29/11/2011 Newsnight Scotland


29/11/2011

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

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economic pain and gloom are not necessarily confined south of the

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border I will ask the government government whether it believes the

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

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Shudderingly awful downward revisions for economic growth,

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meaning additional years of pain. Though there will be some

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sweeteners, including almost half a billion extra money for the

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Scottish government over three years. Our business and economy

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

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

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

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strategy now around infrastructure spend, business deleg regulation

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

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Edinburgh, one of ten super connected digital cities. Scottish

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long distance drivers can applaud the postponed fuel tax increases.

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

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

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revenue along with that capital. Whitehall is negotiating over the

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

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Scottish ministers will decide how to spend the extra allocation.

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

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

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Scotland's infrastructure and enterprise zone. Also whether to

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

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that the prolonged, sluggish economic recovery threats their

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

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

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

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

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

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independence. Could it make Scots feel more downbeat and less

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

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

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

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

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

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

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

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

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

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

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of the fact that this money for spending onical capital projects

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would be transferred from the current budget and, therefore,

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

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In terms of the Barnett. Scottish government can expect a

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

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

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

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elements of funding is spent across Whitehall departments. Whether they

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

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government to jump to the conclusion that the current account

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

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George Osborne is going to finance this capital spending, by

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

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exactly why Scotland should be earthquakes sefrpt from that?

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

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

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

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

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public spending cuts on current budgets to finance this transfer to

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

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

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certain commitments. Are you saying there will be no Barnett

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consequencals of cutting current spending by the same amount you

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

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because of the way in which the Barnett Formula works across

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departmental spending. Scotland benefits when the government

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increases spending in England on the areas which are devolved.

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

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

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

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

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

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

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Scottish government. When the Chancellor is able to confirm the

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exact figures the Scottish government will see this. Instead,

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

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

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

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

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

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

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

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

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

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

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

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allocations to determine how they best spend money within Scotland.

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

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

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review is that the Scottish government will get more money than

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they had anticipated. They will have an additional opportunity to

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

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

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

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office of budget responsibility say they have not made any adjustment

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to their economic forecast as a result of the measures announced

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

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

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

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

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

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

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

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

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

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today is taking forward solid measures to help the economy.

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Bringing forward measures to assist youth unemployment. Easing access

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to credit it taking specific measures to help businesses all of

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

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responsibility, which is supposed to analyse these things forecasts

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

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

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

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

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

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

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spoke to Finance Secretary John Swinney and asked him if he

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

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capital money he was getting from the Treasury.

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

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circumstance that I get autumn budget statement information from

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

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

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

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

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

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

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

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

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what the resource implications of the Autumn statement will be for

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Scotland which I find quite extraordinary. David Mundell must

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

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

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

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

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

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

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

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

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set our pay policy after consultation that the trade unions

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

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

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approach which it does deliver modest increases in public sector

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

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

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

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

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funding situation follows very directly the decisions taken by the

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

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

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

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

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

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quite the regional disparity in the Scottish Labour market that the

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United Kingdom government experiences around the market.

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implication could be that pay scales would be law in Scotland

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

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

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

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

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

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reflected, that essentially drive public expenditure in Scotland, I

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

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responsibility has raised its estimate on the number of public

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

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

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policy of no compulsory redundancies in Scotland? We have

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

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

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constraints within which we operate. We are trying to work

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collaboratively to maintain public sector employment in Scotland

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

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is a significant contributor to delivering economic score --

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

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

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

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

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make that happen. The steeper service is very important to

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Scotland. I'm joined now by John McLaren,

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economist with the Centre for Public Policy for Regions.

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

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programme tonight. When it you saw this Office for Budget

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

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

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

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

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

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

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:16:38.:16:44.

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

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

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

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

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

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

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negative forecast is more likely. This central argument that the

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

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

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

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

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

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

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

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

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

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:18:59.:18:59.

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

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

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

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

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:19:28.:19:31.

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

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

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

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

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to go with more austerity rather than more stimulus because it

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

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So with public sector pay restrictions and gloomy predictions

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

:20:05.:20:08.

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

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

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

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

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eurozone mean we are now de navigating stormier waters and

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wondering how long it will be before be beach stable economic

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

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

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

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

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

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

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

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

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

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news. Our traditional industries are coping with the crisis and

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

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

:21:58.:22:03.

trading opportunities which remain robust. The engineering sector and

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

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

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Federation of Small businesses met in Inverness today, they welcomed

:22:21.:22:27.

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

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

:22:31.:22:36.

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

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

:22:46.:22:53.

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

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

:22:56.:23:04.

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

:23:04.:23:08.

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

:23:08.:23:17.

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

:23:17.:23:22.

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

:23:22.:23:29.

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

:23:29.:23:33.

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

:23:33.:23:38.

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

:23:38.:23:48.
:23:48.:23:48.

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

:23:49.:23:58.
:23:59.:24:03.

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

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studios by Labour Treasury Shadow, Cathy Jamieson and by Edinburgh

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

:24:08.:24:15.

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

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

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

:24:23.:24:28.

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

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

:24:32.:24:36.

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

:24:36.:24:41.

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

:24:41.:24:44.

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

:24:44.:24:48.

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

:24:48.:24:54.

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

:24:54.:24:58.

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

:24:58.:25:01.

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

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

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

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

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

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

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

:25:29.:25:33.

levels of British debt at higher interest rates would be

:25:33.:25:36.

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

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

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

:25:44.:25:49.

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

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

:25:52.:25:56.

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

:25:56.:26:00.

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

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

:26:04.:26:08.

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

:26:08.:26:14.

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

:26:14.:26:17.

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

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

:26:21.:26:28.

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

:26:28.:26:31.

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

:26:32.:26:37.

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

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

:26:40.:26:45.

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

:26:45.:26:51.

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

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

:26:54.:26:59.

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

:26:59.:27:03.

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

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

:27:10.:27:13.

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

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

:27:18.:27:23.

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

:27:23.:27:29.

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

:27:29.:27:34.

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

:27:34.:27:41.

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

:27:41.:27:46.

you forget Alastair Darling agencies's figures you are not

:27:46.:27:49.

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

:27:49.:27:54.

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

:27:54.:27:58.

agency should be considering withdrawing Britain's triple-A

:27:58.:28:01.

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

:28:01.:28:09.

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

:28:09.:28:12.

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

:28:12.:28:18.

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

:28:18.:28:21.

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

:28:21.:28:26.

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

:28:26.:28:31.

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

:28:31.:28:35.

that because the rates the government is able it get from

:28:35.:28:39.

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

:28:39.:28:44.

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

:28:44.:28:49.

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

:28:49.:28:54.

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

:28:54.:28:59.

Scottish government has been pushing capital projects to - keep

:28:59.:29:03.

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

:29:03.:29:12.

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

:29:12.:29:16.

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

:29:16.:29:21.

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

:29:21.:29:25.

feed into helping growth in Scotland and indeed the UK.

:29:25.:29:30.

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

:29:31.:29:34.

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

:29:34.:29:40.

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

:29:40.:29:44.

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

:29:44.:29:48.

jeopardise Britain's credit rating and actually could end up

:29:48.:29:52.

impoverishing all of us? Scottish government are already

:29:52.:29:57.

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

:29:57.:30:00.

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

:30:00.:30:04.

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

:30:04.:30:08.

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

:30:08.:30:12.

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

:30:12.:30:16.

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

:30:16.:30:22.

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

:30:22.:30:25.

a situation where we could have sharply rising unemployment over

:30:25.:30:30.

the next year. The money for capital infrastructure is not

:30:30.:30:36.

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

:30:36.:30:41.

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

:30:41.:30:46.

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

:30:46.:30:50.

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

:30:50.:30:53.

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

:30:53.:30:58.

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

:30:58.:31:03.

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

:31:03.:31:06.

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

:31:06.:31:10.

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

:31:10.:31:13.

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

:31:13.:31:17.

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

:31:17.:31:22.

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

:31:22.:31:26.

at how we can boost spending on home improvements. Also

:31:26.:31:31.

infrastructure is important. There are pretty shocking figures today.

:31:31.:31:37.

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

:31:37.:31:40.

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

:31:40.:31:45.

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

:31:45.:31:50.

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

:31:50.:31:53.

pockets of familiar familiar families. We have seen further

:31:53.:31:58.

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

:31:58.:32:03.

you said when you introduced the austerity programme you wanted to

:32:03.:32:07.

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

:32:08.:32:10.

commitments into another parliamentary term where you might

:32:10.:32:14.

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

:32:14.:32:17.

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

:32:17.:32:22.

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

:32:22.:32:29.

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

:32:29.:32:31.

Unfortunately, the economic circumstances haven't turned out

:32:31.:32:37.

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

:32:37.:32:43.

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

:32:43.:32:47.

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

:32:47.:32:52.

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

:32:52.:32:56.

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

:32:56.:32:59.

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

:33:00.:33:03.

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

:33:03.:33:06.

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

:33:06.:33:12.

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