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Archives for July 2010

Hot and cold Beveridge

Douglas Fraser | 06:50 UK time, Friday, 30 July 2010


Natural wastage and reduced headcount: two euphemisms for job cuts now so widely used that they've almost ceased to be distasteful.

They're playing a significant role in the aftermath of the Independent Budget Review, which seems destined to be the Second Beveridge Report.

(The first Beveridge Report in 1944 gave us the modern welfare state, and the second one - its chairman, former Scottish Enterprise chief Crawford Beveridge, asks almost as big questions about the retreat of state provision.)

The report is full of trade-offs, options and choices, with an urgency and an urging towards priorities, but without actually offering any.

Close to its core is the trade-off between public sector jobs (or headcount) and provision of flagship policies.

Crawford Beveridge says the number of jobs lost would be between 5.7% and 10%, on roughly 500,000 people working in services devolved to and through Holyrood.

That's where as many as 50,000 could go, and another 10,000 if the same figures are applied to the 100,000 working for Whitehall departments in Scotland.

Relocated problems

The deal is simple: the more ministers cut from the 40% of non-payroll cost, the less damage they do to headcount, and the closer they get to the 5.7% reduction.

That means 28,000 or so fewer jobs would be a good outcome.

Can they be achieved by natural wastage - retirements and people wanting to leave - or by voluntary redundancy?

Can the promise of avoiding compulsory redundancies be continued past next spring?

Crawford Beveridge isn't saying "no", and politicians don't want to either.

But he keeps saying, across all his options, that the more you avoid difficult decisions in one area, the more you relocate and expand your problems elsewhere.

That "no compulsory redundancy" pledge looks set to be a major one going into next May's Holyrood election.

Significantly, Crawford Beveridge says that we ought to assume natural wastage will fall.

If the public sector's being squeezed, and the private sector remains weak, people are going to take a lot more persuading that it's a good time to search for a new start.

And as Robert Peston noted in his blog on Thursday, the results from the UK's BigCo corporates shows their noteworthy financial health is not being accompanied by a willingness to boost investment and create lots of new jobs.

The private sector recovery is not necessarily one that will take up that jobs slack.

The option (looking very like a recommendation) of a pay freeze is, it's conceded, a pay cut in real terms.

And the pay bill could further be reduced by choosing to opt out of some UK pay-setting mechanisms.

Uncomfortable reading

Two further points stand out, for me at least, both with more of a political tinge to them.

One is that the process of setting up an independent budget review seems already to have done a lot to inject something other than the blame game into the debate.

To be frank, this is the kind of document John Swinney's civil servants should have been able to supply him.

But instead, it has wider buy-in. The only significant criticisms on publication day were from the STUC, politely saying the three-member group fall some way short of being representative of anything much.

They're not harsh enough on business support grants, or on the macro-economic implications of what they propose.

The other was from PricewaterhouseCoopers, saying the plans are not sufficiently radical, and do not go far enough in warning how bad things are going to get.

"We don't think this will make its readers uncomfortable enough," says PwC.

The accountants have a point, at least in that Whitehall departments have been told to draw up parallel plans for handling cuts of 25% and a worst case 40%.

The Beveridge Report assumes 12.5%, and there are those who think the scale of what's coming to Holyrood could be worse.

Free for all

The other point is how radical this report is in reversing pretty much every spending innovation the Scottish Parliament has taken over the 11 years since it was set up.

Abolition of up-front student fees: free personal care for the elderly, free eye tests and dental checks: expanding provision of free school meals: free bus travel for all pensioners - and that was just those under Labour and the LibDems.

The SNP came in to power with abolition of bridge tolls, followed by abolition of the graduate endowment, phasing out of prescription charges and hospital car parking fees.

It's been opposed to letting Scottish Water out of ministerial hands, and it's opposed to private provision of NHS services.

This was the fiscal and dominant end of proving how home rule could make Scotland different.

And yet every one of these initiatives to expand state provision and eligibility has been directly challenged by the Independent Budget Review.

It also firmly rejects the campaigning style at three elections, in which parties offered an auction of additional police officers, nurses and reduced class sizes.

While there's little detail on police, justice, hospital provision or education, the approach is seen as outdated, failing to focus on the outcomes expected from that extra spend.

Now, it's about how to gain the same outcomes, but after natural (and unnatural) wastage, with a much lower headcount.

A daredevil in the Treasury detail

Douglas Fraser | 10:04 UK time, Wednesday, 28 July 2010


The new powers-that-be at Westminster have begun work on making radical, if not "historic" changes to Scotland's tax powers, saying the Calman proposals could be fully implemented by 2015.

That date is significant in that there's no sign of the coalition looking to kick this into the long grass. That's the year of the next election.

It's also the date when the worst of the "fiscal consolidation" is over. So the changes in taxes, introducing new uncertainties around the buoyancy (or predictability) of tax revenue, will be implemented at the same time as unprecedented deep cuts.

It may be that new tax powers could give the Scottish Parliament the ability to soften the blow - if, that is, it uses its powers to raise tax higher than the rest of the UK. But the opposite may be true instead: running the two processes in parallel could exacerbate the pain of the cuts.

The rules are, after all, going to be written by the Treasury. And it's not clear why mandarins there will feel obliged to make life any easier for Scots when they are being required to sacrifice the Treasury's treasured centralised powers.

Surplus to customers

Delving into the Treasury files on how it distributes funds around devolved administrations brings to light one of those provisions which seemed irrelevant back in 1999 when it was written. But it's become highly relevant now.

It relates to the sale of public assets. And although it was written before Scottish Water was fashioned from three regional authorities, it could be a decisive issue in the argument over the future of the publicly-owned monopoly utility.

I wrote last week about the proposal from the Scottish Futures Trust (set up by ministers) to make Scottish Water into a form of mutual, or Company for Public Benefit. Removing shareholding from government ministers and putting it in hands beyond their reach. This would let the Scottish government divert £140m of annual borrowing consents to other priorities, allowing Scottish Water to borrow on private capital markets, while surpluses would be distributed to customers.

Tomorrow, it's the turn of the Independent Budget Review group, chaired by Crawford Beveridge, and he's expected to say something similar. Coming from two groups ministers themselves set up, that's advice it's quite hard for Finance Secretary John Swinney to ignore, even while his party and his Labour opponents are opposed to change.

But what if all the benefit of handing debt over to the private sector were to fall to the Treasury? Where's the incentive for the Scottish government from doing that?

That's the question I asked last week, and since then, looking at the rules, it seems that's exactly what would happen.

Clawbacks sharpened

Section 7 of HM Treasury's A Statement of Funding Policy, dated 31 March 1999, reads like this:

    "United Kingdom taxpayers will have a continuing interest in capital assets under the control of the devolved administrations where they originally financed these assets.
    "Consistent with this the United Kingdom Government may take into account proceeds from the sales of such assets in setting its grant to the devolved administrations when capital receipts are realised as a result of a privatisation of a public sector trading body or a major change in the role of the public sector such as might arise from a large scale asset disposal or a public-private partnership in which the public sector contracts with the private sector for the future delivery of a service.
    "In such circumstances, Treasury Ministers reserve the right to reduce the grant to the devolved administration to reflect receipts."

Mutual respect?

What that means is that, if Scottish Water were to be privatised, the Treasury could pocket the proceeds of up to £3bn.

More likely is mutual status. The SFT says at least £2.7bn in debt could be transferred to the private capital market, and the Treasury seems to have the right to trouser that as well.

It's not that it could claim it. There's no need to have an argument over this. The Treasury could simply reduce the block grant by the same amount. A fait accompli accomplished.

It could. But would it? How would that play with the new Westminster government's treatment of Holyrood with what it says is respect.

As the Scottish Water debate gets deeper and hotter, let's wait and see.

Fairness in health charging

Douglas Fraser | 10:57 UK time, Sunday, 25 July 2010


Should hospital patients across a range of long-term treatments be asked to pay something for their accommodation and meals, at least if they can?

It's a question being asked by one of Scotland's leading economists, as he questions the rush to re-think provision of free personal care for the elderly.

Professor David Bell is wondering why it is that older people should have free services withdrawn, without thinking through the logic of the same applying to other people needing hospitalisation, with chronic conditions and high costs.

His analysis of free personal care for the elderly is that it is, of course, far from free to the taxpayer, and that costs have been rising, particularly for those whose care is delivered at their homes.

But it concludes that it may not be such bad value for money after all, if home care costs keep older people out of far more expensive geriatric hospital beds. It also notes how sharply these beds have been cut over the past 10 years.

If an element of means-testing were to be introduced, the Stirling academic points out that the state, or at least councils, would still have to stump up for those with assets worth less than £23,000 - and that's a lot of people with a lot of continuing expense.

There would, after all, have to be some sort of policy and provision, rather than merely a withdrawal of a service older people have come to expect and to value.

David Bell's is another important contribution to the big debate on spending cuts.

And its weight will carry into the Scottish Parliament's finance committee, where the professor is specialist adviser.

Smarter tourism, with maple syrup

Douglas Fraser | 20:37 UK time, Friday, 23 July 2010


Two summers ago found me in upstate New York, staying at rather a fine, high-spec bed and breakfast.

Americans have adapted the British B&B concept into more of a boutique experience, with some premium to their prices.

They're big on antiques, and often themed, sometimes garishly. One option near Ithaca had rooms themed on poets. Another was green.
Another entirely, hideously pink. They were full of personality, and neither room nor breakfast were standardised.

One of the most striking aspects of the experience was the high quality of online marketing, with virtual tours as standard. Two years on, I'm still receiving personalised marketing e-mails and glossy mailshots.

Sadly, I have no plans to return soon, even for those breakfast pancakes with maple syrup, but I am struck by these family businesses'
doggedness in building and sustaining a market and loyal customers.
And I can't recall a similar enterprise in Britain ever using such initiative or making such effort - not on me anyway.

Quality destination

The challenge of keeping Britain's tourism industry internationally competitive is one of the main themes running through the report compiled by Deloitte and Oxford Economics for tourism promotion agency VisitBritain.

It identifies familiar challenges; a sector featuring a large number of small-scale enterprises, which are hard to co-ordinate for quality improvement and joint marketing to overseas visitors.

So one lesson drawn from it is that if tourism is to realise its potential - 35% real-terms growth over the next 10 years, boosted by landmark sports events from the London Olympics to the Glasgow Commonwealth Games to the Gleneagles Ryder Cup - government will have to provide the funding for co-ordinated destination marketing.

You could dismiss the report as timely, spending review-oriented special pleading from the agency that promotes Britain overseas. (In Scotland's case, it tends to promote Scotland most in the less traditional markets, while the entirely separate VisitScotland looks after the established ones - at least that's what VisitBritain claims, though its role has been a sore point in Scotland.)

Authentic experience

But there are also some lessons the industry might do well to take on board. One is to be reminded that it's a huge business - the fifth largest industry, and third biggest export earner. It ranks sixth in the world. That's no economic Cinderella, as it sometimes complains that it's seen. And while growth is sluggish in other sectors, tourism over the next 10 years is projected as being beaten only by construction, finance and business services (though you have to wonder if Deloitte has noticed what's been happening to them).

Britain has a unique and, in many ways, very successful tourism product. While there's economic uncertainty, this is a 'product' that can thrive from British staycationers, from weakened sterling and from the fact that it can't be produced more cheaply overseas.

But that's no cause for complacency. The tourist dollar and euro, and increasingly the tourist yuan and rupee, can be attracted to other highly competitive markets, with rising expectations of service standards.

The report reflects an industry that tends to be over-dominated by the London honeypot. It points out it is very important too for some rural communities.

It sees opportunities, but with the proviso that Britain capitalises on its 'authenticity'. That goes for all the hotels that need modernising. They, too, have to be authentic to fit in with the nation's unique selling proposition.

It also says the industry has to be wise to opportunities: the 'grey pound' being spent by more numerous older travellers, plus more health and wellbeing tourism.

Brakes on Heathrow

Many of the threats to continued growth are around air travel; higher taxes on it, constraints on its growth (by which they seem to mean the recently-abandoned plans for a new runway at Heathrow), and the risk that travellers will be dissuaded from flying by its climate change impact.

The report doesn't spell this out, but these risks must apply disproportionately in Scotland. The greater the distance from target markets means more dependence on air travel, while south east England has its rail and sea connections. And the more dependence on Heathrow for connections northwards, the more of a constraint from the shortage of capacity.

Scotland is specifically highlighted for a couple of risks to its continued growth, which Oxford Economics reckons at 3.3% in the average year for 10 years, and 20,000 jobs added to the 140,000 already directly employed.

One concern is that business travel is relatively weak. That could be seen as leisure tourism being relatively strong. But the report's authors believe Scotland needs to improve its offer on conference facilities if it is to bring business travel up to its potential. They don't offer much detail of where or what sort.

Dollar downside

The other concern is currency. The recent weakening of sterling is seen as a good thing. It's suggested that a 10% slide against the euro and dollar could bring in another one million visitors to Britain next year and 2012. These visitors would be expected to spend an extra £300m.

Yet Scotland's relative strength in attracting visitors from Canada and the US is seen as a source of currency threat. If the pound appreciates against those countries' dollars, that would hurt more in Scotland.

That seems an unnecessarily negative take on currency risk, while arguing that fluctuations can more generally work in the UK industry's favour.

If my experience of New York State's Finger Lakes is any guide, it might be more useful to look at that trans-Atlantic link to learn from the expectations North Americans have of hospitality industry standards, plus the imagination they bring to their marketing.

And responsibility for getting that right is for the whole industry, down to the level of Mrs McGlumphy's wee bed and breakfast.

Dam-busting at Scottish Water

Douglas Fraser | 18:11 UK time, Wednesday, 21 July 2010


The looming spending cuts are going to require some deft U-turning on past commitments at Holyrood, and at last there are signs that the preparatory mirror check and signal are now being engaged in advance of political manoeuvring.

On funding universities, for instance, note what's not being said when student tuition fees are firmly ruled out. That doesn't mean graduates shouldn't pay, or if not for tuition, that there shouldn't be more of a contribution to maintenance costs.

But one totem of SNP and Labour positioning that remains a hard one for retreat is the public ownership of Scottish Water.

It comes up on most occasions that an independent view is taken of Holyrood. The Howat Report, published in 2007 and examining how Scottish public spending could be more efficient, recommended as much. It was promptly shelved.

Febrile bickering

It's a safe bet that Crawford Beveridge's independent review of the budget, commissioned by Scottish government ministers, will return to the subject.

His report, due for publication next week, is intended to provide cover for quite a few difficult decisions ahead. And there are those across the parties who are glad the parliamentary recess means it won't be launched into febrile bickering at First Minister's Questions, but can be given a more considered response.

A week ahead of the pronouncements by the former Scottish Enterprise chief executive and his fellow panel members, they in turn have been given political cover by the Scottish Futures Trust.

This body was set up by the SNP administration, under the chairmanship of Sir Angus Grossart, to think of ways of procuring public investment without the problems associated with the Private Finance Initiative and its successors.

Its low level of delivery has been, let's just say... 'noted' by the SNP's opponents. But this week, the SFT has brought forward a significant new report on Scottish Water.

It doesn't include any consideration of privatisation, because that water remains too hot even for contemplation at Holyrood.

Public benefits

Instead, it takes on the idea of mutualisation, favoured by Tories and Lib Dems. And it finds the idea wanting, not least because true mutual status would require all of us, as equal shareholders, to have an equal say in governance. That's not seen as practical or viable.

But there is another option, which comes close to mutual status. It's called a Public Benefit Corporation. Under this, Scottish ministers would hand over their 100% shareholding in Scottish Water to "members" - a cross-section of those with an interest in the industry, and without being political representatives, numbering around 70.

While ministers could express the public interest through their control of regulation, the company's members would hold the board of directors to account on behalf of customers. And any surpluses would be recycled through bills at a flat rate of distribution.

The model was used when Welsh Water came close to financial collapse. And the fact that it started from a very bad place is one reason it's seen as problematic. Welsh Water has been slow to distribute surpluses, and is still heavily burdened with debt.

More agreeable examples of the legal entity known as a Company Limited by Guarantee include Network Rail, many housing associations, the company controlling Northern Ireland's gas infrastructure, the Big Issue, Nominet UK, which registers internet domains, Oxfam and the England and Wales cricket board.

Treasury clawback

In contrast with Welsh Water, the SFT argues Scottish Water would start from a position of strength, and could choose to increase its debt gearing. It would, under this plan, provide Scottish ministers with a pay-off of debt amounting to at least £2.75bn (unless Her Majesty's Treasury claimed that money as its own, which could be a significant stumbling block).

It would also relieve Holyrood's finances of having to provide an annual allocation of capital, estimated at about £140m for the average of the next five years. Instead, it would raise its finance on the money markets, at a price reckoned by KPMG to be "broadly equivalent" to current capital cost (a factor that has been open to dispute from opponents of mutual or private status).

Scottish Water's share of the Scottish government's capital programme is already about 5%. And facing sharp cuts in capital budget flowing from the cuts at Westminster, the same amount of money could push its share up to 10%.

That's at a time when there's a long list of significant capital spending commitments, starting with Glasgow's Southern General, continuing past Aberdeen on a new western relief road, and on towards the new Forth crossing.

Reasonably well-performing

SFT tries not to take sides in the debate, but its report leaves little doubt that it thinks ministers would be bonkers to continue allocating ultra-scarce capital to Scottish Water, when it is well placed to look after itself as a Public Benefit Corporation.

The argument most often deployed against this is that the banks would soon take control through such a company's debt financing. And it's acknowledged there's a risk of that, depending how much the company gears its borrowing and investment programme.

A 55% gearing, as at present (the level of debt carried by the company as a proportion of its total value) would probably give Scottish Water an A credit rating, it is argued. Putting it over 70% would be "operable" but would lead to significant leverage from lenders. Even 80% is possible.

In all this, SFT sees Scottish Water as "a reasonably well-performing business". And that's part of the problem.

Inside the company, they're unable to say publicly that it could be a much better performing business if freed from the constraints of public ownership. Their shareholder doesn't want to hear that from them.

It has proven it can deliver big efficiency improvements over quite a short time, as well as a gigantic investment programme. So it could expand its empire into other operations or even acquisitions. With the reach of a big utility, it could, for instance, compete with councils for rubbish collections. Its extensive property portfolio carries potential for renewable energy, including wind farms - if only it could access the necessary capital for ininvestment.

But because it proves a point about public ownership - that it can work and perform "reasonably" well - it's an example its political owners don't want to give up.

In any case, they're left with the political legacy of a referendum in Strathclyde from 16 years ago. The then regional council used a huge public majority to kill off Tory government hopes that Scotland's various water authorities could be floated in the same way they had been privatised in England and Wales.

By coincidence, the returning officer in that vote was Strathclyde's top official, Neil McIntosh, since knighted and one of the other two panellists sitting with Crawford Beveridge.

Viewing the issue in that referendum mirror, the rhetoric used then of Scotland's water being a God-given birthright for all Jock Tamson's Bairns makes a U-turn on Scottish Water a difficult manoeuvre.

Paying for the media smorgasbord

Douglas Fraser | 19:34 UK time, Tuesday, 20 July 2010


Should the news media be a public service, subsidised by tax or licence fee?

And should the government step in to protect newspapers?

There are big questions around the funding of the media, with the economic downturn and technological change bearing down on them.

The business model that has sustained newspapers for centuries is broken.

Those that are successful in pushing online, and free to use, can lose out as a result in their print circulation and print advertising. That helps explain The Guardian's particularly poor sales figures.

Older commercial television stations are similarly troubled, as the fracturing of the audience across multiple channels takes away the advantage they once had and the "licence to print money", as Scottish Television was described long ago.

The new Secretary of State for Culture Media and Sport, Jeremy Hunt, has served notice this week that the BBC's licence fee is up for a tough negotiation, and that those of us who work in the corporation shouldn't assume we'll be protected from the pain being felt by those who depend on taxpayer funding.

El Spanish tele-shopping

With that background, it's worth noting what's happening with near neighbours.

Today, the European Commission has issued its approval for three schemes that subsidise public service media.

And while the pressure is on in Britain for the BBC to justify its privileged and (some might say) anomalous position, France and Spain look like their moving towards state funding in order to reach for parallel standards for which British viewers and listeners are envied.

In Spain, the public broadcaster RTVE has ditched advertising, teleshopping, merchandising and pay-per-view.

This leaves more space for genuinely commercial operators to step into those activities, while the state-backed broadcaster focuses on its "public service mission".

That state backing will include a tax on free-to-air broadcasters at 3% of revenues, and 1.5% of pay-TV broadcasters.

A tax of 0.9% is to be placed on the revenues of electronic communications operators, meaning internet providers, cable and satellite operators.

And up to £300m could come from a share of a levy that already exists on use of the radio spectrum.

Le service public

France Televisions is the country's largest broadcasting group, including six channels. Between 25 and 30% of its revenue has come from advertising. But not by the end of next year, when it will have gone.

The corporation is to get a subsidy from French taxpayers starting at £380m per year, plus Spanish-style levies on advertising and electronic communications.

Approval for this new funding mechanism from the European Commission is on condition that this taxpayer subsidy doesn't skew the market against commercial broadcasters, which means the money has to be spent on public service broadcasting.

That creates a difficult regulatory challenge: will European officials be monitoring programmes to make sure they fit that description? They say not.

In Sweden, the European Union has moved to curtail subsidy to the newspaper market. This system existed from 1971, before Sweden joined the European Union. That allows it special dispensation - just as the BBC's licence fee is not an issue for the European Commission.

Even though it's tough going in the newspaper market, it was reckoned that the subsidies needed pared back, but not abolished.

It's reckoned by the Commission that "traditional newspapers are still important for media pluralism and for the cultural, democratic and public debate in Europe".

So it's allowing Sweden to spend around £4m on aid for metropolitan papers, up to 40% of their editorial costs and 75% of costs for "low-frequency newspapers".

Journalism for free

These are just some of the ways European neighbours are protecting or being forced to alter the state's intervention in media markets.

And they're relevant to the British debate about sustaining its newspapers and commercial television.

The new Westminster government has axed Labour plans to charge a levy on broadband as a means of expanding its roll-out, and that retreat chokes off one French/Spanish means of funding media deemed to be of public value.

It has also axed the pilot plans to help rejuvenate commercial TV news in Scotland, Wales and north-east England.

But it hasn't yet said how those companies, including STV, are supposed to sustain their franchise commitments on news when it is widely acknowledged that advertising revenue has fallen far below the level required to pay for it.

Journalists at STV fear a cull of their output and jobs.

For newspapers, much hangs on the delayed plans of Rupert Murdoch's News International group to charge for access to online content - challenging the perception that journalism can be accessed for free.

The British approach to regulation of print news has traditionally been hands-off and subsidy-free, except to serve notice that cross-ownership constraints for local media may soon be relaxed.

That could see newspaper groups combine with local TV and radio, which they have not been allowed to do.

That may be one answer for companies such as STV, DC Thompson in Dundee, and Johnston Press, for which the share price is again in dismal territory - 44 pence last October, now at 13 pence.

The Edinburgh-based publisher, with The Scotsman and Yorkshire Post among its flagship titles, may already be looking overseas for answers to its problems.

It's just recruited a Norwegian specialist in media innovation, one Kjell Aamot, as its non-executive director. He's spent 20 years atop a Norwegian newspaper group, Schibsted, and is now involved with a publisher of freesheets in France.

Meanwhile, for commercial television, which is much more heavily regulated than newspapers, it's not so easy to find answers to the question of how diversity and quality can be sustained - but STV is among those companies looking forward to hearing what answers the new government is offering.

Where sheep may safely graze

Douglas Fraser | 06:46 UK time, Monday, 19 July 2010


Ring-fencing - it sounds good if you're a shepherd, reassuringly secure if you're a sheep, and a bit of a nuisance if you're a wolf.

Likewise in public spending, it's attractive to those who get protected, much less so to those who are left outside, and an irritation if you're the finance director who wants budgeting freedom.

We've heard lots about ring-fencing already this year. Going into the Westminster election, Labour promised to put a fence, with a 'keep out' notice, around spending on schools, front-line health and policing.

Tories said they would do the same for front-line health and nuclear deterrence, while all the major contenders were committed to protecting Britain's obligations for overseas aid. (That's even though opinion polling finds public support for that has waned.)

Shifting the pain

We'll hear lots more about this as budgets are squeezed - with little apparent mercy - over the next few months. The Scottish parties have to decide what, if anything they'll commit to ring-fence when they make their pitch for our votes at next year's Holyrood election.

Indeed, they'll have to take a stand before then, as the Scottish Budget Bill makes its way through Holyrood this winter.

They're already seeing from Westminster the problem with ring-fencing - or at least, the obvious one. If the bulk of health spending is protected, as the Conservatives and Liberal Democrats running the Treasury are trying to ensure, and if you have a fixed amount of money you want or have to take out of public spending, then the cuts are going to fall much more heavily elsewhere.

Ministers want to limit the damage to education and to defence as well, so the cuts won't go as deep for those budgets. And that means deeper cuts for others.

This was illustrated for Scotland some months ago by economists at Glasgow University's Centre for Public Policy for Regions. They were then looking at merely cutting 8% out of spending over four years. (That seemed a lot at the time, but it's a modest assumption now).

They reckoned that if you ring-fenced health, it would mean 13% cuts for everything else. But what if you ring-fence the public sector pay bill too? And education, why not? That would require cuts for everything else of 40%.

And as it happens, that 40% figure is now the worst case scenario planning being required by the Treasury of Whitehall departments.

The road to more crime

Consider for a moment the spending departments that won't be protected by ring-fencing. If this is decided by party manifesto writers, they're bound to be the least popular and populist. Drug treatment, for instance, or social work or care homes - they tend not to get ring-fenced apart from some statutory duties placed on councils.

One objection is that the people who can speak least loudly get least protected in spending cuts. The other is that a cut in one department can mean increased pressure in another. Fewer social workers and less drugs treatment can lead down the road to more crime.

Fewer care home beds for people being discharged from hospital, and you return to that staple of 1990s headlines - bed-blocking.

And of course, with fewer public sector salaries to pay, expect more unemployment benefit pay-outs.

Efficiency pressures

Consider also what happens inside the ring-fenced area. If you're being told you're protected from spending cuts, where is the incentive to deliver more efficiently?

Aren't they now getting a signal from government that they won't face the same pressures as others across the public sector to work harder or smarter, or not to have a job at all?

Renewing the jobs market

Douglas Fraser | 20:00 UK time, Friday, 16 July 2010


If you're wondering about a career change, try renewable energy.

It might help to spend quite a few years studying engineering, but the prospects for employment are looking rosy.

For Scotland, prospects for renewable energy jobs hang in the balance.

It's possible that its huge potential for providing weather galore for turbines of the wind or marine varieties is harnessed without many jobs being won.

The story of losing the race on wind turbines to Denmark and Germany is well-known, and now there are few jobs in building turbines.

The race to develop wind and tidal turbines is still one where Scottish companies have significant leads, and there is a need to ramp up capacity for the fabrication of the jackets on which offshore turbines sit.

This week saw the floating out of several such 500 tonne giants from Methil.

So the news today from Mitsubishi is encouraging.

It's putting 100 jobs into the centre for renewable engineering excellence set up last October by Scottish and Southern Energy along with Strathclyde University.

That shows it's not only Scots which recognise the expertise to be found. It's a big global player that could locate its research and development anywhere.

On-street plug-ins

And in announcing a partnership that will look at turbines, biomass and smarter grids, there was a significant statement from Alex Salmond - understandably delighted at the news - that it should help Scotland do some catching up on low-carbon transport.

Alexander Dennis in Falkirk is making progress on buses, but the networks needed to plug Scotland into an electric car revolution are nowhere to be seen.

And in cities dominated by tenements, with on-street parking, it's not clear how that on-street plug-in will work.

Another indicator of what's happening in the sector came from Hays Consulting.

On the very day of new unemployment figures showing Scotland in significantly more bother than the rest of the UK, it said that salaries in the renewables industry are on the way up because of skills shortages.

And while some accuse us in the media of spreading doom and gloom about jobs, there's a warning from PricewaterhouseCoopers that the negativity around graduate recruitment may be putting graduates off applying for jobs that DO exist - such as those in the accounting and consultancy firm itself.

Good fit

The jobs stories coming this week featured two other factors playing in the economy just now.

One was from the former Standard Life Bank, which was bought by Barclays last autumn.

It said then it was a good fit with its retail operations. Being quite small, this meant nearly 287,000 accounts and 78,000 mortgages.

But the fit was with the customers, not the staff.

After a six-month review, the whole Edinburgh operation is to close, taking 254 posts with it.

Now, there may be redeployment in other parts of the Barclays empire, notably including expanded operations in Glasgow's Barclays Wealth office.

And there was a hint that Scottish Development International, the government's inward investment agency, is actively looking for a company to take on those who have skills from Standard Life Bank.

But for 254 Edinburgh households, it's another harsh lesson in the world of corporate acquisition and consolidation.

A less harsh lesson comes from the collapse of Peter Scott in Hawick.

The textiles firm was placed in administration in May. With 18 people staying, 140 were laid off.

KPMG sold it on to Gloverall, and in a move that's all too rare for the Borders town, it's now looking to hire 60 people.

So there's a bit of gloom in some places, but it's not all doom.

Stormclouds over Scottish jobs

Douglas Fraser | 22:02 UK time, Wednesday, 14 July 2010


On a July day that has been unseasonably adjusted by heavy rain, the latest job figures tell a tale that's becoming familiar.

The claimant count is down slightly on last month. The three-month rolling survey of people looking for work registered a slight increase to 216,000.

We can feel relieved it's not far worse, and many thought it would be. We can hold our breath while the public sector across Britain threatens to push hundreds of thousands more out of work.

We can worry at the fact that, across Britain, the number of people aged 18 to 24 who have been unemployed for more than 12 months has risen over the past year by 40%. Between March and May, the labour market survey registered 188,000 such people.

Or we can ask - why is it that Scotland's relatively strong employment position has become relatively weak, and what needs to be done about it?

Employer pessimism

Scotland went into the recession with a higher proportion of people in employment than England, and a lower proportion of people unemployed.

Both positions have been reversed. Scotland has had five consecutive months of modest declines in those on Jobseekers Allowance. But it's also had three months of being in a worse position than its neighbour and closest economic parallel.

In England, the number of people who are unemployed is up 26,000 over the past year - in Scotland, it's up by 35,000.

In England, the number in employment is up 37,000 in the past year - in Scotland, it's down 65,000.

In England, the number of economically active has risen 63,000 since March-May 2009 - in Scotland, it's down 30,000.

The proportion of economically inactive people in England has gone up by less than half the rate in Scotland.

Why? The figures don't tell us. But we could guess at some possible reasons; that Scottish employers are doing less to hold on to their staff, for instance. It may be that they're less optimistic about hiring. It could be that Scots are less flexible about taking part-time or temporary work. It could be explained by the methodology - this is a big survey sample, but by the time you drill down to the Scottish level, it becomes harder to draw reliable conclusions.

What should be done about it? That depends on your assessment of what's going wrong to explain this relatively poor performance. But it's a challenge to those seeking election to Holyrood next May. They may not have much cash to splash around, but they'll need a robust response on jobs.

Healthy health jobs

There are other nuggets of information that can be mined from these statistics. Across Britain, the number of people who are working part time has gone up 265,000 since the same period last year. Of them, 133,000 say they are part-time because they couldn't find full time work. Over that period, the number of full-time jobs in the economy has fallen by 143,000.

The number of people classified as economically inactive has risen by 172,000 in a year. In that category, 117,000 would like a job, but they're not counted as having looked for a job in the previous four weeks or as being ready to start one in the next two weeks.

You might wish to note that the number of people employed in manufacturing has fallen by 371,000 between March 2008 and March this year. Over the same period, Britain has lost 269,000 construction jobs, and 184,000 in finance. Meanwhile employment in education has risen 114,000 and health and social work by 272,000.

That tells you a lot about what's happening across the British workforce, and reflects the fiscal boost to make up for the fall in private sector demand.

And as we know well, that re-balancing of the economy is going to tell a different story over the next four or five years.

Oban for business

Douglas Fraser | 07:17 UK time, Wednesday, 14 July 2010


It's either because tourists spend more consoling themselves when it's raining, or because of Oban's growing reputation as the place to go for fine fish dining, the self-proclaimed Seafood Capital of Scotland.

Perhaps it's both that explain why the Argyll town has one of the highest tourist spends-per-day.

While London, as top destination, costs tourists £96 per day, and Edinburgh comes second in number of visits with an average daily spend not much above average at £67, Oban - ranked 47 among British tourist towns - hauls in £90 per tourist day along with its lobster creels.

The catch is that of all the tourist destinations in Scotland, only Aberdeen has an above average number of days spent there - at seven - and that's probably explained by the large amounts of business tourism into the energy capital.

In Oban, Inverness and Fort William, which also appear in the top 50, people tend to stay only three nights.

Why they spend an average 11 nights in Nottingham and nine nights in Sheffield is one for Highland tourist businesses to figure out and learn from.

Brakes slammed on

Such nuggets of more or less useful information can be gleaned from the annual Travel Trends publication from the Office of National Statistics.

Covering the calendar year 2009, its main feature is a staggeringly large drop in Brits going abroad, after decades of fairly steady growth averaging 4% per year.

Leisure travel was bad, but the business travel sector was truly grim.

That shouldn't be a huge surprise. There was a recession on, after all. And finance directors slammed the brakes on overseas travel.

Visits overseas by UK residents were down 15%. That's more than 10m fewer visits than 2008, which saw a slight decline as the downturn began to bite.

Foreign business travel by UK residents was down 23%, while 19% fewer business visits were made to the UK.

Spending by foreigners on British tourism was actually up, despite the recession, while Brits' overseas spend fell sharply, down by 27% in North America.

Bucket and spade

Apart from recession, much of this story can be explained by the weakness of sterling. As the US dollar climbed, it was UK visits to the US that showed one of the sharpest falls.

But there's a problem there. With the eurozone being so important to British tourism, its relative weakening in recent months won't have helped Britain seem so attractively cheap for this year.

Burrow further down into the ONS survey data with your bucket and spade, and you'll find something perhaps a bit surprising about Scotland.

It did rather well amid all this tourism maelstrom. Now it may be that the methodology explains this, as the survey only began to cover Aberdeen airport's international arrivals and departures during last year.

"Experiential" golf

But leaving that aside, Scotland's tourist industry saw gains in both leisure and business tourism.

Spend, according to this survey, was up from £1.24bn to £1.37bn.

While North American spend fell sharply, there was another £100m coming in from our continental neighbours.

Visitor numbers were up from 2.49m to 2.54m, while in England they fell from 27.3m to 25.4m.

While England's business tourism fell from 6.6m visits to 5.2m, Scotland's rose from 382,000 to 425,000.

And while business tourism spend was down nearly £1bn in England, it rose £60m in Scotland.

This wasn't evident from what the industry was saying, with the business and conference market finding the recession particularly hard-going.

But then, of course, these figures don't include the UK element of domestic business travel.

At the high end of tourism, I learn from the Huffington Post that Scotland scores highly among well-off, post-recession Americans for exclusive experiences such as the Royal Scotsman train, taking only 36 passengers.

Or it scores as "experiential" if, for instance, you visit to play golf.

Foreign fans

And on the sports front, VisitBritain tells us this morning that foreign visitors wanting to participate in sport, or watching it, account for 14% of the industry, and 10% of visitors.

Or at least, they did in 2008. As players, they spent £1.3bn, and they spent nearly as much watching it.

Football was the main draw for spectators, more than quarter of a million of them Irish. That was followed by horse-racing.

Golf scored big for participation, with the tourism promotion agency saying 94,000 Americans came to Britain to tee off, along with 66,000 Germans, 44,000 French, 30,000 Spanish and 28,000 Irish.

In the process, it's reckoned sports tourists spent an average £900 per trip, whereas the average non-sporty type typically spends £500.

Many such golfers will be tuned into St Andrews and the Open this week, making it a showcase for Scotland's tourism product.

The weather on the Fife coast is looking dismal, so we'd better land some quality langoustine.

"Drill, baby, drill"

Douglas Fraser | 07:45 UK time, Thursday, 8 July 2010


Sarah Palin's thoughtful advice to the US oil industry in those good ol' gung-ho days for offshore drilling may be better applied in British waters.

That's if the latest figures from Deloitte's is any guide. The consulting firm today reports sharp increases in drilling, particularly in the southern North Sea.

The second quarter of the year saw a 133% increase on the first quarter, and it's 86% up on the same period last year.

They're not huge numbers, and they're off the back of some very low figures when credit was tight and the oil price was more volatile.

The number of exploration and appraisal wells that were "spudded" - achieved a drillhead breakthrough - reached 28 in the second quarter, up from 12 in the first quarter.

Healthy middle age

It's been assumed much of this activity is for small fields, many of them reached from existing platforms. But the news of a big find off Aberdeen last week is a reminder that the North Sea may be mature, but it's middle age is proving quite healthy.

That's certainly the way Oil and Gas UK (OGUK), the industry body, was putting it on Tuesday when it issued its annual review of activity under UK waters.

Yes, mature fields and more subdued prices brought production down by 5% last year, on top of 10% the year before.

But its extensive update on the industry showed confidence coming back, with intention to invest more than £5bn for this year, rising a bit higher for next year.

The report also read like a manifesto directed at a new government with radical plans not only for cutting spending but also raising tax.

London's offshore jobs

OGUK stressed that, with the collapse or disappearance of bank profits in the past two years, the sector has now taken over as the biggest contributor of corporate tax to the Treasury.

It employs lots of people - more than 400,000 workers look offshore for their income source, and it would be wrong (of new ministers) to assume they're all in Scotland. Only 45% live north of the border. A lot of finance jobs in London depend on oil and gas.

Then there's the energy security argument. UK production can still meet much of the UK's energy needs ten years from now, at a time when security of supply looks like becoming a bigger issue.

So the message to ministers was clear: you can make a huge difference to the amount of oil and gas that gets extracted if you want to unlock the potential of offshore energy in Britain, but it depends on the right incentives.

That's not subsidy, but tax breaks, such as the one last year agreed specifically for two gas fields west of Shetland. Likewise, they want to retain the tax breaks on de-commissioning, which will become a bigger issue for the sector as platforms face the scrapyard.

Piper Alpha's lessons

And all this comes against the backdrop of offshore drilling becoming a globally hot issue. So far, the new British government's response to the Gulf of Mexico spill has been to increase inspection.

There's no talk of a moratorium in the deep water west of Shetland which presents the same kind of pressurised technical challenge that has caused such a nightmare for BP off the coast of Louisiana.

OGUK's chief executive Malcolm Webb is not being drawn on the implications. It's too early to say, is his line, except that he thinks it likely America's inspection regime will learn some lessons from the UK one. That, in turn, was built on the lessons from the Piper Alpha disaster, which took 167 lives twenty-two years ago on Tuesday.

The requirement for continued toughened inspection is surely going to be retained, post Deepwater Horizon.

The question is whether it will be accompanied in Britain, and elsewhere by increased costs of more blow-out and leak preventers, of relief wells being required, and of liability insurance (one of the issues being urgently reviewed by the industry).

Headquarter losses

It's feared by some that such elements could price the smaller operators out of the market for drilling, at a time when they have become vital to much of the UK's offshore industry.

Will the big companies be willing to replace them? Or will those smaller players be swallowed up. Is Dana Petroleum part of the answer, being stalked by a big investor - in this case, Korean.

That's another case of a significant Scottish headquarters looking vulnerable. And as with Venture Petroleum last year, it's another example when HQ power departs with little comment.

With sterling-denominated assets looking attractive in some parts of the world, it won't be the last Scottish company to attract such attention.

Higher skills, but for what jobs?

Douglas Fraser | 12:26 UK time, Tuesday, 6 July 2010


Two years after the banking crisis, with a new government pledging to "rebalance the economy", to which recruiters should this summer's graduates be posting their job applications?

Engineering? Science? No, it's banking, finance and accountancy. If they want big salaries, it's investment banking.

And of course, they've got to go to London and south-east England, which together have more than half of graduate vacancies, at least from the bigger companies.

The average UK starting salary for a graduate is stuck for the third year at £25,000.

In London, it's £28,000 and for most of the rest of the UK, including Scotland, it's £23,000.

Anecdotally, that's a lot more than some are having to settle for.

Scattergun applications

The figure comes from the most recent survey from the Association of Graduate Recruiters (AGR), showing how tough going it is for those now leaving university.

Vacancies are down 7%, after a 9% fall last year.

The 200 larger recruiters that contributed to its research say they're more likely to look for 2:1 degrees, and there's a sharp increase in the numbers expecting relevant work experience.

A growing number, up to 7% of them, are only bothering to look for graduates from certain universities.

And a trial is under way to look beyond the blunt instrument of the traditional degree classifications.

Eighteen universities are trying out a Higher Education Achievement Report, which will include course marks, extra-curricular activities and employability skills.

It's a hirers' market.

Many recruiters say the quality of application has gone up, but they are also under pressure from the sheer weight of numbers.

Graduates are firing off applications in huge numbers, and sometimes in a scattergun approach, meaning the 69 applications for every job - more than double the number two years ago - may not be as bad as it looks.

Across 200 companies with 18,000 vacancies this year, they report nearly 700,000 applications.

A tenth of the recruiters surveyed say they've received more than 10,000 applications each.

Pulling pints and shelf-stacking

The numbers are swelled by those who graduated last year.

A recently-published survey by university career advisers found around 20,000 (about a tenth) are unemployed, and 50,000 more are under-employed - not using the skills they've gained, often in pubs and restaurants, unskilled retail jobs or the grimmer end of the call centre business.

The straits in which graduates find themselves is clear from speaking to smaller businesses.

One pub in Glasgow's west end says almost every second person coming through the door during the day is asking if there are jobs on offer.

The AGR research shows how some sectors are doing better than others.

Investment bank jobs, which are coming close to filling half the gap created when they shed staff two years ago, are paying a median £35,000.

A legal job will pay slightly more. But the law is one of the toughest areas for finding a job at all.

It is telling that the spectrum of starting salaries puts engineering and industry close to the bottom, at £23,000, with that sector reporting a decline of one fifth in the number of jobs available.

That tells you much of what you need to know about the challenge of economic rebalancing.

It's not what I'm hearing from Aberdeen, however, where the offshore sector is keen to recruit young engineers.

It's also worth noting one response from a company in the fast-moving consumer goods sector - with the sharpest vacancies fall of any - that it has shifted its recruitment to non-graduates, as it has found graduates "may not be the best fit for the company".

It reports they lack the employability skills for the roles previously offered to them.

Skill shortages

It's also worth noting that IT is seen as a sector with weak recruitment, when it's also seen as the sector that will see skill shortages before too long.

The short-term market message is very different to the long-term interests of the economy.

Capita Learning & Development has responded to the AGR figures with a warning about that skills gap.

Although you might say it has a vested interest in doing so, it says 70% of business leaders fear that inadequate staff skills are the greatest threat to their ability to capitalise on the recovery: "More than half admit their under-trained workforces is struggling to cope with expanded job remits following waves of jobs cuts during the recession".

The public sector has been a place graduates can go to take up the slack when private sector jobs decline.

The survey found an increase of 5% in guideline pay for the public sector, reflecting national pay rates more than the state of the market.

However, that was before a Whitehall pay freeze was imposed on salaries over £21,000.

More significant is that the public sector respondents expected the number of vacancies to drop by nearly 10%, and that too was before the depth of the government's cuts became clear.

That reduction is expected to hit hardest in the areas outside the south-east of England, in which public sector recruitment has been particularly important in this graduate market.

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