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Scotland in economic strife

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Mark Easton | 10:40 UK time, Tuesday, 14 October 2008

I can already hear the response of many English taxpayers to the idea: "Are you having a laugh?"

I am in Edinburgh where this afternoon Scotland's first minister will formally ask Westminster for a billion quid.

But this is no joke. It is feared that tens of thousands of jobs will be lost before Christmas north of the border pushing unemployment up by a third. An economy built upon banking and financial services is in deep trouble.

Alex SalmondAlex Salmond heads a special economic cabinet meeting at which he will tell colleagues that Scotland is "facing extraordinary and highly volatile circumstances".

"Everything must be done to protect jobs, investment and household incomes" the SNP leader will argue.

Mr Salmond, in pleading for financial assistance, will claim that he is only asking for what his nation is owed. "It makes every sense for the tight and unfair Westminster controls on Scotland's budget to be relaxed - so that we can invest in a package to support the real economy and stave off the threat of recession", his spokesman has said.

The dread phrase 'Barnett formula' shall issue forth and ancient argument and enmity shall flow.

The formula is used to calculate how much UK money should be allocated to Scotland - a complex sum that results in Scotland receiving more public cash per head than the English.

However, Mr Salmond claims that the arithmetic is unfair because money for the London Olympics, prison building and police and fire service costs are not included in the computation.

Some creative maths arrives at a total owing of 963 million. Throw in a bit for Auld Lang Syne and you get the justification for the Scottish government's request for a one billion pound 'reflationary package'.

Unemployment figures out tomorrow are expected to show a sharp rise in the UK's jobless figure with analysts predicting a million on the dole before all the leaves have dropped from the trees. The banking crisis is beginning to infect the 'real economy' we are told. But in Scotland the banks have been the real economy for nearly 300 years.

Chancellor Alistair Darling has said he is "extremely concerned" about local jobs with predictions of large-scale redundancies if Lloyds TSB buys HBOS. Between them HBOS and RBS employ more than 34,000 people in Scotland. All will be extremely anxious right now.

But the crisis goes beyond the life-blood of jobs into the bone-marrow of Scottish pride.

The Scotsman newspaper this morning reports on the 'dark day as centuries of tradition come to an end'.

flag.jpgThe Daily Telegraph predicts the "Scots dream of independence may lie in ruins".

It quotes Doug McWilliams, chief executive of the Centre for Economics and Business Research as saying: "Political independence was never very likely but this makes it pretty much impossible".

The SNP regard this as "nonsense" but Alex Salmond's vision of an independent Scotland joining Iceland, Ireland and Norway in an 'arc of prosperity' has been ridiculed by opponents.

Other economists, however, are not so quick to write off the SNP's ambition of independence. Neil Blake from the consultancy Oxford Economics tells the Telegraph: "Scotland has a successful fund management and pensions industry which will not be affected in the same way as the banks, so I think the Scots could still have got through this as an independent nation".

Nevertheless, today's crisis meeting at Holyrood is required because the fundamentals have shifted.

Scotland's relationship with the rest of the UK just got a whole lot more complicated.


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