01/08/2012 Newsnight Scotland


01/08/2012

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about making it pay. They have a ten-year contract and we intend to

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Tonight on Newsnight Scotland, as the dreadful economic news comes

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out around the world, the Chancellor told that a character

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business. Borrow to invest in jobs and the government will guarantee

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lending. IB's enough to get the economy growing again? -- will

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these measures be enough? None of the economic indicators will cheer

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you up, dreadful predictions for British and eurozone manufacturing

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output, retail sales fell across the country. In the Far East, signs

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of a slowing of growth in China. Taiwan went into recession. George

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Osborne has a new wheeze to get bank lending to business but will

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it work? Getting the economy moving, what

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every politician once, but easier said than done. Today, the UK

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Government launched a scheme to make more money available to

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homeowners and businesses. The Bank of England hopes to lend about �80

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billion to banks and business societies at an interest rate of

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0.75%. But the result showed that more demand gloom. Manufacturing

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has slowed. House prices have fallen for the 4th time in five

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months, and in Scotland, retail sales have been trailing behind the

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rest of the UK. Small businesses are sometimes called the engine

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room of the economy, and in that engine room, the real impact of

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economic uncertainty is being felt. It is a difficult situation for

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many people, but it is by no means impossible or hopeless. One of the

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major challenges it faces is the issue of confidence. Whether that

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is large international corporation sitting on cash, not wanting to

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invest, right down to individual families worried about their jobs.

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For four years, the mood music in the economy has been downbeat, yet

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it is not all bad news. Unemployment has been falling back

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for several months, inflation has been coming down as well. It is

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worth remembering low-interest rates are good news for people who

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do not rely on interest for income, but low consumer confidence remains

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an obstacle to getting the economy moving. As soon as you do not want

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to make a spending decision, that has an impact on the shop you would

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purchase from, that has a knock-on effect to suppliers. You do not

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need to be a professor of economics to see that is a self-perpetuating

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cycle, and we need to break that if things are going to improve.

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course, the feel-good factor will not trade -- translate into

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economic recovery, and the effect which positive vibes can get people

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spending can vary. The Olympics seems to have had a mixed impact.

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Some shops say business is down, but even opposition politicians are

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not trying to make capital from this. I don't think we would trade

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having the Olympic Games in London, and I don't know what will happen

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in terms of this two week period in the economy, clearly some places

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will have not as many people. But this is not just about the UK

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economy are about what the Scottish short UK governments should or

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should not do. Economies are interlinked. The crisis in the

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eurozone continues to threaten economies across the Continent.

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China is warning there economic growth could slow further. The

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United States said manufacturing had shrunk there. I am joined by

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Professor Jo Armstrong, David Watt, and George Kerevan. Professor Jo

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Armstrong, what do you see happening? I do not remember a day

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when there were so many indicators coming from around the world, none

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of which were good, what does that tell us about prospects? It is

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difficult to talk about the world economy because they are still

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parts of the world but there are growing, the nations that are

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slowing down are still growing. For the UK and Scotland, it is

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difficult where we will seek any sort of bounce back when we have

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significant confidence problems, and public sector cuts to come

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through. It requires either a significant investment from the

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private sector, which this information indicates is unlikely,

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or a change of policy. significant thing is this news

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about slowing economy, slower growth in the Far East. Part of the

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plan was to be direct from households to exports, then it

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turns out we do not export to the places that were growing, we export

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to the European Union. Not only do we not export to those places but

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they are slowing down. The barrier is getting higher. We had a good

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stimulus through export and that is turning round again. The Stirling

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has strengthened and the euro is weakening. There is a need to look

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to other parts of the world, there has been a drive by the Scottish

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Government to make people look at investing elsewhere. You're not

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going to suddenly change that export drive overnight, that will

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take time to filter through. That is the problem, is it not, there

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were suddenly? There's a lack of demand in the British and European

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and American economies, and these measures may be good ideas, and may

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transform the economy, but will not I think in Europe and Britain we

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have over done the austerity so there is a lack of demand. The

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problem in the UK is affecting manufacturing exports. For the last

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four years, productivity in the UK has collapsed. That has pushed up

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unit labour costs. You only have to add the fact that the euro has sunk

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against the POW and by 15 % in the last year to... There are things

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you can do. Were should recognise the other side of that

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productivity., companies have been reluctant to let people go.

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Productivity may have collapsed but we do not have the mass

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unemployment we had in the 1980s. That is true. I am pointing out

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that if you compare Britain's a tent to rebound towards

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manufacturing exports, that is not working because you have to get the

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price is right. Ireland, which is one of the eurozone countries which

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has managed this, is powering away on experts and they have got

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productivity up dramatically. We have to look at both demand and

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supply. This will solve the problem. What is the mood among sure members

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when they see the Government's, we will talk in more detail about this

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programme, but there it was the one on infrastructure a few weeks ago,

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is anyone cheering up? I do not think it is all bad. I speak to

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people who are optimistic. Perhaps my view is skewed, the people were

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not happy are heading in their offices and will not speak to me.

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You can find people who genuinely are happy. A funny thing happened,

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I spoke to people in PR and marketing who are very upbeat.

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They're supposed to be the people who were hit first. But then they

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are marketing people! Yes, but generally it is not all bad. I

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speak to lots of press people and there is a lack of confidence and

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an issue about availability of finance. There is a desire for

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politicians to do things, but it is not all doom and gloom. Do you see

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any merit in this loan scheme which has come into force today, this

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idea that the government will make available funds to banks on

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condition they lend it to business or indeed households and it will be

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underwritten by government? There is merit in it but like all of

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these deals they have done with banks in recent years, we have to

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see it actually working. None of the previous schemes really have

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been the major change or the sea change we all looked for her. I am

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not totally convinced this will be in practice. In theory it sounds

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sensible but often when they have given banks cheap money in the past,

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they have not been lending to my members. There is a lot of devil in

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the detail. There is also the issue of whether it addresses the problem,

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private for up -- companies are sitting on a huge mountain of cash

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because they do not see any sensible prospect of investing it.

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It is not clear that many businesses have problems accessing

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cash but it is not clear across the economy that this is the problem?

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There is a specific issue in bank lending no one has mentioned. Banks

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lend money and simultaneously they have to increase their capital

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reserves. The UK has some of the most onerous capital reserve

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requirements, worse than in Germany, so you can give it banks cheap

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money but the government is also saying, a few Len that money you

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have to stash a lot away as a reserve. That is one of the major

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factor slowing lending. They are saying one thing and then another

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thing. Deer by the idea... -- we all know individual problems --

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individual businesses have problems but across this economy as a whole,

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businesses do not want to end -- invest? He I think there is an

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issue for certain types of businesses which cannot access to

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finance. Yes, if you are not seeing demand coming through why would you

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spend your own cash? Why would you go to a bank and asked for a lawn

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which will cost more than three or four years ago? -- alone. If you

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cannot see the confidence and demand, investment is a risky place,

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especially if that uses up your free cash and you end up having to

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make people redundant. At on this subject, hold on to your hats, we

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will bring you breaking news or speculation, the front page of the

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Financial Times tomorrow, there it is. Full state ownership of RBS on

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the table - it is suggesting that the Cabinet is having discussions

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of buying out the percentage that the taxpayer does not already own.

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The argument is, I quote, someone in government believes that the

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Treasury schemes to free up cash have not worked and forcing RBS to

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lend more is the only way to push the banks into action. He had to

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take over the whole bank which he cannot do at the moment because

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shareholders can object at the moment. Basically, you tell them

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what to do. It may or may not happen but some of the Government

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may say, if it did happen, would that be a good idea? It is a very

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interesting one that at Conservative but -- government

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would seek to nationalise a bank. It is difficult to understand why

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the expectation of one bank being taken over would make a marked

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difference to lending in the sector, would act as a catalyst to all the

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others? Would this government be able to indicate what the credit

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risk pressing should then be to help others understand how the

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issue price of new loans? It is difficult to see how one bank being

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nationalised would fundamentally change their I -- the lending

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outlook. Jaw it, what he make of this suggestion? I green

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nationalising one bank will not The Bank of England should start

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charging banks for keeping their money idle and then they would be

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forced to lend. You think that would be a better move than buying

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out the bits of RBS we do not own? I am a great experimentalist. I

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think it would be a good idea to take RBS into ownership and give it

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to the Scottish government to run it as a regional investment bank as

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they do in Germany. I will try anything. I presume you would like

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a bit of RBS, not all one trillion pounds of assets? I AM intrigued by

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this Financial Times story. I will believe it when I actually see it.

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I will believe it when I see George Osborne actually nationalise a bank.

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I think I did say that according to the F T, he is opposed to it. I am

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curious to your reaction to it? not convince politicians make a

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better job of running a bank than the current people, to be honest. I

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think the government should say to RBS we are prepared to sit back

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longer and wait for a return on our investment rather than force their

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hand into getting capital out to the business community. Something

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has to be done, I do accept that but I am far from convinced that

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nationalising a bank is the answer. They could seek to underwrite the

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credit risk which the bank is uncomfortable to do which might

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encourage them to lend more. They would say that is what they are

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doing. They are in this plan for infrastructure projects, are they

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not? Only for projects which are deemed to be unfunded will end any

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case but have to go now, that seems to be impossible to find such

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projects. Does it seem to you, I'm just curious as to why they are

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coming out with schemes like the infrastructure scheme where they

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are underwriting debts. Today is a fancy way of doing the same thing,

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yet in the electricity bill they had just cancelled their commitment

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to underwrite the huge power investments whether in nuclear or

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offshore renewables which in the original bill would be underwritten

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by the government? I suppose the difference would be there is a

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long-term contribution, a long-term cost to consumers that they are

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setting in train. At the moment you can turn off the tap. We will have

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to leave it there. Thank you very much. A quick look at the front

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pages. I expect to see a lot of Bradley Wiggins needless to say.

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The Financial Times - a full state ownership of RBS on the table. The

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Guardian, there is a picture of Bradley Wiggins. The Scottish Daily

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