Archives for October 2008

And so Holyrood has signalled its majority disquiet at the takeover of HBOS by Lloyds TSB.

By 61 votes to 40, with two abstentions, MSPs backed the view that there was "a very real possibility" of finding a solution which maintains HBOS as an independent bank.

This motion was advanced by Tavish Scott, the leader of the Scottish Liberal Democrats, who was early in the field with opposition to the merger.

It won support from SNP members who are, as discussed previously, intuitively supportive of maintaining as much autonomy as possible for the Bank of Scotland.

Margo MacDonald also backed Mr Scott's motion.

Labour and Tory MSPs voted against. In the division, there were several absentees. You'll find them in Glenrothes, should you care to look.

At the same time, Chancellor Alistair Darling has said that "if for any reason the merger did not go ahead" then the Financial Services Authority would require to reassess the extent to which each bank, individually, would require recapitalisation by the UK Government.

New sums

Mr Darling's comments, in a letter to the first minister, confirm that the existing recapitalisation offer was calculated on the basis that merger had already been backed by the boards of both banks.

That does not mean "wholly dependent". It does not mean "predicated". It means that the sums have been done for one set of circumstances: a merged bank. New sums would be needed if the merger doesn't happen.

Which leaves us where? The Holyrood vote is a considerable fillip to the political campaign to maintain HBOS as an independent bank.

Mr Scott challenged UK ministers to "listen to the will of parliament". Given that they sit in - and report to - a different parliament, I don't expect that to happen any time soon.

Plus the chancellor is NOT lending his weight to the campaign against merger with his letter to the first minister.

Rather, under persistent pressure, he is spelling out the arithmetical and technical facts.

Maximum scrutiny

However, there is more to this for Mr Darling - who is an Edinburgh MP.

For all that he protests his strict neutrality in this matter, he has to be concerned about the jobs and influence aspects as far as the Scottish capital is concerned.

In practice, though, little has changed. As things stand, the merger proposal is backed by both banks - and will be put to their shareholders.

It is, however, decidedly legitimate for politicians to subject this to maximum scrutiny. The vote - and the correspondence with the chancellor - add to that.

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An eclectic mix at FMQs. Not, in itself, a bad thing, of course.

It is an opportunity for MSPs to quiz the first minister on anything and everything.

So herewith a few random thoughts - offering you guys the opportunity to respond in like fashion. Not that you need generally need prompting.

First up, Johann Lamont, standing in for Iain Gray who was attending a funeral.

Labour's deputy performed creditably, pursuing Alex Salmond over both banking and Local Income Tax.

Why both? Because she averred that investment in Scotland would be less likely should LIT be introduced.

Mr Salmond demurred, suggesting that his proposed measure was popular and worthwhile. At least one of her questions was rather wordy - but it was a good showing, albeit handled by Mr Salmond with his customary skill.

Merger opposition

More broadly, where are we on the Lloyds TSB take-over of HBOS? Not much changed, I would say, despite today's debate at Holyrood instigated by the Liberal Democrats.

At Holyrood, Labour MSPs mostly take their cue from the PM and the Chancellor, effectively supporting the take-over without entirely ruling out alternatives.

Ms Lamont's argument, in essence, was: deal with it. Do what you can, Mr Salmond, as FM - in which category she proposed abandoning LIT.

Behind the scenes, UK Government figures are suggesting that opposition to the merger may act against the interests of HBOS, perhaps even depressing the share price.

They insist further that Lloyds TSB is the only deal on the table - and that HBOS has liquidity problems beyond the capitalisation issue which was dealt with at least in part by the UK Government intervention and which has prompted queries as to whether the merger is now needed.

If not Lloyds TSB, it is further asserted, then the alternative - unacceptable to HBOS - is full-scale nationalisation. Still further, it is argued that both banks back the deal.

Arguments worth heeding, certainly. Salient arguments. However, as I have noted here previously, I believe that Mr Salmond has factored such considerations into the stance he has adopted.

Exert leverage

Even when questioning the merger in his conference speech, he stressed that Lloyds TSB had behaved honourably at all times.

His declared objective, which he has pursued, is to exert leverage upon Lloyds TSB in the likely event that the deal goes ahead.

However, I do not believe that pre-empts him from posing questions about the merger.

At this point, eclecticism kicked in. Annabel Goldie raised a couple of topics arising from the Glenrothes by-election. Understandable but not, perhaps, her most substantive contribution in the chamber.

Then Tavish Scott. He has taken the lead over the issue of HBOS independence - but chose instead to question the FM over the Human Embryology Bill at Westminster and specifically Cardinal Keith O'Brien's criticisms thereof.

The Lib Dem thinking here is that they had already led the HBOS debate in parliament - and that the Cardinal's views merited a liberal response.

'Extreme language'

Cardinal O'Brien had said that the bill might enable the taking of human issue without consent: which he compared to Nazi experimentation.

The Cardinal's specific complaint is disputed by supporters of the bill.

More generally, Mr Scott said the comparison with the Nazi regime was "extreme language" - and not designed to promote sensible debate.

Mr Salmond steered an exceptionally cautious path in response.

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It is, in truth, the only strategy carrying the prospect of success.

Alex Salmond says that, when he meets Lloyds TSB bosses, he will urge them to consider "enlightened self-interest".

Not, in other words, benevolence towards Scotland, or pity: concepts that, in any case, do not sit particularly easy in the world of commercial credit.

No, Mr Salmond will rely upon a pitch that stresses, to be blunt, that there is money to be made in Scotland or, at the very least, overheads to be saved.

A St Andrews graduate, the First Minister has plainly been reading his Adam Smith. Kirkcaldy's finest reminded us in "The Wealth of Nations" that: "Man has almost constant occasion for the help of his brethren and it is in vain for him to expect it from their benevolence only."

Smith further advised in the same work that, when dealing with the commercial world, "we address ourselves not to their humanity but to their self-love and never talk to them of our necessities but of their advantages."

I confess I have occasionally given comparable advice to young trainees seeking an opening in the decidedly rough trade of journalism.

Tell your prospective employer, I counsel, what you can do for them. They already know what they can do for you.

And so the First Minister will, quite rightly, present a business case to Lloyds TSB to maintain as many jobs and decision-making functions in Scotland as possible, should the take-over of HBOS go ahead.

His case has been prepared by the Scottish Government with support from the Council of Economic Advisers.

No supplicant, he - but rather a prospective partner, a stake-holder, stressing the expertise, cost base and financial network available in Scotland.

Is Mr Salmond's case weakened by the doubts he has cast on the merger, arguing in his party conference speech that it should not go ahead until there was an explanation as to whether the recapitalisation available from the UK Government is only available to the merged bank?

Frankly, I don't think so. For one thing, Mr Salmond has taken pains to stress his belief that Lloyds TSB has, to use his phrase, "behaved honourably".

For another, I expect he advised Lloyds TSB in advance that he would be making such remarks, understandably keeping them in the loop.

More to the point, though, we are dealing with serious players here.

They know that Mr Salmond's intuitive and financial position is to defend the Bank of Scotland, albeit in its current guise.

They know that he is entitled, indeed bound, to question the terms of a deal which has such a potential impact upon Scotland.

Let me be clear, here. I am not, repeat not, saying that Mr Salmond is going through the motions in raising questions about the deal. Far from it. He is posing legitimate questions.

At the same time, though, he is pursuing Scotland's interests, should the deal go through - which seems probable.

His leverage with Lloyds would be weakened if he condemned the merger outright.

In contrast, leaving open another door - a prospect he genuinely believes feasible, as do some senior business figures - merely indicates that he, too, is serious about this deal.

That is why Mr Salmond retains questions about the merger - but does not consider it appropriate to major on those issues in talks with Lloyds TSB today.

Lloyds TSB, I feel sure, understand that complex negotiations sometimes involve complex positions.

So, enlightened self-interest. But perhaps, just perhaps, Lloyds TSB will consider a further piece of advice from Adam Smith, from his "Theory of Moral Sentiments".

Smith reckons that "no benevolent man ever lost altogether the fruits of his own benevolence".

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Entertaining stuff, eh?

I refer to the sundry shifts in the Scottish Government's position with regard to Local Income Tax. Said shifts follow fairly blunt animadversions against the plan from rival parties.

In itself, there is nothing wrong with amending proposals. Indeed, it is the very purpose of consultation. If governments got everything right on every occasion, there would be no need for consultation. And, further, no need for law-making Parliaments.

However, the scope of the potential changes merits further examination.

What would remain of the original SNP proposals?

More, would the changes enhance the propspect of this Bill passing Parliament when put to the vote?

On the first point, rather a lot - indeed, the core. Scotland would shift from a system of local taxation predicated upon property to one predicated upon income. You earn, you pay. The changes are substantive but not utterly transformational.

Change one, students might be exempted.

Change two, there would be an attempt to extend LIT to cover "unearned" income, such as money derived from shares (if such might be envisaged in the current turmoil.)

Change three, councils might be able to vary the rate at which they set LIT.

SNP Ministers had previously insisted that the rate be fixed at 3p in the pound. Now, they hint that might be the cap. Councils could set LIT below that - but not above. That would still involve a substantial transfer of funds from central government to hold the rate to a maximum of 3p.

Re. unearned income, Ministers originally thought, as did others, it would not be possible to include such dosh.

Now it's thought by some, including Jeremy Purvis of the LibDems, that it could be possible to feature this loot by adding new elements to the system of tax self-assessment.

Others, it should be said, dispute this, saying it remains impractical.

Basically, Ministers are giving ground to those animadversions. Why should students pay? Why should those whose income isn't derived from salary escape? Wouldn't it end all local authority liberty and responsibility if they don't set taxation?

Opponents, including Labour and the Tories, say the changes don't add up to a hill of beans by comparison with the downside of loading too much weight onto salaried income. They warn of the impact on business, particularly at a time of economic downturn. They're looking to reform the council tax instead.

Then there's question two. The SNP doesn't have a majority at Holyrood. Do these potential shifts - tracked by the BBC's Politics Show at the weekend - do enough to win over the LibDems and the Greens whose votes would be needed?

Right now, no.

I stress: right now. The LibDems are, formally, in favour of LIT - but like that first word, "local". They say that variation up to 3p isn't local discretion. Their MSPs, even more so their councillors, will need more.

Further, there are more than a few in the upper reaches of the party who wonder whether LIT is really so wonderful at all.

The Greens also remain to be convinved. They dislike LIT, preferring land value taxation whereby there would be incentives to derive the maximum sustainable use from a property. They do not accept that LIT is, de facto, "fairer" than other systems, arguing that, even with the proposed reforms, it may neglect other sources of wealth in favour of predominantly taxing income.

Intriguingly, the Greens are also prepared to contemplate options which might emerge from Iain Gray's promised review of such matters. Mr Gray has openly admitted that Labour's policy on this question at the last Holyrood election was an uncertain mess.

Instead of dealing with the government, could the Greens deal with the largest opposition party?

Both the LibDems and the Greens, I suspect, could be swayed. But they are not there yet.

PS: Saw David Tennant in Hamlet at the weekend. I know, I know, theatre reviews now: what next, recipes? Indulge me: theatre is a major passion for me, not far behind the team in tangerine. (To whom, all praise for Saturday's glorious goals in fitting tribute to Eddie Thompson.)

The production was superb, with Tennant exceptional. He coped brilliantly with the classic dilemma involved in playing the troubled Dane: do you portray him as temporarily insane or as dissembling, merely "mad north-north-west".

Tennant depicted him as emotionally disturbed and unsure, brilliantly exploiting his uncertain relations with his mother as well as the perturbation caused by his father's death.

In addition, there was whimsy, irony - and a return to the humour which is or ought to be present in the text (Polonius, the grave-digger, Osric, Hamlet himself.) Magnificent.

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Oh, and, by the way, the economy shrank last quarter.

Doesn't it almost seem like an afterthought after the months of agonising over the economic crisis?

Indeed, The Guardian greeted Gordon Brown's concession that Britain was heading for recession with a cartoon depicting the PM on the doorstep of Number 10 with an exceptionally large bear, forecasting a certain degree of ursine detritus in the woods.

But this is it, just the same. This is when and how the real economy of jobs, mortgages, savings and pensions starts to suffer.

Recession is defined as two successive quarters with declining GDP. After the first quarterly fall-back in 16 years, anyone care to bet that we won't be there when the next figures are published?

In Scotland, it would appear that Alex Salmond may comfortably meet his target of matching average UK growth - but not, perhaps, in the manner he envisaged.

The question now is how long and how deep the recession will be.

Few, I suspect, have any real idea about that, given the link to volatile, indeed manic, global markets.

For myself, I am growing increasingly irritated by delphic comments from analysts who didn't forecast the downturn, didn't highlight the internal problems within the banking sector and didn't urge redress.

To quote Attlee, dealing with a pestilential party chairman, "a period of silence would be welcome".

On the subject of mortgages, it would appear that Labour has scored something approaching a palpable hit with its orchestrated onslaught against SNP ministers.

You'll recall that Labour accused the Scottish Government of "complacency" for declining to replicate a system introduced in England designed to make repossession less likely.

Mr Salmond has now said he will look at the already-reformed Scottish system to discern whether there are any gaps.

To be fair, ministers insist that was their position all along.

The English system doesn't simply translate to Scotland: different legal system. Rather, expect ministers here to focus on efforts to keep such matters out of the courts in the first place.

Expect initiatives - already in the pipeline - to enhance the availability of schemes which allow those in financial trouble to transfer mortgages to rents or to shared equity.

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I suspect - but cannot, frankly, be sure - that there may be less to this than meets the eye.

"This" being the stushie generated over the question of whether Scotland should match the new protection against repossession planned for householders in England and Wales.

I suspect - and this time I am decidedly sure - that this controversy reflects, at least in part, the febrile atmosphere generated by a by-election in a place beginning with G, as Alex Salmond described the Fight for Fife in his weekend conference address.

Herewith the basics. Southern courts are, broadly, to bring in revised procedures which ensure that other avenues are exhausted before repossession of a house is granted.

Not needed here in Scotland, say ministers. Already covered by the Mortgage Rights Act passed by the previous executive.

The SNP adds that Labour and LibDem critics appear to have forgotten their own legislation.

"Astonishing complacency", says Labour.

Not a good enough answer, adds Mike Dailly, of the Govan Law Centre in Glasgow.

Scottish courts rely upon lawyers asking the court to look for alternatives. There is no element of compulsion.

But, in practice, won't it amount to the same thing?

In the current climate, won't courts - under whatever compunction - seek alternatives to repossession while taking account, ultimately, of the right of lenders to seek redress for unpaid debts?

As billed above, I frankly don't know the answer to that one.

Perhaps you guys out there could enlighten me. Hard, practical answers only. No partisan tosh.

Do not attempt to write on both sides of the paper at once.

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The contest in Glenrothes moves on apace, with nominations due to close today (Tuesday).

Time, perhaps, to cast another glance at the prospects.

I took the chance to chat with sundry SNP strategists during the party's conference in Perth over the weekend.

While decidedly hopeful of victory, they are aware of an impetus pulling the other way.

Firstly, Glenrothes is not Glasgow East - where the SNP secured victory.

Yes, the swing to take is smaller in the Fife contest but canvassers say they detect less of the visceral anger that was present in the Glasgow battle.

Glenrothes displays more in the way of community spirit than was evident in the socially and economically fractured east end of Glasgow.

In fact, that is multiple community spirit: the new town itself plus, quite separately, Methil and the former mining villages in the west end of the seat.

Nationalists say that folk in Glenrothes itself are perhaps more amenable to their arguments than they are in the smaller villages where a habit of voting Labour or indeed, in bygone days, Communist is ingrained.

Secondly, Gordon Brown's image has changed.

It is glib to say that he has gone from loser to superman, from zero to hero.

But there is an understanding of the efforts he has made to rescue the economy, building upon the respect which he attracts as a Fife MP.

Labour knows that and so is expected to field the PM's wife to campaign in the constituency, presumably as a prelude to the man himself: broadly, the role she played at the Labour conference in Manchester where she introduced her husband onto the stage.

Thirdly, Labour tacticians are frankly hoping that the Liberal Democrats in Glenrothes manage to avoid a squeeze of Glasgow East proportions.

The LibDems have a presence in Fife more generally and need to avoid humiliation here.

If their support holds up, that could split the anti-Labour vote.

The plus side for the SNP?

They won the comparable Holyrood seat, they are in joint control of the council, they believe Alex Salmond performed powerfully at their conference - and they believe the perception of Gordon Brown will change.

They believe the glow of the rescue will give way to the gloom of the consequences for jobs and mortages.

Labour privately acknowledges that prospect but calculates that the glow may survive until 6 November, polling day.

As ever, it's up to the voters to decide.

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This was a self-confident performance by the First Minister.

Tautological, I know, but noteworthy given the extent of the pressure upon Alex Salmond as a consequence of the economic crisis and, more specifically, the response by the UK Government.

On BBC Scotland, the Prime Minister had declared bluntly that Scotland, acting as an independent nation, would not have had the resources to mount the banking rescue.

It was a salient attack, delivered by a PM who has regained the status to command the attention and thus the ear of the voters. It was the first substantial challenge to Mr Salmond since he gained power at Holyrood.

To be frank, he and his colleagues appeared briefly discomfited. Alex Salmond has definitely now regrouped. That doesn't mean, of itself, that his arguments will be heeded or will find favour. But they were cogently and powerfully expressed.

Broadly, Mr Salmond argues that Gordon Brown's policies are partly responsible for the banking crisis; that he presided over an irresponsible expansion of unsustainable credit.

Further, he dismisses the assertion that only the clout of the UK Treasury could have mounted the banking rescue.

He notes that the money does not come from cash reserves but from borrowing and, further, that the terms imposed, for example, upon the Royal Bank of Scotland through preference shares should enable the Treasury to make a profit in the long-term by lending to the bank at a higher rate than that available in the market.

Still further, Mr Salmond argues that big countries as well as small ones have been caught up in the economic crisis - but that small, habitually prosperous countries like Norway have shown deftness in dealing with that crisis.

Don't mention Iceland, though. It may have been one of Mr Salmond's "arc of prosperity" comparators - but, now that its banking system is in turmoil, the SNP tends to disown that comparison, arguing that Iceland is tiny, smaller than the population of Edinburgh.

Whom will the voters heed? Depends, presumably, upon a range of factors: whom they blame for the economic mess, whom they thank for efforts to mitigate it and, most crucially, what happens to the real economy of jobs and mortgages.

It's a balancing act for Alex Salmond. He must counter-attack against Labour without giving the impression that he is sniping politically during a crisis.

But it's a balancing act for Labour too. Their case on the "Union dividend" has been strongly advanced. But party strategists know that it must not slip over into decrying Scotland as too wee or poor to govern herself. That, they know, would not be smart politics.

And there's more. The UK government is insisting tonight that Mr Salmond has missed the point: that the problem for HBOS is not capitalisation but liquidity. They say that the bank on its own would continue to struggle in the current market conditions.

Also in response to Mr Salmond, HBOS itself has stressed it believes the deal should go ahead. The bank said it believed that the merger would allow access to significant savings resources.

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As billed, John Swinney duly turned defence into attack at the SNP conference in Perth. He confirmed a series of measures to benefit the Scottish economy, such as one hundred per cent rates relief for the smallest businesses.

Then he opened out into condemning Labour and the Prime Minister, in particular.

Instead of Superman, Mr Swinney views Gordon Brown as his alter-ego: mild-mannered, bumbling Clark Kent. Labour's financial credibility, according to Mr Swinney, "stands in tatters."

Specifically, the Finance Secretary said that the UK Government squandered Scotland's oil wealth over thirty years (most of them featuring a Conservative government but no matter.)

More directly re Labour, he accused the PM of fostering a credit-based housing bubble, of sending debt soaring and of neglecting bank regulation.

Gordon Brown had argued that the response to the economic crisis proved "the strength of the Union".

By contrast, Mr Swinney argued that the very crisis proved the absence of a British economic miracle. It was, he said, scorn in his voice, "more of the same Union dividend."

Privately, SNP strategists here in Perth say they're surprised that Mr Brown engaged in an attack upon the SNP (in a BBC Scotland interview) so soon after welcoming consensus towards the economic recovery package.

They say that, by doing so, he opened himself to attacks which would not have been possible had he remained perched on his pedestal.

Well, maybe.

Me, I think that Labour detestation of the SNP is visceral.

Further, the Glenrothes by-election fosters partisan politics.

Further, I suspect that Mr Brown believes he has the ear of the public right now - and wanted to get his message home.

For some time now, voters have been inclined to discount comment from Downing Street. Not at the moment.

So there we have it for now.

Labour trumpets the value of the economic rescue package, arguing further that it could not have been achieved by an independent Scotland.

The SNP talks about the crisis itself, arguing that small nations like Norway contrived to minimise such damage by taking action in the banking sector, earlier and more vigorously.

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It is a truth universally acknowledged that the best form of defence is robust attack.

Certainly, that appears to be the strategy here at the SNP conference in Perth.

It has been suggested, not least by the prime minister, that the economic crisis and the UK Government's response presents a challenge to the SNP.

How, asked Mr Brown, would an independent Scotland have mustered the resources to rescue RBS and HBOS?

Further, what now for Alex Salmond's "arc of prosperity", comprising Iceland, Ireland and Norway?

Mr Salmond, naturally, declines to enter the debate on terms set by his opponents.

Rather, he says that the PM has shattered any lingering consensus over the economic situation.

He says further that he is now entitled to respond in kind.

Consequently, opening the conference, Mr Salmond spoke of a "Downing Street downturn", blaming Gordon Brown directly for the circumstances, including banking regulation, which led to the crisis.

Intriguingly, David Cameron has now made pretty much the same case in a speech in London.

Here in Perth, we can expect to hear this argument amplified by John Swinney when he addresses delegates.

Right now, Mr Brown is being hailed as a hero.

That mood seems unlikely to last, particularly as the economy slows and unemployment rises.

Given that, it is reasonable for the PM's opponents to seek to hasten the process of applying that longer-term scrutiny.

However, I also believe that the PM's words will have left at the very least a seed of doubt in the minds of those in Scotland who might be asked to cast a vote in any subsequent referendum on independence.

To that degree, I hold to the view that the first minister needs to find a revised and updated narrative for his vision: one that takes account of the economic developments and at least addresses the arguments advanced by Mr Brown.

It is, perhaps, asking too much for that to emerge this weekend, here in Perth.

We are all still at the stage of absorbing these cataclysmic events.

Understandably, the allocation of blame has now begun.

But a reshaped narrative will still be needed at some point.

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I am sure you will forgive me if I neglect politics for a moment. Many of you will have heard the sad and tragic news that Eddie Thompson, the chairman of Dundee United, has died.

I was proud to count Eddie as a personal and family friend. He was, quite simply, a superb human being: a great family man, a talented entrepreneur, a warm thoughtful friend - and, of course, the guiding spirit at the club I have supported, like him, for more than 40 years.

At Tannadice, Eddie called himself the custodian for the fans. And he fulfilled that role to perfection. Not for him the cool, dispassionate summation of the balance sheet.

If we lost, he was inconsolable, angry even. If we won, his smile was broad and boyish.
Eddie had a mischievous sense of humour. His banter with Craig Levein was a joy to behold.

I also recall him welcoming the bosses to Barcelona to Tannadice. Eddie thanked them elegantly for their visit, noted that United had played the Catalan giants four times in Europe - then added with a grin that diplomacy prevented him from mentioning the results. United had of course won all four.

He will be an enormous loss to the club and to the city of Dundee. My deepest sympathy to his charming wife Cath and the family. The Arabs have lost one of their own.

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That it should come to this. That Scotland's largest bank, indeed one of the world's largest banks, should require to be bailed out by the taxpayer.

Quite frequently, politics can seem remote, obscure even. That is certainly not the case with today's decisions announced by the chancellor and the prime minister in respect of the Royal Bank of Scotland and other banks.

I suspect that viewers, listeners and readers will have paid particular attention to the impact of these decisions. They affect us here in Scotland, as savers, borrowers and of course taxpayers. They affect Scotland's economy and Scotland's image.

You will hear a range of analysis with regard to Royal Bank of Scotland. You will hear arguments that the bank remains fundamentally sound and profitable. You will also hear however, suggestions that Royal Bank of Scotland overreached itself, particularly with regard to the takeover of the Dutch concern ABN Amro.

The chancellor, Alistair Darling, dealt upon the latter point this morning when offering an explanation of the necessity to intervene. However, he also stressed that the objective was to maintain a strong British banking system.

The chancellor made two fundamental points: that the UK Government was leading with a model of rescue which others would follow; and that, within the British isles, only the UK Government had the clout and cash to rescue RBS. This was of course an implied criticism of the SNP with their programme of independence.

With regard to HBOS, it would appear that the takeover by Lloyds TSB is a done deal.

It would appear that the insipient muttering last week to the effect that HBOS need not be taken over is unlikely to come to much. Certainly, the rescue package is predicted upon the merger going ahead.

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So where are we on political fall-out from the financial crisis?

I know, I know, it doesn't add up to a hill of beans compared to the impact of the crisis on the economy, jobs, wealth and taxation. But indulge me.

For one thing, we're unlikely to hear over-much from Alex Salmond in future about the "arc of prosperity".

You know, Norway, Ireland.......and Iceland. These were to be the lodestones for Scotland's future financial direction.

Ireland and Norway have their troubles. However, it is the crisis in the Icelandic banking structure which has drawn most attention.

While remaining, of course, deeply consensual at this time of trial, Mr Salmond's rivals at Holyrood can scarcely conceal their schadenfreudic glee at his potential discomfiture.

Indeed, I suspect they will have to slap themselves to stop muttering "Iceland" every time the First Minister mentions small nation independent status in future. There is a further intriguing sidebar to this.

Labour MSPs in particular are beginning, intuitively, to revisit the assertion that Scotland is too wee and poor to be independent.

They don't quite put it that way. Rather, they stress the advantages of the UK financial rescue package.

However, it may add up to much the same pitch to the voters.

In the short, even the medium, term, it may well be effective. Keep tight hold of nurse - and that sort of thing. Again, it will be expressed rather differently. The argument will be that the Union guarantee has worked.

This is a parallel - and still somewhat subterranean - equivalent to the feeling at Westminster that Gordon Brown's position has been strengthened in contradistinction to that of the Conservatives.

Certainly, the PM has regained a sense of governance, a sense of being in control. I would dispute the claim in some quarters that he is "enjoying" the crisis.

There is nothing remotely entertaining about a potential threat to jobs and the economy. These things matter to Gordon Brown - and not just because they could challenge his Premiership. He cares.

However, it might be said that his leadership is thriving on the challenge posed by the economic problems.

He is arguably at his best dealing with a hugely complex intellectual and logistical challenge, drawing together diverse aspects.

Longer term, though, that sense may not last.

If and when the impression of panic in the markets dissipates, politics will return to adversarial conflict.

At which point, voters may base their verdicts on future prospects rather than instant action.

They may, for example, consider the likely impact upon public spending (constrained) and taxation (increased.) They may be less than delighted.

Remember. Churchill won the war. Attlee won the election.

In Scotland, however, the dialogue is rather different. Sundry parties of a Unionist persuasion will, severally and collectively, suggest that Mr Salmond's fundamental economic case has been undermined.

The Nationalists have an answer. They will say that what matters is not, intrinsically, the size of the state but the state of the economic and fiscal policies pursued by the government, together, of course, with global conditions.

However, again in the short and medium term, Mr Salmond may require to devise a new narrative to describe his case.

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Intriguing exchanges at Holyrood on the subject of money.

Firstly, between the first minister and Iain Gray on capital expenditure, with Annabel Goldie pitching in too. Secondly, on the subject of HBOS with Tavish Scott.

The latter first. Alex Salmond was notably coy in response to a request from Tavish Scott that the first minister should declare that the proposed take-over by Lloyds TSB was no longer necessary.

Mr Scott, the LibDem leader, said in terms that the recapitalisation engineered by the UK Government obviated the need for the take-over - and that, consequently, it would be preferable for Scotland to retain HBOS, with its Edinburgh HQ and branch structure.

My feeling is that would be Mr Salmond's preference too - if things were equal. But things are chaotic - and Mr Salmond must deal with the situation he finds, not the situation he might prefer.

Specifically, he is in detailed negotiations with Lloyds TSB about preserving jobs and decision-making influence in Edinburgh, on the presumption that the deal goes through

He needs leverage with Lloyds TSB. You don't gain leverage by informing a financial institution that you think their proposal for a merger is mince.

Right thing

However, Mr Salmond offered indications as to his thinking. He said he would have preferred the recapitalisation to have occurred some time back, thus forestalling other subsequent developments.

He noted further that the merger partly depends upon the suspension of competition rules - and that such a measure has yet to be tabled and voted upon in the Commons.

He noted still further that the merger rests upon a vote by shareholders in the two banks, given that the boards have given their support.

Which leaves us where? The deal may have logic beyond the capitalisation issue. In other words, it may still be the right thing to do.

If, however, it is not, it may yet be stopped.

So what might happen, given those alternative scenarios. Firstly, the Commons may not endorse the suspension of competition rules - although that would require the UK Government to reverse its declared position, which seems unlikely at this point.

Secondly, the shareholders may say no. Thirdly, another bid may come in. Fourthly, the deal may go through as billed.

Public debt

In essence, Mr Salmond's answers were designed to cover all those eventualities - while dealing upfront with the Lloyds TSB offer which, as he noted, remains the only prospect firmly on the table.

Turning now to the capital investment point, I thought Iain Gray made a notably good fist at putting his points. Restraining himself, he sought to project an image of consensuality - while, in fact, challenging a key aspect of the Scottish Government's economic strategy, the deployment of the Scottish Futures Trust in search of a new model for investing in schools, hospitals and the like.

Mr Gray said: suspend the SFT and go back to PFI/PPP for now in order to kick-start the economy with public projects.

Mr Salmond argued, in response, that a period of economic turmoil was the very point at which it was vital to secure value for money.

PPP/PFI, he asserted, didn't meet that criterion: plus it was about to be put on balance sheet under new rules, thus counting as public debt and removing a key element of its attraction in the past.

It was a powerful, substantive exchange with both leaders making cogent points. The winner? We'll only know that with the passage of time. If the trust comes up with the goods, then Mr Salmond will be justified. If not . . .

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Is there any reason now for the Lloyds TSB take-over of HBOS to proceed?

Or is it overtaken by the recapitalisation announced overnight by the chancellor?

Scottish First Minister Alex Salmond is proceeding, as he has done from the outset, on the basis that the Lloyds TSB offer is the deal on the table.

That is the understandable presumption underlying the meeting of the National Economic Forum in Edinburgh.

However, there is now an alternative scenario abroad in the body politic. Tavish Scott, the leader of the Scottish Liberal Democrats, has said explicitly that HBOS should remain an independent bank and that the merger should be called off.

Mr Scott says that "market and banking circumstances" have changed enormously since the deal was first advanced with the blessing of the prime minister and chancellor.

In particular, Mr Scott draws attention to the substantial change in share price since the offer was tabled.

He also notes that both banks, both Lloyds TSB and HBOS, are partcipants in the recapitalisation announced by the UK Government.

He suggests further that this mechanism - also applying to the Royal Bank of Scotland among others - should be the route to bring stability to the sector.

I understand Mr Scott issued his statement following consultation with Vince Cable, the party's Treasury spokesman at Westminster, who has followed the credit crunch crisis closely from the outset.

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It's troublesome, in truth, to focus entirely upon the Glenrothes by-election even although the contest is now formally under way and sundry politicians have hit the ground running, to borrow the phrase customarily deployed by parties seeking to demonstrate their sense of avid determination.

For why? My eye keeps wandering towards the screens showing continuing financial crisis: in particular the share price afflicting the Royal Bank of Scotland as I write.

I know the answer, of course: that a period of instability is the very moment when the democratic process must be sustained.

Surely, the financial climate will add further gravity to what was already a serious contest. One hopes for an absence of piffle and tosh.

As Gordon Brown's new cabinet met in London, Labour could do little other than acknowledge that it faces a huge fight in Glenrothes.

It is defending a majority of more than 10,000 - but that mattered little in Glasgow East.

Political triggers

Plus, of course, the SNP holds the Holyrood version of the Glenrothes seat.

The prospect that defeat in Glenrothes might finish off the PM seems to have receded. Not because anything has changed in Glenrothes but because things have changed inside Labour.

Few expect a challenge to Mr Brown, given the economic climate, whatever political triggers are made available by the electorate.

Still, defeat in Glenrothes would scarcely shore up Gordon Brown's position. Victory, on the other hand . . . hence the expectation in some quarters that Mr Brown might just find time in his schedule to pop over the constituency border from his own Kirkcaldy seat to campaign, albeit briefly, in Glenrothes.

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The ducks are in a row. The boxes are ticked. Choose, indeed, any cliché you fancy. It only remains to name the day for the Glenrothes by-election.

Those ducks/boxes? Firstly, Gordon Brown has strengthened his authority by reshuffling his cabinet in a manner that disarms his critics, LBJ style (think tents, think externally directed fluid).

Secondly, he has dodged the prospect of a further by-election, this time for the Holyrood seat of Jack McConnell.

Thirdly, the SNP victor in Glasgow East, John Mason, has now taken his seat in the Commons, waved on his way from the Dear Green Place by John Prescott. (At least, I think he was waving.)

Glenrothes now beckons. Few expect that it will be on any date other than 6 November. But the writ has yet to be moved. By contrast with Glasgow East, there is a distinct absence of urgency.

As to Motherwell and Wishaw, J. McConnell's seat, it has now become embroiled in shabby manoeuvring or sharp politics: delete according to taste.

You know what's happened, of course.

Jack McConnell is no longer taking up his post as High Commissioner to Malawi in the immediate future.

Instead, he's going to be a part-time envoy for the PM, working on drafting a plan for building capacity in states recovering from conflict.

No need consequently to step down from his Holyrood seat. No need for a by-election.
As I advised listeners to the wireless, the motivation for this switch is primarily political.

Labour didn't fancy a by-election in Motherwell. Right now, Labour doesn't fancy a by-election anywhere.

However, there is an authentic background to the new post. Gordon Brown has espoused the concept of capacity building.

In a 2005 speech in Edinburgh, he advocated what he called a "new Marshall plan" for the struggling nations of Africa and elsewhere.

Mr Brown has pursued that issue since, notably with the United Nations. He has now asked Mr McConnell - who similarly has an interest in this topic - to draft recommendations which would go to the UN. It's a genuine challenge.

Still and all, this is an electoral wheeze. If you're one of Labour's opponents, you might find that scandalous. If you're one of Labour's supporters, you might think: smart move, about time the party stopped beating itself up.

Will you to Scone? No, cousin, I'll to Fife.

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Jim Murphy has had a remarkably prolonged and successful career, considering he started out as an accidental MP.

A charismatic if combative Labour activist, he won what was then the safest Conservative seat in Scotland in the 1997 Tory wipe-out north of the Border.

His delight at victory mingled, I feel sure, with the thought that he was not long for the Commons.

Cyclical politics, he suspected, would take him out again.

However, he has instead strengthened his majority as the Tories struggle to regain the strength that once they wielded in Scotland.

Now it falls to Mr Murphy, a football-daft Glaswegian (is there any other kind - yes, I know there is), to serve as ambassador to the court of King Alex, mundanely known as Scottish Secretary.

As I have posted previously, the office of Scot Sec has been identified, repeatedly, for the political and historical scrap-heap.

Still it survives: partly because of the desire to keep an eye on the SNP in Edinburgh, partly because of qualms over the settlement in Northern Ireland which make it difficult to establish a single minister for the territories, for now.

To be fair, the job amounts to more than scrutinising the SNP - although that is core.

Mr Murphy will represent Scotland's interests in the UK Cabinet on reserved issues such as the economy, Europe and defence.

His office will liaise with the devolved machinery of government in Scotland.

But the political role is still to deal with fall-out from last May's elections.

Mr Murphy has direct and recent experience of that as Europe Minister.

He played a leading role in the Joint Ministerial Committee on Europe: which survived when other elements of the JMC mechanism fell into disuse. (That mechanism has now been revived and JMC Europe has been given an enhanced role.)

By various accounts, there have been some entertaining exchanges between Linda Fabiani, the Scottish Government minister for external affairs, and Mr Murphy.

We can, I suppose, expect more of the same - although Mr Murphy will be acutely aware too that over-zealous partisanship tends to deter the voters, especially when Mr Salmond's administration appears a mite more popular than Mr Brown's.

I gather that Mr Murphy had signalled to Gordon Brown his eagerness to re-engage in Scottish politics after a prolonged spell dealing with UK and European briefs. He now has his chance.

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So how did the opposition leaders perform at FMQs? I think Tavish Scott of the Lib Dems will be pretty well satisfied with himself.

He exposed a simple disparity between SNP opinion in opposition and government. In opposition, they were urging ministers (including T. Scott) to host talks in an effort to prevent a rail strike.

In government, they say it's not their role to intervene.

Alex Salmond brushed aside the attack - and I don't suppose it will trouble him overmuch. But it was, nonetheless, an effective point.

As to Iain Gray of Labour, I think he will be generally happy with his showing - with one exception.

Mr Gray pursued Mr Salmond on the topic of alcohol off-sales. He did so with wit and vigour.

Substantive answers

But then he cited Mr Salmond's appearance in Private Eye's Colemanballs column. That enabled Mr Salmond to respond by quoting a less than flattering profile of Mr Gray in The Sun.

Mr Salmond, therefore, ended on an upnote in those exchanges - but still faces the issue of how to deal with the clear opposition in parliament to the off-sales restrictions.

One option for ministers could be to shelve plans for a blanket, nationwide ban on off-sales to under-21s - replacing that with discretionary powers for individual local authorities to introduce such measures, perhaps on police advice.

As to Annabel Goldie, she was reasonably sound on the serious topic of prison overcrowding.

However, the first minister had substantive answers with regard to government action, while noting that only reform of the penal system would offer long-term solutions.

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Notably lively debate in parliament right now about the Scottish Government's proposal to restrict off-sales of alcohol to those aged 21 or over.

It's part of a much wider campaign to reduce alcohol abuse in Scotland - including minimum pricing, separate supermarket queues and the rest.

From relatively and variously tentative beginnings, the opposition parties have firmed up their dislike of the off-sales plan.

No doubt they've been emboldened by vigorous opposition to the scheme from the student body, among others.

Looks like MSPs will vote against the scheme in principle in response to today's debate, initiated by the Tories - who, to be fair, have been pretty much agin the notion from the outset.

That isn't, of course, the end of the matter - but it would indicate that there is minimum prospect of that element surviving in a Bill on the topic.

Notably evangelical

Opponents of the off-sales ban say it discriminates against young people unfairly - without sustained evidence that it helps counter Scotland's booze culture.

There is much talk of the 18-year-old who can serve in Iraq - but daren't buy a bottle of beer from an off licence on his return.

Or the 19-year-old who can marry and start a family - but can't buy her pals a bottle of wine to celebrate at home.

In response, Scottish Justice Secretary Kenny MacAskill - who has been notably evangelical on this topic - challenged his opponents to state what, precisely, they would do.

It was all fine and dandy, he said, to mock the government proposals. It was a different thing to offer alternative policy ideas.

This is a consultation. I'm sure the politicians would welcome your views. Especially if they address the issue directly - with minimal reference to partisan standpoints.

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A little light relief today from the grim economic news. Let's consider the future of a once great (OK, moderate) office of state, that of Scottish secretary.

If faintly discomfited with the notion of stepping aside momentarily from the topic of finance, I can comfort myself with the thought that I posted on the economy yesterday.

The early responses dealt with . . . Belgian federalism and conspiracy theorising. What are you guys like?

To Scotland then - and talk on the Tory fringes here in Birmingham.

Firstly, they say they would retain the post of Scottish secretary. Perhaps combined with another office of state, such as transport - but not combined with Wales and Northern Ireland in a department for the territories.

Specifically, if Labour combines liaison with the three devolved governments into a single post, the Tories will shadow that at Westminster - but would restore distinct representation, if returned to power.

For why? For the same reason that the Scotland Office, once near moribund, has found itself somewhat reinvigorated by the election of an SNP government.

Scottish 'ambassador'

The UK Government, of whatever colour, wants to keep a close and constant eye on Edinburgh.

That may not be particularly elevated statespersonship. It may contain partisan elements which should play little role in public funding. However, it's a fact.

The office of Scottish secretary now partly resembles that of an ambassador, scrutinising the SNP government and reporting back.

Equally, there is a role in advocating Scottish interests within the UK Cabinet, particularly on reserved matters like taxation, welfare and defence.

But how could the Tories govern Scotland? They currently have just one MP north of the Border, David Mundell. They might gain one or two seats.

Their absolute best hope is a handful. A lower figure is more likely.

So how to govern? The answer is: they won't, at least not in those areas devolved to Holyrood.

Respect parliament

Ironically, devolution - which they opposed - saves them from the impossible prospect of attempting to impose a domestic agenda upon Scotland with, perhaps, a single Scottish seat.

So they seek, inevitably, to make a virtue out of their continuing relative weakness in Scotland.

They say they will respect the right of the Scottish Government and parliament to control the domestic, devolved agenda.

Specifically, they will not invoke the powers contained in the Scotland Act to legislate from Westminster over the heads of Holyrood.

Big deal, I hear you say. What else could they do, given relative electoral strength and the pre-existence of a devolved parliament?

Well, yes, that's true. But bear in mind history and instinct here. Some Tories are tempted to say: let Scotland go hang, focus on England, focus on "English votes for English issues".

David Cameron is deliberately cooling such thoughts. He is playing down angst over West Lothian.

His team are backing Calman Commission reform - but privately playing down the notion this might be dramatic: for example, I hear Tories backing assigned tax revenues for Scotland but not big new powers to vary that taxation.

Which leaves the deal on offer as this: a Tory UK Government would respect the right of the Scottish Government to control the Scottish domestic agenda.

In return, they would demand respect for their own right to govern Scotland in reserved areas.

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