29/11/2011 Newsnight Scotland


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It's a tax increase on public On Newsnight Scotland tonight: The


economic pain and gloom are not necessarily confined south of the


border I will ask the government government whether it believes the


assurances. We will ask who are the winners and losers. Good evening.


Shudderingly awful downward revisions for economic growth,


meaning additional years of pain. Though there will be some


sweeteners, including almost half a billion extra money for the


Scottish government over three years. Our business and economy


editor, Douglas Fraser watched it all unfold. Slower growth, more bow


oring a sluggish recovery the cuts go on for two years. Was there


anything to cheer us up about this autumn Statement? There is a growth


strategy now around infrastructure spend, business deleg regulation


and education reform, at least for England. Some of it reaches to


Edinburgh, one of ten super connected digital cities. Scottish


long distance drivers can applaud the postponed fuel tax increases.


The big ticket for Holyrood is �150 million extra capital budget. It


will oos ease the spending squeeze. We don't know if there is extra


revenue along with that capital. Whitehall is negotiating over the


pay bill. �50 million to renew the cross-border sleeper trains. Scott


Scottish ministers will decide how to spend the extra allocation.


There could be a new Glasgow college campus. They will have to


see how it fits their strategy, due for announcement next month for


Scotland's infrastructure and enterprise zone. Also whether to


implement the tight squeeze on public sector pay. They can see


that the prolonged, sluggish economic recovery threats their


political plans. Go had hoped to get the economy on the turn,


heading for growth when he next faces the electorate in May 2015.


That now looking less likely. The austerity will go on through that


campaign making re-election a tougher sale. It will go past the


Holyrood election in 2016. Before then there will be a referendum on


independence. Could it make Scots feel more downbeat and less


confident? Will it make the United Kingdom feel a less attractive


prospect for Scotland's future? The Minister of State at the skaufs is


Conservative MP David Mundell. I asked him if the �433 million over


the three years, which is coming to Scotland byway of the Barnett


Formula is new money? This is money that the Scottish Government hadn't


anticipated or hadn't budgeted for. It's additional money for their


purposes. I would hope they would welcome it. At the moment, they


seem to be the only government in the world who, when they do get


additional money they haven't budgeted for they seem always to be


able to find something wrong with it. George Osborne made great play


of the fact that this money for spending onical capital projects


would be transferred from the current budget and, therefore,


would be neutral on its spending plans? It will be neutral over all.


In terms of the Barnett. Scottish government can expect a


cut in its current budget? certainly shouldn't expect a cut in


its current budget. Scotland's share of the UK cake is determined


by the Barnett Formula. That formula is based on how different


elements of funding is spent across Whitehall departments. Whether they


are reserved or devolved matters. It's pleatly wrong for the Scottish


government to jump to the conclusion that the current account


spending would be reduced. That will definitely not be the case.


George Osborne is going to finance this capital spending, by


transferring, by extra cuts in current spending, I'm not clear


exactly why Scotland should be earthquakes sefrpt from that?


Scotland's share of the cake, as I've said, is determined by the


Barnett Formula. That formula relates - Yes, I understand. We


understand that. The point is, if money is being transferred from


current budgets, to capital budgets, and, therefore, there will be more


public spending cuts on current budgets to finance this transfer to


capital spending, that will, presumably, hit most departments,


other than, for example, perhaps the NHS, where you have made


certain commitments. Are you saying there will be no Barnett


consequencals of cutting current spending by the same amount you


want to increase capital spending? Not for Scottish funds. It is


because of the way in which the Barnett Formula works across


departmental spending. Scotland benefits when the government


increases spending in England on the areas which are devolved.


That's what has happened in this case. There will be extra money for


Scotland in capital, �433 million, which I would like to think that


the Scottish government would welcome. It's an opportunity for


spending on economic growth, on jobs, on infrastructure. It should


be a positive thing - There will be no redctionduction in current


spending? There will not be a cut in current spending for the


Scottish government. When the Chancellor is able to confirm the


exact figures the Scottish government will see this. Instead,


they would prefer to leak to a -- leap to a negative conclusion so


that somehow they can pour cold water on what is a good settlement


for Scotland. This is a government that is determined, even when there


is good news, even when there is additional money, to talk it down.


So, I'm sure they will be delighted when you have explained that to him.


Can you explain to us, if you are still in office, there are to be an


extra �8 billion of cuts in current spending across the UK in 2015/16


and �15 billion of extra cuts in public spending in 16/17. Will the


Scottish government also be exempt from that? They will. Pen when the


next spending review is determined, they will know what their budgetary


allocations are. They will then be able to work on the basis of those


allocations to determine how they best spend money within Scotland.


So, those are - It might be or it might not be? They are decisions to


be taken in the next spending review. The case in this spending


review is that the Scottish government will get more money than


they had anticipated. They will have an additional opportunity to


invest in infrastructure and in jobs. Do you expect the measures


announced today to help growth in the British economy? I very much


hope that they will help. Can you explain why, in that case, the


office of budget responsibility say they have not made any adjustment


to their economic forecast as a result of the measures announced


today? I welcome the fact that the office of budgetary responsibility


is cautious in their outlook. on. You announced a budget for


growth. Your own office of budget responsibility said says, as far as


they can see, it will have no effect on growth? I don't accept


the analysis it would have no effect on growth. It's not my


analysis. It's what they say. They say they have not made any


adjustment to the economic forecast as a result of today's measures?


don't want the office of budget responsibility of making outrageous


forecasts, as we saw the previous government doing. What we are doing


today is taking forward solid measures to help the economy.


Bringing forward measures to assist youth unemployment. Easing access


to credit it taking specific measures to help businesses all of


which we want to see delivering growth. If the office of budget


responsibility, which is supposed to analyse these things forecasts


that George Osborne's's project for growth you would explain that as


outrageous? I wouldn't - You just have done? I said I welcome the


cautious of the office of budget responsibility. Let's be judged on


the affect of our measures when they had a chance to take affect.


Clearly, a lot of the decisions following on from this statement


will land at the door of the Scottish Government. Earlier, I


spoke to Finance Secretary John Swinney and asked him if he


expected to lose any current money to compensate for the increase in


capital money he was getting from the Treasury.


I need to have clarity on that point and it is a very unusual


circumstance that I get autumn budget statement information from


the Treasury which has only got one side of the picture, the capital


allocation. I can only imagine that means we will have some form of


budget reduction in the resource aerial. I maybe able to bring you


good news. I had just interviewed David Mundell who appeared it to be


claiming there would be no cut in your current budget as a result of


this. That will be interesting and I look forward to receiving the


written confirmation. But I can say to you that I am in the very


unusual situation that the Treasury have been unable to tell me tonight


what the resource implications of the Autumn statement will be for


Scotland which I find quite extraordinary. David Mundell must


have the information before the Treasury. A as I say, I will be


delighted to receive that confirmation if it is the case. But


you will forgive me if I wait broader the letter from the


Treasury first. -- wait for the letter. George Osborne said that


public sector wages will be capped after 2013, is that a policy you


will follow? After the next year of pay restraint, we expected it to be


in a position where we could move to modest increases in pay. An


increase of 1% would fit the bill of being a modest pay increase. We


set our pay policy after consultation that the trade unions


in advance of the financial year in question so be it will have those


discussions with the trade unions but we will be trying to deliver an


approach which it does deliver modest increases in public sector


pay at that stage. But 1% would be about right, because presumably it


would be difficult to pay anymore than the UK Government is proposing


to pay its employees? That is correct. The 1% figure seems to fit


into the category of being modest and given the fact that our work


funding situation follows very directly the decisions taken by the


delighted Kingdom government, it strikes me that it will be a in


that margin. -- United Kingdom government. George Osborne has


asked whether pay increases or pay scales could be more reflective of


regional markets, would you welcome that? We will look at the analysis


that is identified as a consequence of that. I suspect we will not have


quite the regional disparity in the Scottish Labour market that the


United Kingdom government experiences around the market.


implication could be that pay scales would be law in Scotland


than they might be in other parts of the south-east of England. --


would be lower. We said many aspects of pay policy in Scotland.


We are mindful of their experience in Scotland. It does not strike me


as a particular problem for the situation in Scotland. Clearly, if


that was to have any affect on the funding arrangements that are


reflected, that essentially drive public expenditure in Scotland, I


would have a strong opinion about that. The Office of budget


responsibility has raised its estimate on the number of public


sector jobs that will be lost through red the UK -- throughout


the United Kingdom up to 700,000. Given that, can you still have a


policy of no compulsory redundancies in Scotland? We have


taken that forward for next year and we will continue to sustain


that policy it. We think it is possible to do that in the


constraints within which we operate. We are trying to work


collaboratively to maintain public sector employment in Scotland


because it matters as an economic driver in Scotland. We believe it


is a significant contributor to delivering economic score --


economic growth in Scotland. government to see it will put up


�50 million if you will match the sweeper improvement. We will try to


make that work. They will have to a talk with the United Kingdom


government to Take That forward. We will engage very constructively to


make that happen. The steeper service is very important to


Scotland. I'm joined now by John McLaren,


economist with the Centre for Public Policy for Regions.


You have the honour of being the only non politician on the


programme tonight. When it you saw this Office for Budget


Responsibility report and its forecast, how bad is this? It is


pretty bad, but I think most people could see it coming. The revisions


in the Bank of England's forecasts have been pushing this way.


Yesterday, with the OECD report coming out, it is almost


automatically that you move that on to what is happening in the


government's finance balance. If anything, what has not come out


today has been a implied. This is an optimistic forecast. In America,


if they do not pass new fiscal rules, they will be tightening it a


lot more next year. If they eurozone and that happens to go


there, that could mean it two years of negative growth in the United


Kingdom. It is much more likely that the bride's side it will


happen -- the bad side will happen? Yes. The belief is that the


negative forecast is more likely. This central argument that the


coalition government has had is that unless they do this, the bond


markets will lose faith and Britain will have to pay higher interest on


its debt. Is that still credible? This year, we will be borrowing


more money as a country than we would have been under Alistair


Darling's plans. It is staying with its gamble, that it is less of


arrested to keep the market happy - - the that it is less of art risk


to keep the markets are happy. It is taking the risk that that is


going to have a better impact than doing some short term it stimulus,


fiscal stimulus. It might be positive, but if that led to a


negative knock on effect... So the markets and economists would


disagree with Labour's argument that if you had start to their


plans, you would have growth in the economy, people are not convinced


of that? I think a number of economists say you should have more


of a fiscal economist. -- fiscal stimulus. But most are fairly less


certain of that. They are fairly happy with the profile of the


current government's spending plans. The markets are happy to keep that


tightness there. It is a fine balance. The Government has decided


to go with more austerity rather than more stimulus because it


thinks the risks are better on that side. Thanks very much.


So with public sector pay restrictions and gloomy predictions


that our wages will no longer go as far as we'd like for several years


to come, will we spend less in the shops? And what will it mean for


trade in Scotland? Laura Bicker has been gauging reaction from across


The Chancellor tried to grasp at the helm, to keep the economy on


course. But the burden of debt and the dark clouds gathering over the


eurozone mean we are now de navigating stormier waters and


wondering how long it will be before be beach stable economic


shores. As they predictions for the economy grow bleaker, there was


little him today's statement by the Chancellor to give cheered to


consumers. Average income for household has fallen by 2.3%. And


incomes will continue to fall for at least the next two years. All


this at a time when we are being encouraged to spend money. Workers


are aware there hard am to cash will not go as far -- hard earned


cash. Postop the most disturbing aspect of today's statement is the


reassessment of growth rate. That was a dramatic reduction. It drags


out the slow recovery for at least another year. But it is not all bad


news. Our traditional industries are coping with the crisis and


finding new markets. They euros re -- of the eurozone does not look


particularly strong, but in other parts of the world, there are


trading opportunities which remain robust. The engineering sector and


the whisky sector have markets that can be exploited. There are still


opportunities to go out into world markets and make a mint. As the


Federation of Small businesses met in Inverness today, they welcomed


the Chancellor's plans to cancel fuel duty rises and Investment Bin


road and rail. We are highly dependent on people travelling and


coming out in cars and vehicles. We have notice that people are


starting to assess their mileage. It is great the government is


looking at it and trying to help small businesses. The amount of


hurdles that are put in place, it is a bit discouraging as an


employer. You want to look after the people you have got. But public


sector workers will feel the pinch. The Chancellor announced that wage


rises will be capped at 1%. public sector workforce are very


determined. We will see a huge show of determination and solidarity


tomorrow. What this Government is doing is affecting every worker in


this country, public and private sector. Workers are taking a


hammering from this Government. The Government has to realise that.


Today, the good ship collision it set a new course in an attempt to


the dust to shelter. Where we will I'm joined now from our London


studios by Labour Treasury Shadow, Cathy Jamieson and by Edinburgh


Liberal Democrat, Mike Crockart and by the SNP's Mike Weir. Cathy


Jamieson I want to pick up on one of the things, the risk that if the


British Government changed course and did what you want to do, that


it really could jeopardise Britain's credit rating. That once


this's done, it's almost impossible to claw back from there? Well, I've


heard those arguments put in Parliament today. On the other side


of this, many people have been predicting how bad things were


going to be, as John McLaren outlined. We have been saying for


18 months now that the government needed to change course. That the


cuts were too fast. They were going too deep. They were causing more


problems than they were solving. We have seen some moves today which


may, if we get more information, will be of help in Scotland. The


people hit Hart hardest in all of this are ordinary working families.


There won't be that stimulus to get money back into the economy if the


squeeze continues on those working people. Yes. That doesn't quite


answer the point, that the coalition make, which, is if they


jep advertise diezed the rating on UK government debt, in the way that,


for example, Italy has, the consequences for all these ordinary


people you are talking about, of having to finance the current


levels of British debt at higher interest rates would be


catastrophic? When people are raising these issues, it's


important to point out that some of the problems emerged in the


eurozone crisis, our economy was back sliding, was flat lining


before all of this came into the public domain in the way that it


has recently. We have been saying consistently that the way to deal


with this was to have a plan for growth. Labour put forward a five-


point plan for growth. The problem has been that the government has


simply cut. They cut the public sector. Cut spending. They haven't


actually put the stimulus in place for growth. That is what we have


been arguing about. It remains to be seen, in terms of Scotland,


unanswered questions about how I want to see the money coming into


infrastructure. I hope it will be additional money. I hope the


Scottish government will get people back to work using those resources.


Mike Crockart the obvious count to that, the justify case made for the


austerity programme that you brought in was that, if we fold the


plans of the previous Labour government that would have led to a


level of debt that would have been catastrophic and Britain like Italy


would have had its credit rating jeopardised. You are proposing to


borrow more than Alastair Darling was proposing to borrow. He would


not have had the levels of public spending cuts that you have had?


Well, the figures that Alastair Darling had are now 18 months to


two years old. They don't reflect the circumstances that have ensued


over the last 18 months. I think we can take it for granted those


figures would have changed a great deal if he had been phased with the


collapse of the eurozone, where 60% of our trade goes. If you had been


faced with 40% rise in fuel costs over the last 18 months. It simply


isn't fair to compare those two figures. It's not comparing like-


for-like in time. What we are - Hang on. Where it is fair, even if


you forget Alastair Darling agencies's figures you are not


reducing borrowing at anything like the rate you were proposing to do


under the original austerity plan. By your own logic, the rating


agency should be considering withdrawing Britain's triple-A


rating. Despite mutterings tonight there isn't any indication this


they are doing that? They, alooning with the OECD and the IMF I agree


that the cooling government's plan is a good one. It's a strong one.


That is why our borrowing rates are so low. Our rates right now are


lower than Germany. It's purely because of those sorts of figures


that we are able to do the types of things that George Osborne was able


to announce today. The fact - our credit easing. We are able to do


that because the rates the government is able it get from


borrow something lower than the market. We are able to pass those


rates on and ensure that many small and medium enterprises across the


country are guaranteed the sort of credit that they need to be able to


grow the economy. Mike Weir, which side of the fence is the SNP?


Scottish government has been pushing capital projects to - keep


Scotland's economy going. We continue to do that. The main thing


to come out of the report today was, 2012 growth slipped from 2.5% to


0.7%. Most of the money for these capital projects is not coming in


until well after 2012. There is a real question as to how he will


feed into helping growth in Scotland and indeed the UK.


interested in which side of the fence you are on. Do you agree with


Cathy Jamieson that spending has been cut too far and too fast and


there should be a complete change of course to pump stimulus into the


economy? Do you agree with Mike Crockart that doing that would


jeopardise Britain's credit rating and actually could end up


impoverishing all of us? Scottish government are already


taking action within the powers that they have to put money into


infrastructure. To make sure that Scotland keeps working. To keep


people in jobs. That is the proper way forward. We have been calling


for a Plan B for a long time now. George Osborne has come a little


way along the road with that today. There is a lot to do. There is real


questions about how this money, how soon this money will come into the


economy and how it will be put into infrastructure projects. Looking at


a situation where we could have sharply rising unemployment over


the next year. The money for capital infrastructure is not


coming in to play until after that. If you look at the old BR report,


down to 0.7% in 2012, there is assumption of growth there after.


You do have to worry as to whether that is relistic. Cathy Jamieson,


do you think kick starting a few infrastructure projects is enough?


The implication of what you have been saying, or what Labour have


been saying, is you actually want an all out boost to demand? For


example, cut VAT, cut taxs to put money in people's pox pockets to


get them spending now? We recognise people are feeling the squeeze at


the moment. Ordinary families are feeling it on rising fuel prices,


on energy prices. The food that they are buying in the shops. A


whole range of things. We do believe that one of the ways to


deal with this would be to reverse the VAT rise, for example, to look


at how we can boost spending on home improvements. Also


infrastructure is important. There are pretty shocking figures today.


The notion there will be another 700,000 public sector jobs lost in


the coming years is quite frightening. Who will carry out the


necessary work that we need? These are the jobs we all rely on. It's


not good enough to at every turn take the money out of the money of


pockets of familiar familiar families. We have seen further


examples today in terms of tax credits. Another obvious point is,


you said when you introduced the austerity programme you wanted to


eliminate the structural deficit by 2015. You didn't want to make


commitments into another parliamentary term where you might


not be the government because the markets could only believe you if


you told them what you had an ability to do. Now, you turnaround


and tell us you will not do that at all? Absolutely. These are tough


times. There are things we would like to do. And, that's one of them.


Unfortunately, the economic circumstances haven't turned out


the way - You said the credibility of your strategy depended on that?


That is what we wanted to do. If you are inflexible then that is


worse than not having a plan to begin with. OK. What we have done,


not just about kicking off a few infrastructure projects, by the way,


it's about trying to get the confidence back into business to


remove - I feel a list coming out. We are out of time much we will cut


you off there. Thank you for joining us. A quick look at


joining us. A quick look at tomorrow's front pages: The autumn


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