This crisis is an opportunity to put our wasteful house in order. PLUS: On the agenda
BY COLIN DONALD, Business Editor
As we come into the review-of-the-year season, no-one can doubt that 2008 is destined to throb with special resonance in the history books. In economic terms, it has been the equivalent of a 1989 or a 2001 - the great recent geopolitical turning points.
First, there was the banking disaster, in which Scotland has suffered disproportionately. The human costs of this trauma, which on Friday resulted in HM government buying a £15 billion stake in RBS, are set to hit home in 2009. But it has already transformed assumptions about risk and reward in ways that will change behaviour for years to come.
Then there is last week's prebudget report (PBR), which has summoned up debt figures on a gargantuan scale that invoke comparisons with wartime.
All the fancy footwork of the chancellor and the prime minister has not averted widespread interpretation of this document as a loud distress signal about the UK economy.
As such, it is an advertisement for the failures of the last 11 years to produce the "stability" that we have heard so much about.
The PBR's revelations about Britain's indebtedness (the full extent of which the government continues to conceal) and its gamble on fixing the problem with open-ended commitment to increasing borrowing, will take some time to absorb.
Undoubtedly, these have stirred the long-buried Calvinistic horror of debt that is the inheritance of many Scots.
The PBR implies that over a trillion pounds of liabilities are to be passed on to our children. This without the satisfaction of having won a war or defeated our nasty, increasingly brutal social evils.
In political terms, the PBR was a flop. Sardonic laughter is the only proper reaction to Darling's expectation of a recovery starting next May, promoted by shoppers trampling over each other to buy goods at an extra 2.5% discount.
Once this recovery starts, the government says it will magic up £5bn of "efficiency savings" - the sort that no government with a client state as fiercely self-protective as this one ever finds."
And the Treasury coffers will swell with the extra tax from high earners. The chancellor, Alistair Darling, said they should be penalised for their participation in the Brown boom, being "those who have done best out of the growth".
Widespread distaste for "greedy bankers" makes this gesture good politics (Darling knows it will raise minimal revenue). But the populist bang for the minimal buck would have been greater if he had explicitly included the new princes of the public sector among those to be squeezed.
Unlike bankers, this proliferating management class is virtually unsackable, and its fat pensions and bonuses are paid by voters. In fact, a new survey last week found that, at all levels, public sector jobs in Scotland have grown by 29% since 1998, compared with 3% in the private sector.
The PBR will hasten the day when Gordon Brown joins Harold Wilson in the ranks of former prime ministers whose failure to create an efficient, modern economy was exacerbated by political trickiness. But Wilson at least never boasted as shamelessly as Brown has been doing in recent weeks. Nor, of course, did his brand of bogusness include debasing Scottish brand values of prudence and probity.
Far more important than the devaluation of a single, influential politician is the sense of the ending of an era that surrounded it. The PBR has promoted a growing backlash of self-disgust from a heavily indebted nation, where the average household debt has now reached £1.5 trillion, or more than £9700 per household if you exclude mortgages.
With national debt levels now exceeding UK GDP, and more than three times the level of 12 years ago, public debt is expected to reach 48% of GDP in 2009-10 and 57.1% in 2012-13, the highest level since the early 1970s. Brown and Darling will raise an extra £9.2bn this year, and £16.3bn next, but have produced no plans to fund the extra spending except by more borrowing.
Debt will keep rising from £537bn in 2007-08 rising to £1020bn in 2012-13. Darling says it will peak then, but only as a share of GDP. It will rise to £1080bn in 2013-14.
None of these figures include such liabilities as the vast public-pension liability or the PFI off-balance sheet swindle exposed in these pages by the forensic economists Jim and Margaret Cuthbert earlier this year. And then there is Northern Rock, Bradford & Bingley, and the vast costs of nuclear decommissioning (see graph).
By some estimates we will soon be paying more in interest on the debt than we spend on defence, and probably on schools and police as well.
What is to be done? As a counsel of sanity, I recommend a document from the think tank Reform (elder sister of Reform Scotland), whose response to the PBR is subtly entitled The Hole We Are In And How To Get Out Of It, which nails the extent of the debt issue, the trade deficit, wasteful public spending and over-
optimistic forecasts that Brown and Darling have specialised in.
In Scotland's case, their era has been characterised by energy-sapping waste and profligacy, which the SNP government is not yet strong enough to identify and confront. Does it want to? It is not clear.
The party's "local" income-tax plan is near-universally viewed by their potential business allies as threatening to make a bad tax situation worse. The party would be cutting its losses if it abandoned the policy.
The Scottish government must know that its central aim of growing the economy cannot be achieved with Scotland's obese and complacent client state. The coming expenditure squeeze on Scotland has dire implications for some of the poorest and most vulnerable in Scottish society who must be protected. But few now believe now that it is the worthwhile causes that have benefited the most from Brown's profligate "investment".
In the new climate of revulsion against excess, there are opportunities to show how a fiscally independent Scotland might achieve a better balance between private and public sectors. What's not to like about that?
ON THE AGENDA
To Edinburgh Park for a meeting with Paul Walsh, the genial Mancunian chief executive of Diageo, who brings a welcome message of optimism about the "bright future" of whisky (though Diageo makes a lot of other spirits here as well). This was the week that erring Treasury boffins briefly cast a shadow on one of Scotland's last thriving industries, and no doubt earned the wrath of an embarrassed Alistair Darling, a matter that Walsh, also chairman of the Scotch Whisky Association, was magnanimous about.
Yes, it's a lot tougher, he says, but it's not cataclysmic, and if you are the world's biggest drinks company, the trick is to remain flexible across the global Risk board. If growth rates are off in Asia, ship more to Africa or South America. And if anyone asks for renewed credit terms, "they are not going to get them". Diageo is also keeping an especially beady eye on its worldwide distributors in case economic adversity should tempt them into irregular practices.
The £5m-a-year man is tactful but quite forceful about the Scottish government's alcohol abuse-reduction programme, which he (naturally) opposes on the grounds that it is more about "being seen to do something" than effectively targeting the problem, which he believes will be unaffected by such measures as minimum pricing, differential age limits - "a bit quirky" - and separate queues in supermarkets.
Walsh was also keen to play down the importance of talks with VJ Mallya of United Spirits, reported to be about a possible Diageo stake in, or distribution deal with, the Indian company. "He has a wonderful distribution system and he is a great entrepreneur but don't read too much into the talks at this point," was the message.
Following Audit Scotland's investigation of its far-from-transparent or consultative renewal of the ScotRail franchise, Transport Scotland's website tells us that the auditors praised it for "raising the bar in service delivery through improved performance benchmarks" before noting that the report "identifies some areas for improvement, stating the importance of good interaction with stakeholders and improved management processes".
That presumably includes the auditor's finding that TS's £90,000-a-year finance director Guy Houston held shares and share options in the train operator's parent FirstGroup, a conflict of interest for which he was promptly forced out? The website is strangely silent on that one.
RBS asset financier by day, author by night, Clark McGinn's excellent new celebration of Scottishness, The Ultimate Guide To Being Scottish, hits the shelves this week, published by Edinburgh's Luath Press. McGinn is also one of a handful of elite, globe-trotting Burns specialists, in demand to address the haggis from Helsinki to Chicago. McGinn wrote the perfect fun-but-rigorously footnoted book for Scots who vaguely know their cultural heritage, but would not like to be questioned too closely on, say, the precise meaning of the words to Auld Lang Syne. Ayr-born and ex-Glasgow University (his old mate Charles Kennedy contributes a foreword), McGinn now runs the helicopter financing division of the RBS subsidiary Lombard - he oils the rotor-blades that make the oil and gas business possible.
There are many happy amateurs but only about six serious semi-professional Burnsians on the lucrative international circuit. McGinn charges about £3500 to disembowel the haggis at corporate shindigs, but much of his work is for charity.
Print this story
Email to a friend
