18/10/2011 Newsnight Scotland

silence. Not many have faith that Tonight on Newsnight Scotland, a

more on the depressing inflation statistics. Almost everyone is

feeling the pain but of course this is only the latest in a slew of

depressing news. Could be broken economy lead to a broken society?

The Retail Price Index rose by 5.6% so, the West since 1992. The

government's preferred Consumer Price Index rose by 5.2%, as bad as

any number since it was invented in 1997. Economic forecasters think

the rate of inflation worries in the coming months but in the

meantime it is wreaking havoc with family budgets at almost all levels

of prosperity. Few if any wage settlements are anywhere near the

inflation rate. What starts in the States is

usually ends up here sooner or later and the occupying Wall Street

protest which has spread across the US on exceptions. Our politicians

no longer represent us! In Glasgow and Edinburgh, protesters have

joined the fray. Their target, politicians, bankers and big

business generally. How much is that anger shared by the wider

community? Cuts are biting, wages are frozen and prices are rising.

Inflation is up sharply, the Consumer Price Index is now what

5.2%. The Retail Price Index, which includes housing costs, is that

5.6%, its highest level for more than 20 years. With inflation

running so high it, but wages that Lenin, it is perhaps no surprise

that people are starting to feel the pinch. Fuel bills and house

prices and everything has gone up. You are being well and truly credit

crunch. As someone who is on a pension, do you feel you are going

to benefit from 5.2% inflation? That is going to help your pension

next April. If it increases the state pension, yes, I can imagine

there being some benefit. But I do not see any great influence. We are

one of the lowest state pensions in the whole of Europe. In the

embarrassing to Germany, France and Italy. Do you feel things are

getting wise answer? Yes, definitely. Sometimes there are a

few shops you can go in and that is all. They are so expensive you

cannot afford it. For the kids off for yourself. So you are changing

the way you shop? Definitely. much longer do you think it can go

on? The squeeze on wages is pretty trite but inflation seems to be

galloping ahead. There is not very much that we can do about it. The

government has control. Grin and bear it I suppose. As far as

inflation is concerned, the Bank of England is predicting that

inflation will start to fall at the beginning of 2012. To be fair, most

external commentators also believe that inflation will be falling next

year. But this is a difficult time and the fundamental problem we have

at the moment is the eurozone crisis. That is causing

difficulties with confidence amongst consumers in the UK.

Nevertheless, is that the deal between citizen and state in

danger? They are steadily rising pension age as well as below-

inflation wage rises is making some people feel they are being robbed.

However, a climb down on making some women were told they are 66

suggests the government is aware that there are limits, even in

these tough times. We have been able to balance it out. To help the

next generation and help us women. I think it is a good deal. Where is

the tipping point and how near are we? With many families dependent on

two income scum are we in danger of large-scale Maude bids defaults as

-- large-scale mortgage defaults? Be riots across England in August

showed the level of anger and disconnection that is already there.

As protesters bed down by some balls in London as well as in their

tents in Glasgow and Edinburgh, the rumbles are apparent and set to get

louder -- in at St Paul's in London. I end up joined by Bill Jamieson of

the Scotsman, Will Hutton and Professor Greg Philo, from Glasgow

University. Bill Jamieson, the Economist and

Mervyn King have said that they believe inflation is going to fault.

Do you believe that? -- is going to fall. An optimistic forecast about

inflation from the Governor of the Bank of England who it was

forecasting -- who is forecasting record is none too good. To be fair

to him, most independent economists believe that we will see inflation

coming down next year. However, that does not remove the inflation

flat -- threat. That lies about a two or three years from now when we

start to pick up the tab for quantitative easing. That is the

worry. Do you think that, Will Hutton? There is an argument that

Mervyn King might agree with that deflation rather than inflation...

Despite appearances, that remains the greater problem? I think there

is only one way out of this crisis and that is going to be that

inflation is the unspoken truth among policy makers that they do

not dare say in public. I think that inflation will fall a bit in

2012. Everyone thinks that and they are probably right. The economy is

growing so slowly. But the risks are that we are between a rock and

a hard place. The rock is that we have such low growth, the economy

gets crushed. That is debt deflation. The hard place, to get

out of it you have to have inflation to inflate the real value

of those debts. I have no doubt actually that what is going to

happen is that 2014, 2015, 2016, inflation is going to go back up

above 5%. It needs to do that actually, it is the only way we can

adjust. Unless we have people not paying their mortgages, not paying

their debts, and having ongoing financial crisis. This is a real

One obvious problem, if the Government is going to use

inflation as a way of getting rid of government debt, it penalises

all the things that people have been told throughout their working

lives were good, like thrift, the people who saved the money as

opposed to two spending it are penalised. That's correct. It is a

silent financial Keller. Even an inflation rate of 3.5%, the value

of your pension fund and long-term savings will be halved. We have

inflation of 5.2%. It does fundamentally tackle what, causes

are real problem for people. Economics is always about the

lesser of two horrible evils. My sense is that inflation will be the

least painful. If it be good down the route of true austerity and

cutting back on Government spending, you drive up unemployment.

Unemployment is an unacceptable brute force. This is only the

latest in a slew of bad economic news. There is at least a sense of

people feeling something close to despair at the moment. The only

sliver of hope they had is a government story that despite all

the public spending cuts, the economy would start to grow again.

But even mayor for making is saying that the recovery is off course. --

Mervyn King. I essentially agree with that. People in jobs and doing

well are onlookers in this. But a lot of people are feeling the pinch.

There is a mood of gloom and stoic fatalism about the corner that we

Arran. Closer to panic in policy- making circles. The Government has

a low shot left in its tool box, to mix my metaphors. Unemployment, I

hate this are blaming of the eurozone, it was clear a year ago

it was a silly policy. The eurozone it will bring a second a layer of

difficulty in next year. I am very concerned. I think that we are in

for five years of very tough times. We have seen nothing like this. The

social consequences of this are unpredictable, but it is hard to

believe there will not be any. Philo, there is a slow effect on

the average person. Suddenly it starts to affect their daily lives.

My take on it it is it is not. We are in a period of history whether

productive capacity of the world is probably greater than at any time

in human history. At the same time, we are being told we cannot use

these productive resources, we cannot put people in work, they

cannot use the factories because of a set of financial arrangements

which are not the fault of the mask of the population but for which

they have to suffer. -- the mass of the population. The rich, the

people who are profiting from these mistakes have amassed absolutely

gigantic amounts of money. The richest 10% of people in this

country have a four trillion pounds of wealth. That wealth is being

squirrelled away. Property prices in London are still going up. A

flat in Earls Court in London it is �3.2 million. That money needs to

be taxed. Not as income tax which is much too slow. 20% of the wealth

of the richest 10% has to be taken as up one off tax and used to pay

off the National debt. That is a policy which would work and

liberate the funds that we need a. You are no go -- you are probably

going to tell me I am no wrong, but the finances and the United States

stagnated in the 1980s. Middle- class families came to believe that

their children would not be as well off as they had been. Are we in

danger of that kind of effect? It changes the nature of society.

are absolutely on the bottom. -- baton. Take home... You have to go

back to the 19th century to find a time of such a savage squeeze in

living standards. It will make that a lot of expectations that people

have, such as rising house prices, they will be the exception rather

than the rule. Yes, you have these under graduates leaving university

with debt, the expectation is that there will be in real income growth

to pay those debts of. But I expect they will never be paid off. The

ramifications of this are that people will be living at home for

longer, marrying later. I think you will see stories of people going

without... If you talk about the bottom 50% of the population, they

only have 9% of the wealth. The bottom 10% have a negative of

wealth. Well there is a different thing from income. We must not go

over the top in this discussion. am not expecting you to be in a

tent in George Square, but do you get a sense of this feeling of

almost in despair? We have a government which is pretty much

reduced now when asked about his economic policy to justifying it by

saying it keeps the interest rate on British government gilts old,

which for most people means nothing. Absolutely. You do have the sense

that policy is being made by people flying blind. There is one

advantage of this the regime and of rock'n'roll interest rates. We have

seen a big crisis in the housing market, huge strains on household

wealth and budget, but we have not seem, as we saw in the 1990s, a

huge increase in mortgage defaults or arrears on anything like the

skills that we had in the 1990s. The reason for that is because for

the moment, interest rates are very low. I would say, before we start

taking the cyanide pill, we are in danger of compounding the depress

state that we are in. Confidence is low, but there is a business cycle

and the business cycle turns. We have had four decades in our

lifetimes. We are out of time so we will have to leave it on that