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Archives for October 2010

A budget impasse looms

Douglas Fraser | 17:47 UK time, Saturday, 30 October 2010


Scotland's public spending could be heading for another precipice. Holyrood's budget is being cut, and there's a real possibility that there may be a failure to pass it.

In some countries, such as the United States, that means public sector workers don't get paid, and services close down.

In Scotland, the quirk is that it could make very little difference.

Here's how it works. If there is no agreement on the budget for the financial year starting in April, then the law says that the previous year's budget will apply, or whatever part of it was spent, in one-twelfth shares released each month.

That law was drawn with an assumption that budgets would continue to rise. But what if they're being cut, if only in real terms?

Last year's money still gets passed from the Treasury to the Scottish government, on a monthly basis. And as it's not much more in cash terms, it will deliver very similar results to the outcome if the budget were not passed.

How does this affect the politics at Holyrood? It means there's little or no penalty for parties if they can't agree a budget, and it would be up to the incoming government (or a continuing SNP one) to try and pass a budget after the 5 May election.

Across the parties, that's a scenario that's being treated quite seriously.

The other likely way of getting the budget through the Scottish Parliament, when the SNP is 19 votes short of a majority, is by negotiating a deal where opposition parties can be persuaded to abstain.

Tories have backed SNP budgets in the past three years, in exchange for concessions, but Conservatives may be reluctant to get too close to John Swinney's cuts programme this time round.

Assuming Labour will want to vote against, what the finance secretary then needs to do is to neutralise the Lib Dems.

And while talking politics, in which I've been immersing myself at the Scottish Labour conference in a drookit Oban, watch carefully what Labour's going to say about protecting the health budget.

It's carefully not saying it's ring-fenced. But what it's likely to do is to say it will put the care budget in with the National Health Service. The effect of that is intended to build pressure on health service managers - and the councillors who would play a bigger role in running the service - to bear down on costs and inefficiencies in the NHS.

The Viking plunder that keeps giving

Douglas Fraser | 07:26 UK time, Tuesday, 26 October 2010


Three hundred billion pounds - not a bad stash for a country of less than five million people.

Norway's global pension fund has been funded by the nation's oil and gas revenue for the past 15 years, since the Oslo government switched into saving mode.

To Scottish Nationalists, it's an example of what a small, resource-rich country can achieve if it makes the right, long-term decisions.

I've been to Oslo for Newsnight Scotland to find out more (you can see it on BBC's iplayer for a week). And while Nationalists certainly have a point, it's a bit more complex than that.

Paying for Thatcherism

First, the question is not just one of whether Scotland could have created a giant trust fund.

The same question also needs to be put to the UK government, which had, and still has, the power to save some of the money, instead of using it for each year's revenue spending.

That allowed Britain to keep taxes much lower than, for instance, the Norwegians.

A Thatcherite might also argue that the use of the money when the oil revenue taps were turned on in 1980 was effectively used in modernising and transforming Britain's economy.

Those of a less Thatcherite political hue might point out in response that much of the money was used to pay the bills of high unemployment during the 1980s - the painful flipside of that economic transformation.

The fact is that the UK government did not put aside oil revenue, and shows no signs of doing so any time soon, as oil production declines for the next three or four decades.

Saving discipline

So what about the case for Scotland having the power to put that money away for a rainier day?

The positive case - put by Strathclyde's Professor Robert Wright on Newsnight Scotland - is that Scotland and Norway are of similar scale, and all that revenue could have gone further if kept to a population of five million or so.

Spread over a UK population in excess of 55 million, its impact was bound to be diffused.

But there's a challenge to those who say Scotland could be in the same position as Norway.

What evidence is there that Scots have the self-discipline not to spend money and to save it instead?

Following 11 years of devolution, there has been a requirement to spend all, or nearly all, of Holyrood's block grant, so you could say the fact it's been spent is no measure of fiscal discipline.

But when you look at the way it's been spent - on open-ended commitments and expansion of universal provision - it's hard to argue that the Scottish political culture is one of spending constraint.

Would Scotland be able to withstand the constraint Norway imposes on itself of spending no more than 4% of the fund's value each year?

At the same time, would Scots be willing to face sky-high taxes and a living costs to fund its social welfare provision? And would it be willing to sacrifice its exporting industries to a consistently very strong currency?

Subsidies for loss-makers

If you transport yourself back into the Scottish politics of the 1980s, what would have happened then?

Would there not have been a strong lobby - if not an overwhelming one - to use the proceeds of an independent Scotland's oil revenue to subsidise loss-making coal-mining, shipbuilding and steel-making?

An independent Scotland might now be able to boast all three, with the high employment to go with them. But would they have become more competitive?

And would there have been anything left for the nation's savings fund?

These are 'what if...' questions to which, of course, there are no clear answers.

But what did become clear to me in discussions with Norwegians - including finance minister Sigbjorn Johnsen, NRK's economic commentator Steinar Mediaas and Oslo University lecturer Silje Ansaksen - is that they have a very different culture of responsibility to future generations.

Future generations

In British and Scottish politics, you're lucky to get any sign of responsibility to whatever follows the next election.

But in Norway, they see their gigantic global pension fund as a commitment to the young and unborn. It's partly to ensure that they are not burdening those generations with pension commitments.

And it comes with an explicit sense of the trust they're placing in their children and grandchildren that they will steward this financial heritage wisely.

Whatever you make of Scotland's constitutional future, with pensions, welfare, deficit and debt dominating our national life, there's a lesson there worth pondering.

An Asian First?

Douglas Fraser | 07:11 UK time, Monday, 25 October 2010


The train now departing Aberdeen is bound for... Shanghai, Singapore or Simla?

It may be some way down the track, but the chairman of FirstGroup, Martin Gilbert, has been thinking out loud about the next stage of expansion for the Aberdeen-based transport giant.

And just as he has taken Aberdeen Asset Management into Asia in a big way as its chief executive, Gilbert sees the east as having potential for Britain's transport companies to expand.

He was talking on BBC Radio Scotland's programme The Business, as it marked the imminent departure of Sir Moir Lockhead from the chief executive's office.

In 21 years since Lockhead led a management buy-out of Grampian's transport operation, it has become a £6bn business, with more than 130,000 employees, and two and a half billion passengers each year.


Having expanded through the de-regulation of Britain's buses, it saw an opportunity with rail de-regulation as well. That's been a bumpy track, with a derailment or two, literally and metaphorically.

But on the programme, we heard that the safety lessons learned by FirstGroup from the challenge of modernising Britain's rail network have been useful in building confidence and winning business in the USA.

The company now has 60,000 yellow school buses in the States and Canada, and maintains transport fleets for the US federal and state governments. It also has the iconic Greyhound fleet - a brand it has begun to use in the south of England.

Determined entrepreneurs

Given Scotland's problems with growing companies of scale and global ambition, why is it that it has two such large transport companies in FirstGroup and Stagecoach?

The answer, according to the Financial Times' transport correspondent, Robert Wright, is that this is one sector in which London didn't develop with the rest of Britain. Its buses and the Tube were not de-regulated in the way other British transport was.

In Perth and Aberdeen, two determined entrepreneurs saw the opportunity. So too in England's north-east, where Arriva and Go-Ahead have their roots, as does Sir Moir.

Will FirstGroup remain based in Aberdeen? Sir Moir thinks so. But its new chief executive, Tim O'Toole is based in Philadelphia, and there aren't easy transport links with Dyce Airport. So its roots may not be quite so strong in the north-east under the new management.

While the US remains an area for public transport potential, the idea of Asia is a daunting prospect. Don't bank on a takeover of state-owned Indian Railways any time soon.

But as Stagecoach used to run the bus service in Malawi, back in the 1980s and 1990s, don't be surprised if the transatlantic profile begins to span other continents.

You can hear more about FirstGroup and Scotland's transport sector on The Business.

11.39 update:

As if on cue while looking at the transport sector, Brian Souter has just issued his first Souter Investments report. He seems to have planted his money wisely through the downturn, getting out of property in plenty time, and he's seen a 41% increase on valuation over the past three years, leaving the fund worth £400m.

The idea is to increase his exposure to new investment ideas, so there's a new website to go with this:

Half of his investment fund is in Stagecoach, and the only international investments are in transport, with a small footprint in New Zealand. The smaller investments range across online search, bio-medical and mudflap technology.

It's ethical, however. If you've got alcohol, gambling, tobacco or armaments in mind, look elsewhere.

Foul is fair and fair is foul

Douglas Fraser | 06:53 UK time, Friday, 22 October 2010


It's best not to tangle with the Institute of Fiscal Studies on issue of fairness.

The Treasury's best efforts to make its spending review look fair are understandable, but it only took a few hours for pointy-heid public finance experts to dismiss it.

The IFS isn't easily dismissed, however.

Having torpedoed George Osborne's emergency budget in June with a demolition of its claim to be progressive, the institute's director was rewarded with a move to head the Office of Budget Responsibility.

Those Robert Chote left behind have lost none of their independence.

Both Treasury and IFS have chosen the battleground of income distribution to measure the claims to fairness. Understandably so.

But that's not the only way of looking at fairness.

On gender, the spending review doesn't look particularly fair to women - on child benefit changes, reduced entitlement to childcare credits, or the loss of public sector jobs, where women have a high share.

Free bus pass

Most striking of all is the split between generations.

The average family with children says the IFS, will be nearly 7% worse off, while the average pensioner couple will be 3% worse off, consistently across the income scale.

That's not by accident.

A series of decisions were made in the spending review that skew the outcome heavily towards older people.

They get pensions uprated with earnings from now on. They keep universal benefits - entitlements to winter fuel payments and TV licences - while the universal approach of child benefit is abandoned.

In England, as in Scotland, it seems free bus passes are being protected.

There's another £2bn to spend on social care, to address England's acute problems with patchy provision for the elderly in the absence of Scotland's universal approach.

And of course, the budget that matters most to most older people, the NHS, is largely protected - if pressurised by inflation and rising demand from, yes, those older people amongst others.

At the bottom end of the age range, there's some help for pre-school children in England, with consequential funds for devolved administrations.

Longer wait to retire

But look how it is for adults.

At the younger end of that age range, there are changes to allowances for those staying on in education.

The cut in higher education spending will surely load significant costs on to students and/or graduates.

Working-age adults are the ones taking the bulk of the hit on welfare.
Housing benefit, for instance, is being reduced for those aged 25 to 35.

They have to wait longer before collecting their pensions, and in a labour market that can be unforgiving on those around or beyond 60.

To be more accurate, the rise in the retirement age is being brought forward, affecting those closer to retirement age.

Those in public sector jobs can expect a pay freeze - that's if they're not to lose their jobs - and an increase in pension contributions, while final salary pension schemes are either disappearing or coming under a lot of pressure.

It's often said the mark of a civilised society is how it looks after its elderly people.

But the mark of these decisions also seems to be a decisive shift towards protecting the old at the expense of younger adults, and opening up an interesting inter-generational tension in the public spending battles yet to come.

Perhaps younger adults are paying a heavy price for not being bothered to turn out and vote.

Cash and carriers

Douglas Fraser | 06:56 UK time, Wednesday, 20 October 2010


It's not a good time for the Clyde's shipbuilders to be either gloating about surviving the defence review, nor fretting about the future. Yet they've got reason to do both.

The gloating should be avoided when they consider the pain inflicted elsewhere. Compared with the hit that Moray is going to take with the closure of RAF Kinloss and possibly also RAF Lossiemouth, the loss of the carrier contracts, with 4,000 jobs, would have hit Glasgow proportionately less hard.

The evidence from a report commissioned by Highlands and Islands Enterprise underlines the case that Moray is the area of Britain most dependent on the RAF.

Published in August, Reference Economics showed Kinloss has 2,340 employees, and pumps £68m into the economy, while Lossiemouth has 3,370, with a spending impact of £90m.

It counted 1,457 spouses and 1,919 children aged up to 16 - totalling 7% of Moray's population and supporting 16% of its workforce.

And even with whisky doing well along Speyside, there aren't that many jobs in it for the county. Moray's pay has been among the lowest in the country.

It has to make you wonder if that cross-party lobby for the aircraft carriers was some way off target, and should have focused on risks further north.

Cat and trap

Anyway, this is no time to gloat about keeping jobs elsewhere, least of all on building two giant aircraft carriers which won't carry planes for a decade, if at all.

The plans to modify them for "cat and trap" use (catapult launch and arrestor device for landing) by American or French aircraft is either to prepare them for sale or for "interoperable" joint use. And as the French have already postponed their decision to build a new aircraft carrier (they bailed out early and expensively from a joint design programme with the UK) the Paris government might nevertheless be quite grateful for the opportunity to buy a nearly-new porte-avion, so long as it's at well below the vast cost price.

There's a hint in the Strategic Defence and Security Review that this could be on condition that the buyer could hand it back while the one Royal Navy carrier is unavailable through refit or other duties. More on that with the next review promised in 2015.

Meanwhile, as nothing comes cheap in defence procurement, stand by for a hefty bill for adapting to this "carrier variant" model. The decks will have to be flattened, and the cat and trap kit added. The in-service date of the Queen Elizabeth has been put back from 2016 to "around 2020". Delays like that don't usually come cheap.

Piracy patrol

So why should the two Clyde yards fret? They're surely the big winners? Well, it's back to the question of what happens after large chunks of the Queen Elizabeth and Prince of Wales (HMS Charles de Gaulle?) have been floated down river on their way to Rosyth.

The Clyde work dries up in about five years. David Cameron announced "a new programme of less expensive, modern frigates, more flexible and better able to take on today's naval tasks of tackling drug trafficking, piracy and counter-terrorism".

So far so good for shipbuilding contracts. But he also said the size of the Royal Navy is being reduced. From 13 frigates at present, four are to go, taking the Royal Navy's fleet of major combat ships down to 19 in total. That means fewer ships need replaced. And look at the commitment in the SDSR: "As soon as possible after 2020 the Type 23 will be replaced by Type 26 frigates".

For those who hoped to see a firm commitment to a steady work flow for Scotstoun and Govan, "as soon as possible after 2020" stops some way short. All the more reason to step up those export efforts.

Out of recession, to what?

Douglas Fraser | 07:50 UK time, Monday, 18 October 2010


"We have emerged from recession in better shape than the rest of the UK," according to John Swinney, Scotland's finance secretary, speaking to the SNP conference in Perth.

Is it? Not if you look at the employment and unemployment figures.
Both started the recession in a better position, but that has since reversed.

Nor is it true if you look at the growth figures. Scotland's economy was flat-lining in the first quarter of this year. There's an update this week, giving us the second quarter figures, so maybe Mr Swinney knows something about those statistics that we don't, yet.

But as the UK figure was 1.3% in that one buoyant quarter, Scotland will have to go some to look better.

So what did the minister mean when he said Scotland's emerging in a better position?

The answer is that the dip wasn't so deep. The UK economy fell by 6.4% over the recession, while Scotland's contracted by 5.9%.

Drilling down

It's also being argued that youth employment looks better in Scotland than the UK as a whole.

In the survey for April to June, 62% of those aged 18 to 24 were in employment, compared with 59% of those in the UK.

Statistically, that's a risky argument, as drilling down into the Scottish employment figure relies on quite small numbers of people in the survey sample.

Then there's jobs in construction. With the help of the Scottish government keeping its foot on the capital expenditure accelerator during last year, construction employment went up by 9%, while across the UK it fell by nearly 6%.

The value of construction bounced back from very deep recession at a faster rate in Scotland.

That's the evidence.

You might say it involves quite selective use of statistics. And it's backward-looking.


What about looking forward on the economy?

At the SNP conference, John Swinney said he wants to set up an Export Support Package for businesses, asking firms how best government can help overseas sales, and probably meaning a beefing up of Scottish Development International.

It would help if that organisation sorted out the long delay in appointing a chief executive - vacant since the start of the year.

More interviews this week.

SNP members heard a defence of an increase in business rates for many firms, without softening the blow of revaluation. Those who want that softening haven't explained where the money will come from, said Mr Swinney.

There is, however, money to abolish prescription charges and freeze council tax. The language was overwhelmingly about protecting public services, but not about where the cuts will fall.

Nor was there much mention of reform of the way services are delivered - apart from cutting the number of health service managers and the headquarters from which the police are run. Efficiencies like that don't equal reform of service delivery.

Demand pressures

Alex Salmond announced he's setting up a Commission for the Future of Public Services under Campbell Christie, former general secretary of the Scottish Trades Union Congress.

With the National Endowment for Science, Technology and the Arts warning today of £27bn of extra costs from rising demand pressures over the next 15 years - that's quite apart from cuts pressures - the Commission helps push difficult issues beyond next year's Holyrood election.

We'll have to wait and see whether the former trade unionist takes the reforming path or the protecting path.

If he reads the NESTA report, or any other independent writing on the future of Scotland's public services, he'll soon find that protecting public services as they are does not look sustainable.

Reinventing Government

Douglas Fraser | 07:38 UK time, Friday, 15 October 2010


With attention focused on the public finances and the defining moment of the comprehensive spending review next Wednesday, there's a gathering pace to the pressure for serious solutions.

BBC Scotland's Great Cuts Debate told us on Wednesday night that the consensus remains strong around protecting certain services. But neither public participants nor party representatives seemed willing to engage in the difficult bit about priorities and awkward choices.
Scotland's political timetable, with an election little more than six months away, makes that difficult.

That's where think tanks come in handy. Scotland doesn't have enough of them to do its independent thinking. Based in London, the National Endowment for Science Technology and the Arts, a Lottery-funded innovation tank, is soon to deliver a significant contribution to the thinking on Scottish public service reform.

This week, it's been the turn of the David Hume Institute to weigh in, in the heavyweight category, with a series of essays. Among the authors are academics, three former civil servants in St Andrew's House and the Auditor General.

The former mandarins are interesting for having been creatures of the government machine, and now able to bring that experience to bear. Jim Gallagher is co-editor with the Hume Institute's director Jeremy Peat, and among their conclusions is the need for transparency, with the civil service opening up thinking to outsiders. They suggest, for instance, Crawford Beveridge's Independent Budget Review panel could continue its work.

While emphasising that the public service challenge must not be treated as short-term, they also point to no single solution, but the need for a range of them: "silver buckshot rather than a silver bullet".

New politics of necessity

Eddie Frizzell also sat at the top table in St Andrew's House and is now a professor at Queen Margaret University Edinburgh. He sounds unimpressed by the failure of the public sector to change culture - in the NHS, for instance, "despite 30 years of strategies, initiatives, restructurings and efficiency reviews".

He concludes that it would be a welcome outcome of straitened times if Scotland could move from the bottom to the top of the entrepreneurial league table.

"The 'new politics' which devolution has not delivered may still come," he writes. "Necessity may drive the culture change we require:
In our public bodies as employees realise that their jobs depend on it, and in Scotland at large as the importance of private enterprise is recognised and a smaller public sector frees up the space it needs to flourish."

The new politics extends to a contribution from a serving council chief executive. And even though David Hume (no, the institute was not named after him) sits atop Scottish Borders Council, the frustrations, constraints and desire for serious change within the public service are very evident.

He sees adversity as a good time to drive change, or as Barack Obama's outgoing chief of staff observed: "you never want a serious crisis to go to waste".

Big Society

Hume's been influenced by the US authors David Osborne and Ted Gaebler, who nearly 20 years ago wrote the influential book 'Reinventing Government'. What's clear from recalling it is that it wasn't all that influential in Scotland.

Using the same template, Hume tears into the lack of any serious discussion about, or measurement of, productivity in the public sector. Without knowing how you're performing, there's limited leverage to keep costs under control, and wage negotiations are a one-dimensional process that only leads to increasing labour costs.

He hints strongly that, even if the Scottish government doesn't like the sound of David Cameron's Big Society of volunteering, local government should get on board for it. It will require a radical change in the way public officials work with community representatives, says Hume.

There's sharp criticism of councils for failing to figure out better ways of sharing services and pooling resources. Hume wants them to standardise, simplify and share.

And there's what he calls 'the challenge of place': pooling budgets for a local community and using them to get outcomes rather than defining services and allocating money to them.

"Great power and initiative can be released from communities and partners, and government will benefit from being more enterprising and committed to early intervention and prevention," he concludes.

This talk of local brings back to mind one of the findings that struck me most from talking to historians for the documentary 'The State Scots Are In' (still on iPlayer until Tuesday).

While the state's role was to set expectations and guidelines from the 17th century on, public services were overwhelmingly local until after World War I. The centralisation of the state grew out of the radical and expensive measures to combat inter-war Depression.

And according to Professor Lindsay Paterson, one of the roots of the Scottish National Party in that era was embedded in favour of that localism while in the reaction against that centralisation in St Andrew's House. Are those roots still evident as it meets in Perth this weekend?

Autumn chill and a hard winter ahead

Douglas Fraser | 07:21 UK time, Thursday, 14 October 2010


All that talk of green shoots of recovery was so last spring. Signs of economic upturn now have an autumnal chill about them.

And that's because of what auditor general Robert Black told me last week will be a "long hard financial winter" in the public sector.

Much of the economic evidence that's been mixed and a bit muddled this year now points in one direction, and it's to the comprehensive spending review next week.

Even after calling for a levelling of the playing field between public and private sector, business is now worried that the speed of the change could destabilise the whole economy.

Pricewaterhouse Coopers spelled out the extent of the spread from public austerity to private grief, with a calculation of one job in thirty being at risk.

At least one third of that looks like private employment, either through scaling back government contracts or the impact of public sector workers (and, don't forget, benefit beneficiaries) having less to spend - or the fear of less to spend.

Battered and bruised

It sees business services as being the worst hit sector - though it's such a large and diverse sector, it's not clear what that tells you.

Construction looks like taking a harsh hit, yet again.

Office supplies and defence are on course to take the largest proportional hits, with office machinery and computers down by a forecast 27% of output.

The Scottish Chambers of Commerce has something similar to say today, from its quarterly survey of 250 member companies.

The construction sector, already battered and bruised, looks grim, as government contracts face the squeeze.

Its industry body, the Scottish Housing Federation, has issued a last-minute plea to UK Chancellor George Osborne, with a warning of 47,000 job losses.

That's a lot more than PwC suggests.

It's based on the notion that 1,200 jobs are lost for each percentage point cut in the capital budget, with 40% likely to go over the next five years.

If that alarming figure comes true, it would mean slightly more job losses in construction than have gone through the downturn so far.

Deep discounting

Distribution feels it's going in the wrong direction, and while the supermarkets do all right, retail in general hasn't looked this bad for nearly two years.

Tourism is an interesting one, as it seemed to have a good downturn, benefiting from the weak pound and staycationing.

The Chambers' survey found this summer has not hit expectations.

Rooms may get reasonable occupancy (another survey from PKF bears that out this week), but there's less being spent in bars and restaurants and demand for conference and functions is very weak, amid tales of deep discounting.

Fourth quarter recruitment doesn't look so good, unless you're a chef.

Perhaps the most disturbing finding from the Chambers survey, carried out with the Fraser of Allander Institute at Strathclyde, is that manufacturing has now joined in the gloom.

Manufacturing matters, not least in being the key to an export-led recovery.

It's been doing relatively well, with exports holding up well.

But it's now joining every other sector surveyed, to reflect the worst outlook since the start of last year.

Cost pressures are hurting, there's more spare capacity, investment is only for replacement, research and development is weak, jobs are being shed.

It's also warning of the worst exports picture since the banking crunch, since when global trade nose-dived and has fast recovered.

More on exports today, when the Scottish government puts out its latest figures.

Incessant talk of cuts

It's worth noting that the Chambers' survey focusses on the optimists against the pessimists, and tends to ignore the size of the group in the middle, who see things as stable.

That group can be quite large in some parts of these surveys.

That factor can also skew the interpretation of the Purchasing Managers Index, issued these days by the Bank of Scotland.

That September survey said (published earlier this week), that private sector activity, across service and manufacturing sectors, has gone into reverse for the first time in 15 months.

Recruitment was up, and by more than the UK rate, but only very slightly.

The best of the findings was in new orders coming through.

Better news, too, on the unemployment benefit claimant count falling in September, even though the broader unemployment measure for job seekers between June and August was sharply up, with the divergence from the rest of the UK worsening.

The Scottish Chambers of Commerce say the incessant talk of cuts is the cause of all the business gloom, and that George Osborne's allocation of funding next Wednesday should lift the uncertainty and allow people to plan for growth.

You have to admire the optimism amid all this, but it's not clear why.

The spending review should, indeed, remove uncertainty, but only to bring the certainty of this process hitting hard next spring, and continuing for at least four years of rapid adjustment.

Fabric of the Nation

Douglas Fraser | 07:03 UK time, Wednesday, 13 October 2010


Spending cuts may mean curtains for lots of public servants. But it's not curtains for me. Not selling curtains anyway.

Testing out the hypothesis that Scots struggle in sales, my efforts as a market trader have succeeded only in causing great mirth with colleagues.

You could see them for yourself on The State Scots Are In, broadcast last night on BBC One Scotland, and available for a week on iPlayer.

In making the programme, I had rather more success in conducting an orchestra - not, admittedly, a common way of responding to deep budget cuts. But it's something that everyone ought to do at least once in their life.

As a rookie conductor, the Edinburgh Youth Orchestra blew me away with a blast of Shostakovich. On the rostrum, it feels like you're driving a battleship.

There was a serious point to all this, and you can read about the programme's findings.

If you're interested in the way in which the role of the state has grown, I'd strongly recommend the extended interviews you can also find online.

For instance, the interview with Professor Lindsay Paterson, an educationist/historian/polymath at Edinburgh University, is a fascinating broad-ranging analysis, which will teach you more than you'd think possible in 15 minutes.

Out to launch

Douglas Fraser | 08:33 UK time, Monday, 11 October 2010


Shipbuilding requires a lot of precision, including the timing of the launch to catch the right state of the tide.

So at 15.47 hours on Monday 11 October, very precisely, more than 6,000 tonnes of the good ship Duncan should be heading down the slipway at the Govan shipyard.

To catch the right state of the tide earlier this year, a patrol ship for the Trinidad and Tobago navy had to be launched in the middle of the night.

But what's the state of the tide for BAE Surface Ships' order book? Coming in or going out?

What it doesn't feature is much precision.

The history of the Type 45 Destroyer programme, of which Duncan (the seventh in a line of ships named after an 18th Century Royal Navy admiral) is the sixth and final ship, suggests plans change, and they change a lot.


Twenty years ago, when the Type 45s were first planned to replace Type 42, there were supposed to be 12 built, then eight, and for the past two years, only six.

But even with six, the programme is £1.5bn or 29% over budget, taking it to £6.5bn and it's two years behind schedule.

Last year, the Common's Public Accounts Committee was scathing in its assessment of what that says about Ministry of Defence procurement.

Part of the problem is that these ships are so complex.

Around 80% of the weapons and defence systems on it are new, and there wasn't an adequate assessment of the management risks associated with that, notably for the main missile defence system, designed to spot sea-skimming missiles.

The other problem with being so complex, and expensive, is that no-one else wants them.

Only the US does more complex ships, so this is not a design that can be sold for export.

Labour legacy

That's what the Ministry of Defence and BAE Systems hopes to change with the Type 26 combat ship intended to replace the Royal Navy's current fleet of frigates.

With a standardised design, they hope they can sell it to other parts of the world.

A Memorandum of Understanding with Brazil was recently signed with the UK Government, which offers some hopes for naval exports.

India is building up its navy too.

Indeed, if you look at naval spending in Asia, it holds some of the best hopes for the Clyde.

The economic rise of China is associated with a fear about its military rise as Asia's superpower.

But with austerity across Europe, military spending is being squeezed tight, and nowhere tighter than in the UK.

That's brought into question the future of the two giant aircraft carriers being built in seven locations around Britain, the largest chunk of work on the Clyde, before floating to Rosyth in Fife for assembly.

What we now know is that the contracts were constructed as a sort of legacy to the shipyards from the outgoing Labour government.

Build two ships, and it costs £5.4 billion (it started at £4bn, and it's just crept up by £200m), but build only one and it costs £5.7bn.

Exporting combatants

The next bit of Labour's legacy was the Terms of Business Agreement signed last year with BAE Systems.

It promises a flow of shipyard work until 2025, mainly on those Type 26 ships, also known as Future Surface Combatants.

The idea is to build at a rate of one per year.

That agreement was followed with a £126m contract to start the design.

The deal required BAE Systems to slim down its capacity, but it's not clear how many of the 4000 current workers on the Clyde can expect to be shed.

Of Govan, Scotstoun and Portsmouth - BAE Systems' yards - it made clear there won't be enough work for all three. The only way to keep them all open is with export orders.

What's not clear from the high-level and very public lobbying over the carriers and the future of the MoD budget is whether this Type 26 programme is in play or whether it could be one of the victims of the capital budget squeeze in the second half of this austerity decade.

And of course, if both carriers don't go ahead, don't assume there will be the capacity, at least in terms of skills, still around for the time when Royal Navy orders get started again.

The threat, if a flow of work doesn't remain steady, is that the future Royal Navy will have to be built outside the UK. How much does that matter?

Shipping forecast

The uncertainties leave big concerns over the Scotstoun yard in particular.

It specialises in engineering work, outfitting and systems integration, with investment in docking facilities, but it's not where the investment has gone into building hulls.

One yard insider tells me that most of the staff are soon to shift across the river to Govan, more than halving the numbers in Scotstoun.

It's a flexible workforce across the two sites, so it's not a permanent departure for Govan or Rosyth, where 600 or so Clyde workers will work on the carriers as assembly works steps up.

But there are those at senior levels in the yards who are pessimistic about Scotstoun's long-term future.

It was once the case that a squeeze on military spending could let the Clyde focus more on commercial shipping, but other countries' shipbuilders now specialise in that.

The boom in offshore renewables could produce some fabrication opportunities. But even when Cal-Mac comes looking for new ferries, it's hard to see how Scottish yards can compete with the Baltic.

Then again, the European Commission has just begun a review of its unusually generous state aid rules on shipbuilding.

Could that help UK yards get back to a level playing field?

It looks a bit late for that.

'It's ugly times ugly...'

Douglas Fraser | 06:16 UK time, Friday, 8 October 2010


"... and that's when the ugly get going". Yes, he's monstrous, reptilian, compelling, ludicrous, and he's back.

Gordon Gecko is out of his correctional facility, and on release, with a thud, he's been re-united with his giant brick of a mobile phone.

The man whose character in the 1987 film Wall Street gave us two of the central tenets of the modern business world - "greed is good" and "lunch is for wimps" - is making a return both to cinemas and to business, surveying a sweep of the Thames before swooping on the distressed assets left flailing by the recession.

That brief scene is the only recognition in two hours of "Wall Street:
Money Never Sleeps" that there's a business world beyond lower Manhattan, apart perhaps from the appearance of a splendidly stereotyped Chinese investor. For Masters of the Universe, these guys can be pretty parochial.

Moolah and Glitz

I should explain that I've briefly turned movie reviewer for BBC Radio Scotland's Movie Cafe. They thought I was suitably qualified to take a pinstripe suit and a copy of the FT to a screening of Oliver Stone's latest opus.

Mr Stone's not one for sequels, and this one has taken 23 years, following hard on the heels of another stock market crash. But it would be almost cruel to movie-goers to ignore the 2008 financial collapse and keep Michael Douglas as Gordon Gecko in post-penitentiary retirement.

The result brings back memories of how the previous film was intended to expose the monstrous, callous greed of the financial yuppies, corporate raiders, asset strippers and insider traders in the late 80s, yet inadvertantly became a celebration and inspiration for a generation.

Stone clearly wanted to revisit the theme with a polemic against 21st century investment bankers. But he should have known how badly he was bound to fail by the ease with which he enticed several of them into cameo roles. He can't help his camera from lingering lovingly over all that moolah and glitz.

Greed and egotism

If the 1987 film struggled to nail the immorality of that era, the latest one completely loses its own plot, in a tortured series of moral twists which leaves itself horribly confused. What else should we have expected from Hollywood? Tinseltown was never going to be all that convincing in attacking greed and egotism.

But that's not to say it's not a lot of fun, with laughs more often at the movie than with it. The closest parallel is a James Bond movie, including the familiar formula of glamour, greed and double-dealing.
There's less action and thrills than 007 enjoys.

But having given Gordon Gecko the space to be a likeable rogue and anti-hero, there's surely potential to create a franchise of Wall Street movies - at least one to celebrate each bursting financial bubble.

The world's biggest scrapyard

Douglas Fraser | 14:32 UK time, Thursday, 7 October 2010


To invest in putting new steel in the North Sea, or in bringing old steel back on shore?

You'd be forgiven for being a bit confused.

Last week, a high-powered gathering in Edinburgh of renewable energy companies, financiers and government ministers was highlighting the opportunities for putting vast quantities of capital into offshore wind.

The reluctance of financiers is the biggest obstacle to the potential for a renewables boom.

This week, at a lower-key gathering in Dunblane, oil companies and financiers are highlighting the opportunities for decommissioning oil installations.

The figures are a bit vague, but there's no disagreement that they're huge on both accounts.

Earlier this week, Deloittes and marine energy consultancy Douglas-Westwood jointly issued a study reckoning on a £19bn bill over the next 30 years to decommission platforms, well-heads and pipelines.

Its report said there's a need for four new onshore breakers' yards, and investment in a new type of super-heavy-lift ship, capable of lifting 15,000 tonnes out the sea.

One company, Allseas, is already ahead of it, signing a contract with a Korean shipyard this summer to build a gigantic ship capable of lifting 25,000 tonnes of oil platform or 48,000 tonnes of topside. The twin-hulled Peter Shelte will be 380 metres long and 117 metres wide.

Recycling steel

Industry body Oil and Gas UK, which has organised this week's conference, reckons the costs are far greater.

It's updated the offshore sector's reckoning of decommissioning, decontamination and recycling to reach a whopping £27bn.

That's not just a cost, of course. It's also a vast business opportunity.

And the recycling opportunities could be an important part of feeding into the renewables boom.

More than 90% of the kit being lifted out of the North Sea can be used again.

Oil and Gas UK has included 630 installations in that reckoning, 260 of them platforms.

Bubbles under

There are 10,000km pipelines to be chopped up and recycled, and 5,000 wells need capped. In all, it adds up to around 2.4 million tonnes of steel.

The cost is now double what the industry was calculating only five years ago.

One subject that bubbles under the decommissioning project, but not playing a prominent role in Dunblane, is the lesson learned from the Brent Spar platform.

Environmental campaigners showed Shell Expo 15 years ago that they have strong views about the industry's approach to decontamination.

They stopped plans for ocean dumping at that time.

By taking the recycling route, that 14,000-tonne structure found a new life as the foundations of a Norwegian ferry terminal.

Where's the local economic support?

Douglas Fraser | 12:28 UK time, Wednesday, 6 October 2010


Viewed from Inverness, the north-south divide doesn't look good for Glasgow.

Economic consultant Tony Mackay spends much of his time in the Highland capital. From that vantage point, he's taken a close look at Clydeside's economic performance in his latest bulletin, and doesn't much rate what he sees.

Whereas the data shows Glasgow had a growth rate significantly ahead of the Scottish average five years ago, that lead has been wiped out.

The city's unemployment rate has risen at a much faster rate than the Scottish average (allowing for question marks over the sampling size): over the past year, it's been up 8.5%, while the Scottish figure is up 2.3%.

"These are very depressing statistics," says Mackay, before he goes on to dwell on de-population.

And there's a swipe at the public sector, not only for being so dominant (it's more important to Glasgow than to Edinburgh, the government centre) but also for the city council and Scottish Enterprise "glossing over" the city's problems, while simultaneously "sticking their heads in the sand".

There's a claim of a lack of reality and objectivity in these public sector bodies. And criticism that the private sector job creation has been in low value added call centre and retail jobs.

Uist headquarters

This chimes with question marks hanging over public sector support for economic regeneration. Holyrood's economy committee is returning this morning to its inquiry into the future of Scottish Enterprise and Highlands and Islands Enterprise, and the role of councils using their economic powers.

In submissions so far, public agencies and councils claim to be working well together. They would, wouldn't they?

There's more unhappiness about the dominance of Inverness in the mindset of Highlands and Islands Enterprise, particularly from the Western Isles.

Comhairle nan Eilean Siar, the islands council, wants to take over the HIE powers. Or if it's to remain in control, the council says it should relocate its headquarters to South Uist - an area in most need of economic support. Orkney is unimpressed by the alleged Moray Firth bias as well.

Meanwhile, Glasgow is staking its claim to take on more economic powers. As the largest local authority in population and spend, it reckons it has what it takes to make its own economic future.

Tony Mackay would seem to disagree. And in a telling contribution from the Scottish Local Authorities Economic Development Group (SLAED), including the officials who have taken on the local regeneration role from local enterprise companies, changes in role over the past three years have been woefully underfunded.

"It is clear that there has been a reduction in local regeneration activities across Scotland since the abolition of the LECs," it says.

In 2009-10, that meant a transfer of a paltry £3.9m - "significantly less than the LECs were able to invest in this activity prior to their abolition".

Challenging relations

The local authorities see Scottish Enterprise as failing to keep a pipeline of projects flowing, even on national projects.

"It is clear that fewer new projects have been instigated than might have been in the past, while other projects have stalled or have since been considered lower priority, as the available budget for both Scottish Enterprise and the local authorities has been constrained for such regeneration activities," says SLAED.

A similar charge is levelled at Skills Development Scotland. It took on Scottish Enterprise's training role in the same programme of reforms announced in 2007. But councils say it's far from easy to work with SDS - the euphemism is "challenging" - and resources have been squeezed.

Joint working is based on what's gone before - not on new ways of working and new proposals, it is claimed.

Some of the shortcomings of the new training regime have been addressed in the new strategy set out this week by the Scottish government. It recognises that too much training is being done without being allied to what employers actually need.

And all this while Scottish Enterprise/the Scottish Government fail to find a new boss for their joint overseas promotions division, Scottish Development International.

The failure to find a suitable candidate earlier this year, before re-advertising, doesn't fill you full of confidence for the current team in charge.

That adds up to a lot of "challenges" around the public sector's economic development support for the private sector. It's at a time when both sectors have plenty more challenges in the pipeline.

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