0:00:35 > 0:00:38The Retail Price Index rose by 5.6% so, the West since 1992. The
0:00:38 > 0:00:42government's preferred Consumer Price Index rose by 5.2%, as bad as
0:00:42 > 0:00:45any number since it was invented in 1997. Economic forecasters think
0:00:45 > 0:00:50the rate of inflation worries in the coming months but in the
0:00:50 > 0:00:55meantime it is wreaking havoc with family budgets at almost all levels
0:00:55 > 0:00:59of prosperity. Few if any wage settlements are anywhere near the
0:00:59 > 0:01:02inflation rate. What starts in the States is
0:01:02 > 0:01:09usually ends up here sooner or later and the occupying Wall Street
0:01:09 > 0:01:13protest which has spread across the US on exceptions. Our politicians
0:01:13 > 0:01:18no longer represent us! In Glasgow and Edinburgh, protesters have
0:01:18 > 0:01:21joined the fray. Their target, politicians, bankers and big
0:01:21 > 0:01:27business generally. How much is that anger shared by the wider
0:01:27 > 0:01:32community? Cuts are biting, wages are frozen and prices are rising.
0:01:32 > 0:01:37Inflation is up sharply, the Consumer Price Index is now what
0:01:37 > 0:01:415.2%. The Retail Price Index, which includes housing costs, is that
0:01:41 > 0:01:455.6%, its highest level for more than 20 years. With inflation
0:01:46 > 0:01:50running so high it, but wages that Lenin, it is perhaps no surprise
0:01:50 > 0:01:56that people are starting to feel the pinch. Fuel bills and house
0:01:56 > 0:01:59prices and everything has gone up. You are being well and truly credit
0:01:59 > 0:02:04crunch. As someone who is on a pension, do you feel you are going
0:02:05 > 0:02:10to benefit from 5.2% inflation? That is going to help your pension
0:02:10 > 0:02:20next April. If it increases the state pension, yes, I can imagine
0:02:20 > 0:02:23there being some benefit. But I do not see any great influence. We are
0:02:23 > 0:02:26one of the lowest state pensions in the whole of Europe. In the
0:02:26 > 0:02:32embarrassing to Germany, France and Italy. Do you feel things are
0:02:32 > 0:02:36getting wise answer? Yes, definitely. Sometimes there are a
0:02:36 > 0:02:40few shops you can go in and that is all. They are so expensive you
0:02:40 > 0:02:46cannot afford it. For the kids off for yourself. So you are changing
0:02:46 > 0:02:52the way you shop? Definitely. much longer do you think it can go
0:02:52 > 0:02:59on? The squeeze on wages is pretty trite but inflation seems to be
0:02:59 > 0:03:03galloping ahead. There is not very much that we can do about it. The
0:03:03 > 0:03:07government has control. Grin and bear it I suppose. As far as
0:03:07 > 0:03:12inflation is concerned, the Bank of England is predicting that
0:03:12 > 0:03:16inflation will start to fall at the beginning of 2012. To be fair, most
0:03:16 > 0:03:20external commentators also believe that inflation will be falling next
0:03:21 > 0:03:25year. But this is a difficult time and the fundamental problem we have
0:03:25 > 0:03:29at the moment is the eurozone crisis. That is causing
0:03:30 > 0:03:33difficulties with confidence amongst consumers in the UK.
0:03:33 > 0:03:37Nevertheless, is that the deal between citizen and state in
0:03:37 > 0:03:41danger? They are steadily rising pension age as well as below-
0:03:41 > 0:03:47inflation wage rises is making some people feel they are being robbed.
0:03:47 > 0:03:49However, a climb down on making some women were told they are 66
0:03:49 > 0:03:55suggests the government is aware that there are limits, even in
0:03:55 > 0:04:02these tough times. We have been able to balance it out. To help the
0:04:02 > 0:04:06next generation and help us women. I think it is a good deal. Where is
0:04:06 > 0:04:14the tipping point and how near are we? With many families dependent on
0:04:14 > 0:04:18two income scum are we in danger of large-scale Maude bids defaults as
0:04:18 > 0:04:23-- large-scale mortgage defaults? Be riots across England in August
0:04:23 > 0:04:27showed the level of anger and disconnection that is already there.
0:04:27 > 0:04:32As protesters bed down by some balls in London as well as in their
0:04:32 > 0:04:38tents in Glasgow and Edinburgh, the rumbles are apparent and set to get
0:04:38 > 0:04:44louder -- in at St Paul's in London. I end up joined by Bill Jamieson of
0:04:44 > 0:04:50the Scotsman, Will Hutton and Professor Greg Philo, from Glasgow
0:04:50 > 0:04:57University. Bill Jamieson, the Economist and
0:04:57 > 0:05:03Mervyn King have said that they believe inflation is going to fault.
0:05:03 > 0:05:07Do you believe that? -- is going to fall. An optimistic forecast about
0:05:07 > 0:05:11inflation from the Governor of the Bank of England who it was
0:05:12 > 0:05:15forecasting -- who is forecasting record is none too good. To be fair
0:05:15 > 0:05:22to him, most independent economists believe that we will see inflation
0:05:22 > 0:05:26coming down next year. However, that does not remove the inflation
0:05:26 > 0:05:29flat -- threat. That lies about a two or three years from now when we
0:05:29 > 0:05:33start to pick up the tab for quantitative easing. That is the
0:05:33 > 0:05:39worry. Do you think that, Will Hutton? There is an argument that
0:05:39 > 0:05:45Mervyn King might agree with that deflation rather than inflation...
0:05:45 > 0:05:48Despite appearances, that remains the greater problem? I think there
0:05:48 > 0:05:53is only one way out of this crisis and that is going to be that
0:05:53 > 0:06:01inflation is the unspoken truth among policy makers that they do
0:06:01 > 0:06:05not dare say in public. I think that inflation will fall a bit in
0:06:05 > 0:06:112012. Everyone thinks that and they are probably right. The economy is
0:06:11 > 0:06:17growing so slowly. But the risks are that we are between a rock and
0:06:17 > 0:06:23a hard place. The rock is that we have such low growth, the economy
0:06:23 > 0:06:27gets crushed. That is debt deflation. The hard place, to get
0:06:27 > 0:06:30out of it you have to have inflation to inflate the real value
0:06:30 > 0:06:36of those debts. I have no doubt actually that what is going to
0:06:36 > 0:06:40happen is that 2014, 2015, 2016, inflation is going to go back up
0:06:40 > 0:06:44above 5%. It needs to do that actually, it is the only way we can
0:06:44 > 0:06:49adjust. Unless we have people not paying their mortgages, not paying
0:06:49 > 0:06:59their debts, and having ongoing financial crisis. This is a real
0:06:59 > 0:07:08
0:07:08 > 0:07:12One obvious problem, if the Government is going to use
0:07:12 > 0:07:16inflation as a way of getting rid of government debt, it penalises
0:07:16 > 0:07:22all the things that people have been told throughout their working
0:07:22 > 0:07:28lives were good, like thrift, the people who saved the money as
0:07:28 > 0:07:37opposed to two spending it are penalised. That's correct. It is a
0:07:37 > 0:07:47silent financial Keller. Even an inflation rate of 3.5%, the value
0:07:47 > 0:07:48
0:07:48 > 0:07:53of your pension fund and long-term savings will be halved. We have
0:07:53 > 0:08:03inflation of 5.2%. It does fundamentally tackle what, causes
0:08:03 > 0:08:10are real problem for people. Economics is always about the
0:08:10 > 0:08:17lesser of two horrible evils. My sense is that inflation will be the
0:08:17 > 0:08:24least painful. If it be good down the route of true austerity and
0:08:24 > 0:08:32cutting back on Government spending, you drive up unemployment.
0:08:32 > 0:08:37Unemployment is an unacceptable brute force. This is only the
0:08:37 > 0:08:41latest in a slew of bad economic news. There is at least a sense of
0:08:41 > 0:08:45people feeling something close to despair at the moment. The only
0:08:46 > 0:08:51sliver of hope they had is a government story that despite all
0:08:51 > 0:08:55the public spending cuts, the economy would start to grow again.
0:08:55 > 0:09:05But even mayor for making is saying that the recovery is off course. --
0:09:05 > 0:09:11
0:09:11 > 0:09:20Mervyn King. I essentially agree with that. People in jobs and doing
0:09:20 > 0:09:26well are onlookers in this. But a lot of people are feeling the pinch.
0:09:26 > 0:09:34There is a mood of gloom and stoic fatalism about the corner that we
0:09:34 > 0:09:44Arran. Closer to panic in policy- making circles. The Government has
0:09:44 > 0:09:50
0:09:50 > 0:09:55a low shot left in its tool box, to mix my metaphors. Unemployment, I
0:09:55 > 0:10:02hate this are blaming of the eurozone, it was clear a year ago
0:10:02 > 0:10:12it was a silly policy. The eurozone it will bring a second a layer of
0:10:12 > 0:10:20difficulty in next year. I am very concerned. I think that we are in
0:10:20 > 0:10:27for five years of very tough times. We have seen nothing like this. The
0:10:27 > 0:10:37social consequences of this are unpredictable, but it is hard to
0:10:37 > 0:10:45believe there will not be any. Philo, there is a slow effect on
0:10:45 > 0:10:51the average person. Suddenly it starts to affect their daily lives.
0:10:51 > 0:10:55My take on it it is it is not. We are in a period of history whether
0:10:55 > 0:11:00productive capacity of the world is probably greater than at any time
0:11:00 > 0:11:05in human history. At the same time, we are being told we cannot use
0:11:05 > 0:11:10these productive resources, we cannot put people in work, they
0:11:10 > 0:11:14cannot use the factories because of a set of financial arrangements
0:11:14 > 0:11:22which are not the fault of the mask of the population but for which
0:11:22 > 0:11:26they have to suffer. -- the mass of the population. The rich, the
0:11:26 > 0:11:33people who are profiting from these mistakes have amassed absolutely
0:11:33 > 0:11:41gigantic amounts of money. The richest 10% of people in this
0:11:42 > 0:11:51country have a four trillion pounds of wealth. That wealth is being
0:11:52 > 0:11:53
0:11:53 > 0:12:01squirrelled away. Property prices in London are still going up. A
0:12:01 > 0:12:09flat in Earls Court in London it is �3.2 million. That money needs to
0:12:09 > 0:12:14be taxed. Not as income tax which is much too slow. 20% of the wealth
0:12:14 > 0:12:21of the richest 10% has to be taken as up one off tax and used to pay
0:12:22 > 0:12:31off the National debt. That is a policy which would work and
0:12:32 > 0:12:35
0:12:35 > 0:12:45liberate the funds that we need a. You are no go -- you are probably
0:12:45 > 0:12:46
0:12:46 > 0:12:50going to tell me I am no wrong, but the finances and the United States
0:12:50 > 0:12:55stagnated in the 1980s. Middle- class families came to believe that
0:12:55 > 0:13:05their children would not be as well off as they had been. Are we in
0:13:05 > 0:13:08
0:13:08 > 0:13:18danger of that kind of effect? It changes the nature of society.
0:13:18 > 0:13:27
0:13:27 > 0:13:31are absolutely on the bottom. -- baton. Take home... You have to go
0:13:31 > 0:13:41back to the 19th century to find a time of such a savage squeeze in
0:13:41 > 0:13:43
0:13:43 > 0:13:49living standards. It will make that a lot of expectations that people
0:13:49 > 0:13:55have, such as rising house prices, they will be the exception rather
0:13:55 > 0:14:03than the rule. Yes, you have these under graduates leaving university
0:14:03 > 0:14:13with debt, the expectation is that there will be in real income growth
0:14:13 > 0:14:20
0:14:20 > 0:14:26to pay those debts of. But I expect they will never be paid off. The
0:14:26 > 0:14:36ramifications of this are that people will be living at home for
0:14:36 > 0:14:41
0:14:41 > 0:14:51longer, marrying later. I think you will see stories of people going
0:14:51 > 0:14:52
0:14:52 > 0:15:02without... If you talk about the bottom 50% of the population, they
0:15:02 > 0:15:02
0:15:02 > 0:15:10only have 9% of the wealth. The bottom 10% have a negative of
0:15:10 > 0:15:17wealth. Well there is a different thing from income. We must not go
0:15:17 > 0:15:23over the top in this discussion. am not expecting you to be in a
0:15:23 > 0:15:28tent in George Square, but do you get a sense of this feeling of
0:15:28 > 0:15:34almost in despair? We have a government which is pretty much
0:15:34 > 0:15:40reduced now when asked about his economic policy to justifying it by
0:15:40 > 0:15:46saying it keeps the interest rate on British government gilts old,
0:15:46 > 0:15:50which for most people means nothing. Absolutely. You do have the sense
0:15:50 > 0:15:56that policy is being made by people flying blind. There is one
0:15:57 > 0:16:03advantage of this the regime and of rock'n'roll interest rates. We have
0:16:03 > 0:16:10seen a big crisis in the housing market, huge strains on household
0:16:10 > 0:16:17wealth and budget, but we have not seem, as we saw in the 1990s, a
0:16:17 > 0:16:22huge increase in mortgage defaults or arrears on anything like the
0:16:22 > 0:16:30skills that we had in the 1990s. The reason for that is because for
0:16:30 > 0:16:34the moment, interest rates are very low. I would say, before we start
0:16:34 > 0:16:40taking the cyanide pill, we are in danger of compounding the depress
0:16:40 > 0:16:47state that we are in. Confidence is low, but there is a business cycle
0:16:48 > 0:16:54and the business cycle turns. We have had four decades in our
0:16:54 > 0:17:00lifetimes. We are out of time so we will have to leave it on that