:00:01. > :00:11.about making it pay. They have a ten-year contract and we intend to
:00:11. > :00:15.
:00:15. > :00:19.Tonight on Newsnight Scotland, as the dreadful economic news comes
:00:19. > :00:23.out around the world, the Chancellor told that a character
:00:23. > :00:29.business. Borrow to invest in jobs and the government will guarantee
:00:29. > :00:36.lending. IB's enough to get the economy growing again? -- will
:00:37. > :00:41.these measures be enough? None of the economic indicators will cheer
:00:41. > :00:50.you up, dreadful predictions for British and eurozone manufacturing
:00:50. > :00:56.output, retail sales fell across the country. In the Far East, signs
:00:56. > :00:59.of a slowing of growth in China. Taiwan went into recession. George
:00:59. > :01:07.Osborne has a new wheeze to get bank lending to business but will
:01:07. > :01:13.it work? Getting the economy moving, what
:01:13. > :01:16.every politician once, but easier said than done. Today, the UK
:01:16. > :01:21.Government launched a scheme to make more money available to
:01:21. > :01:26.homeowners and businesses. The Bank of England hopes to lend about �80
:01:26. > :01:33.billion to banks and business societies at an interest rate of
:01:34. > :01:38.0.75%. But the result showed that more demand gloom. Manufacturing
:01:38. > :01:42.has slowed. House prices have fallen for the 4th time in five
:01:42. > :01:47.months, and in Scotland, retail sales have been trailing behind the
:01:47. > :01:52.rest of the UK. Small businesses are sometimes called the engine
:01:52. > :01:56.room of the economy, and in that engine room, the real impact of
:01:56. > :02:02.economic uncertainty is being felt. It is a difficult situation for
:02:03. > :02:10.many people, but it is by no means impossible or hopeless. One of the
:02:10. > :02:14.major challenges it faces is the issue of confidence. Whether that
:02:14. > :02:19.is large international corporation sitting on cash, not wanting to
:02:19. > :02:24.invest, right down to individual families worried about their jobs.
:02:24. > :02:28.For four years, the mood music in the economy has been downbeat, yet
:02:28. > :02:33.it is not all bad news. Unemployment has been falling back
:02:34. > :02:36.for several months, inflation has been coming down as well. It is
:02:36. > :02:41.worth remembering low-interest rates are good news for people who
:02:41. > :02:47.do not rely on interest for income, but low consumer confidence remains
:02:47. > :02:52.an obstacle to getting the economy moving. As soon as you do not want
:02:53. > :02:58.to make a spending decision, that has an impact on the shop you would
:02:58. > :03:02.purchase from, that has a knock-on effect to suppliers. You do not
:03:02. > :03:09.need to be a professor of economics to see that is a self-perpetuating
:03:09. > :03:14.cycle, and we need to break that if things are going to improve.
:03:14. > :03:21.course, the feel-good factor will not trade -- translate into
:03:21. > :03:26.economic recovery, and the effect which positive vibes can get people
:03:26. > :03:31.spending can vary. The Olympics seems to have had a mixed impact.
:03:31. > :03:36.Some shops say business is down, but even opposition politicians are
:03:36. > :03:39.not trying to make capital from this. I don't think we would trade
:03:40. > :03:44.having the Olympic Games in London, and I don't know what will happen
:03:44. > :03:52.in terms of this two week period in the economy, clearly some places
:03:52. > :03:55.will have not as many people. But this is not just about the UK
:03:55. > :04:03.economy are about what the Scottish short UK governments should or
:04:03. > :04:07.should not do. Economies are interlinked. The crisis in the
:04:08. > :04:11.eurozone continues to threaten economies across the Continent.
:04:11. > :04:21.China is warning there economic growth could slow further. The
:04:21. > :04:23.
:04:23. > :04:33.United States said manufacturing had shrunk there. I am joined by
:04:33. > :04:34.
:04:34. > :04:39.Professor Jo Armstrong, David Watt, and George Kerevan. Professor Jo
:04:39. > :04:42.Armstrong, what do you see happening? I do not remember a day
:04:42. > :04:49.when there were so many indicators coming from around the world, none
:04:49. > :04:52.of which were good, what does that tell us about prospects? It is
:04:52. > :04:57.difficult to talk about the world economy because they are still
:04:57. > :05:01.parts of the world but there are growing, the nations that are
:05:01. > :05:05.slowing down are still growing. For the UK and Scotland, it is
:05:05. > :05:10.difficult where we will seek any sort of bounce back when we have
:05:10. > :05:16.significant confidence problems, and public sector cuts to come
:05:16. > :05:23.through. It requires either a significant investment from the
:05:23. > :05:27.private sector, which this information indicates is unlikely,
:05:27. > :05:35.or a change of policy. significant thing is this news
:05:35. > :05:41.about slowing economy, slower growth in the Far East. Part of the
:05:41. > :05:46.plan was to be direct from households to exports, then it
:05:46. > :05:51.turns out we do not export to the places that were growing, we export
:05:51. > :05:57.to the European Union. Not only do we not export to those places but
:05:57. > :06:02.they are slowing down. The barrier is getting higher. We had a good
:06:02. > :06:07.stimulus through export and that is turning round again. The Stirling
:06:07. > :06:12.has strengthened and the euro is weakening. There is a need to look
:06:12. > :06:19.to other parts of the world, there has been a drive by the Scottish
:06:19. > :06:23.Government to make people look at investing elsewhere. You're not
:06:23. > :06:28.going to suddenly change that export drive overnight, that will
:06:28. > :06:38.take time to filter through. That is the problem, is it not, there
:06:38. > :06:46.were suddenly? There's a lack of demand in the British and European
:06:46. > :06:56.and American economies, and these measures may be good ideas, and may
:06:56. > :07:02.
:07:02. > :07:07.transform the economy, but will not I think in Europe and Britain we
:07:07. > :07:12.have over done the austerity so there is a lack of demand. The
:07:12. > :07:18.problem in the UK is affecting manufacturing exports. For the last
:07:18. > :07:24.four years, productivity in the UK has collapsed. That has pushed up
:07:25. > :07:29.unit labour costs. You only have to add the fact that the euro has sunk
:07:29. > :07:33.against the POW and by 15 % in the last year to... There are things
:07:33. > :07:39.you can do. Were should recognise the other side of that
:07:39. > :07:42.productivity., companies have been reluctant to let people go.
:07:42. > :07:49.Productivity may have collapsed but we do not have the mass
:07:49. > :07:54.unemployment we had in the 1980s. That is true. I am pointing out
:07:54. > :07:58.that if you compare Britain's a tent to rebound towards
:07:58. > :08:04.manufacturing exports, that is not working because you have to get the
:08:04. > :08:09.price is right. Ireland, which is one of the eurozone countries which
:08:09. > :08:13.has managed this, is powering away on experts and they have got
:08:14. > :08:20.productivity up dramatically. We have to look at both demand and
:08:20. > :08:26.supply. This will solve the problem. What is the mood among sure members
:08:26. > :08:33.when they see the Government's, we will talk in more detail about this
:08:33. > :08:39.programme, but there it was the one on infrastructure a few weeks ago,
:08:39. > :08:44.is anyone cheering up? I do not think it is all bad. I speak to
:08:44. > :08:48.people who are optimistic. Perhaps my view is skewed, the people were
:08:48. > :08:53.not happy are heading in their offices and will not speak to me.
:08:53. > :08:58.You can find people who genuinely are happy. A funny thing happened,
:08:58. > :09:04.I spoke to people in PR and marketing who are very upbeat.
:09:04. > :09:10.They're supposed to be the people who were hit first. But then they
:09:10. > :09:14.are marketing people! Yes, but generally it is not all bad. I
:09:14. > :09:20.speak to lots of press people and there is a lack of confidence and
:09:20. > :09:26.an issue about availability of finance. There is a desire for
:09:26. > :09:31.politicians to do things, but it is not all doom and gloom. Do you see
:09:31. > :09:36.any merit in this loan scheme which has come into force today, this
:09:36. > :09:41.idea that the government will make available funds to banks on
:09:41. > :09:48.condition they lend it to business or indeed households and it will be
:09:48. > :09:52.underwritten by government? There is merit in it but like all of
:09:52. > :09:58.these deals they have done with banks in recent years, we have to
:09:58. > :10:02.see it actually working. None of the previous schemes really have
:10:02. > :10:07.been the major change or the sea change we all looked for her. I am
:10:07. > :10:11.not totally convinced this will be in practice. In theory it sounds
:10:11. > :10:17.sensible but often when they have given banks cheap money in the past,
:10:17. > :10:25.they have not been lending to my members. There is a lot of devil in
:10:25. > :10:29.the detail. There is also the issue of whether it addresses the problem,
:10:29. > :10:34.private for up -- companies are sitting on a huge mountain of cash
:10:34. > :10:38.because they do not see any sensible prospect of investing it.
:10:38. > :10:44.It is not clear that many businesses have problems accessing
:10:44. > :10:50.cash but it is not clear across the economy that this is the problem?
:10:50. > :10:54.There is a specific issue in bank lending no one has mentioned. Banks
:10:54. > :10:58.lend money and simultaneously they have to increase their capital
:10:58. > :11:04.reserves. The UK has some of the most onerous capital reserve
:11:05. > :11:10.requirements, worse than in Germany, so you can give it banks cheap
:11:10. > :11:15.money but the government is also saying, a few Len that money you
:11:15. > :11:20.have to stash a lot away as a reserve. That is one of the major
:11:20. > :11:30.factor slowing lending. They are saying one thing and then another
:11:30. > :11:32.
:11:32. > :11:37.thing. Deer by the idea... -- we all know individual problems --
:11:37. > :11:43.individual businesses have problems but across this economy as a whole,
:11:43. > :11:47.businesses do not want to end -- invest? He I think there is an
:11:47. > :11:55.issue for certain types of businesses which cannot access to
:11:55. > :11:59.finance. Yes, if you are not seeing demand coming through why would you
:11:59. > :12:06.spend your own cash? Why would you go to a bank and asked for a lawn
:12:06. > :12:11.which will cost more than three or four years ago? -- alone. If you
:12:11. > :12:16.cannot see the confidence and demand, investment is a risky place,
:12:16. > :12:23.especially if that uses up your free cash and you end up having to
:12:23. > :12:27.make people redundant. At on this subject, hold on to your hats, we
:12:27. > :12:36.will bring you breaking news or speculation, the front page of the
:12:36. > :12:40.Financial Times tomorrow, there it is. Full state ownership of RBS on
:12:40. > :12:45.the table - it is suggesting that the Cabinet is having discussions
:12:45. > :12:52.of buying out the percentage that the taxpayer does not already own.
:12:52. > :12:58.The argument is, I quote, someone in government believes that the
:12:58. > :13:03.Treasury schemes to free up cash have not worked and forcing RBS to
:13:03. > :13:07.lend more is the only way to push the banks into action. He had to
:13:07. > :13:11.take over the whole bank which he cannot do at the moment because
:13:11. > :13:16.shareholders can object at the moment. Basically, you tell them
:13:16. > :13:24.what to do. It may or may not happen but some of the Government
:13:24. > :13:27.may say, if it did happen, would that be a good idea? It is a very
:13:27. > :13:31.interesting one that at Conservative but -- government
:13:31. > :13:36.would seek to nationalise a bank. It is difficult to understand why
:13:36. > :13:40.the expectation of one bank being taken over would make a marked
:13:40. > :13:44.difference to lending in the sector, would act as a catalyst to all the
:13:44. > :13:49.others? Would this government be able to indicate what the credit
:13:49. > :13:57.risk pressing should then be to help others understand how the
:13:57. > :14:00.issue price of new loans? It is difficult to see how one bank being
:14:00. > :14:07.nationalised would fundamentally change their I -- the lending
:14:07. > :14:17.outlook. Jaw it, what he make of this suggestion? I green
:14:17. > :14:25.
:14:25. > :14:28.nationalising one bank will not The Bank of England should start
:14:29. > :14:32.charging banks for keeping their money idle and then they would be
:14:32. > :14:39.forced to lend. You think that would be a better move than buying
:14:39. > :14:44.out the bits of RBS we do not own? I am a great experimentalist. I
:14:44. > :14:48.think it would be a good idea to take RBS into ownership and give it
:14:48. > :14:56.to the Scottish government to run it as a regional investment bank as
:14:56. > :15:05.they do in Germany. I will try anything. I presume you would like
:15:05. > :15:11.a bit of RBS, not all one trillion pounds of assets? I AM intrigued by
:15:11. > :15:17.this Financial Times story. I will believe it when I actually see it.
:15:17. > :15:23.I will believe it when I see George Osborne actually nationalise a bank.
:15:23. > :15:27.I think I did say that according to the F T, he is opposed to it. I am
:15:27. > :15:33.curious to your reaction to it? not convince politicians make a
:15:33. > :15:36.better job of running a bank than the current people, to be honest. I
:15:36. > :15:42.think the government should say to RBS we are prepared to sit back
:15:42. > :15:48.longer and wait for a return on our investment rather than force their
:15:48. > :15:52.hand into getting capital out to the business community. Something
:15:52. > :15:57.has to be done, I do accept that but I am far from convinced that
:15:57. > :16:00.nationalising a bank is the answer. They could seek to underwrite the
:16:00. > :16:05.credit risk which the bank is uncomfortable to do which might
:16:05. > :16:11.encourage them to lend more. They would say that is what they are
:16:11. > :16:16.doing. They are in this plan for infrastructure projects, are they
:16:16. > :16:20.not? Only for projects which are deemed to be unfunded will end any
:16:20. > :16:29.case but have to go now, that seems to be impossible to find such
:16:29. > :16:34.projects. Does it seem to you, I'm just curious as to why they are
:16:34. > :16:39.coming out with schemes like the infrastructure scheme where they
:16:39. > :16:42.are underwriting debts. Today is a fancy way of doing the same thing,
:16:42. > :16:47.yet in the electricity bill they had just cancelled their commitment
:16:47. > :16:51.to underwrite the huge power investments whether in nuclear or
:16:51. > :16:56.offshore renewables which in the original bill would be underwritten
:16:57. > :17:02.by the government? I suppose the difference would be there is a
:17:02. > :17:09.long-term contribution, a long-term cost to consumers that they are
:17:09. > :17:12.setting in train. At the moment you can turn off the tap. We will have
:17:13. > :17:20.to leave it there. Thank you very much. A quick look at the front
:17:20. > :17:25.pages. I expect to see a lot of Bradley Wiggins needless to say.
:17:25. > :17:32.The Financial Times - a full state ownership of RBS on the table. The
:17:32. > :17:39.Guardian, there is a picture of Bradley Wiggins. The Scottish Daily