³ÉÈË¿ìÊÖ

Why is it that young people are more downbeat about the recession than other age groups? The GfK NOP poll published today shows sentiment falling, and at its worst among those aged 16 to 29.

Some explanations are that young people are suffering the brunt of job losses so far, graduates are facing a tough task getting into the labour market, and this generation has never experienced a recession before.

It brought to mind some questions I was asked by some student journalists earlier this week. The programme they were making was seeking to find out what the recession will mean for younger people who are still in education.

Without adequate thought, I gave them something of a garbled answer. If you guys are reading this, I'm sorry. But as more information has emerged this week about the depth of the recession and the length of time it will take for Britain to pay back the debts it is currently building up, I've given it some more thought.

So here's a second try - what does this recession mean for people?

* If you're young and spend any money, the companies from which you buy are finding things tough, partly because trade is down and often because they are struggling to pay off their debts. Some won't survive. If you received vouchers for Christmas, there are some shops where you might do well to spend them sooner rather than later.

* The money you spend on imported goods is going to go less far. You may not be in the market for a BMW just yet, but nearly 40% of the food we buy is imported. Likewise, the cheaper end of the clothes/fashion market is largely made in parts of the world where the pound buys less than it did last year. It means those who earn in pounds are getting a bit poorer.

* You may find some things in the shops are getting a whole lot cheaper, as shops discount. For those who have money to spend, this is not a bad time to be doing it. But be aware that there is a shift on: there's going to be a lot more saving going on, and you could do worse than to get that habit yourself.

* If you fancy a Saturday job in a shop, you will find a lot more competition from older unemployed people.

* If you are leaving school, college or university soon, the job market is going to be tougher than it's been for a very long time, for at least the next year, probably two years and possibly longer than that.

* Getting an overdraft and loan facility from banks when you go to college is going to be tougher. Don't be surprised if there's an end to free personal banking.

* Government-funded student loans may come under pressure when we get to the stage where public sector spending faces a squeeze. That could be as soon as next year, but looks increasingly likely to take longer. This will impact not only on student finance, but will ask tough questions of politicians on how they finance universities, colleges and school education, and how much they rely on students, parents, graduates and the private sector to contribute.

The respected Institute of Fiscal Studies reckons at least £20bn per year is going to be required in spending cuts or tax increases by 2015. This is a big, challenging issue, and may take a while to work through.

* Long term, you are the people who are going to be working to pay off this debt. The IFS says Government debt may take 20 years to be paid off to pre-recession levels. In other words, your taxes are still going to be paying for all this when you're heading towards your fortieth birthday.

And that's without reckoning for the demographic challenge you face from a baby-boomer like me, paying your taxes, when the time comes, to fund my pension and long-term care costs.

Assuming you're willing to shoulder that burden, I would like to thank you in advance.

• Bookmark with:
• |
• |
• |
• |
• - What's this?

Let's do the statistics first.

The technical definition is of two consecutive quarters of economic contraction, meaning the amount of money British companies and people are making is less than in the previous three months.

The figures out this morning are for the fourth quarter of 2008.

The third quarter saw a 0.6% contraction, and the second quarter saw the economy stalled. So the pattern is one of acceleration into trouble, with most forecasts saying the negative numbers are likely to continue throughout this year.

The Scottish Government prepares its own figures, and we'll see more of them next week.

However, their preparation is slower, and because of the way they are counted, they are less reliable than the UK statistics and more vulnerable to random fluctuations.

The most recently published show there was still weak growth in the second quarter of 2008, and we are soon to find out if the third quarter saw Scotland heading backwards.

But the third quarter was before the British banking system came close to collapse, and with lending squeezed, the picture across the economy has changed very significantly since then.

So not only are these dry statistics, but they are also lagging a long way behind some harsh realities at the start of this year.

What the figures represent is an apparently small contraction, on a scale which many households could easily withstand.

But because Britain is one of the countries that has been living beyond its means, not only is there less money to spend, but there is a sharp pulling back in lending and borrowing as well, exacerbated by this being a bank-led credit-tightened recession.

Tied to that is the change of behaviour after 18 years of continuous growth.

Companies that failed to cut production are left with stock they can't shift, and staff with less to do, and their biggest threat - worse than falling order books - is if they can't get cash flowing through the business from their customers.

The key to understanding a recession is the decline in confidence. People stop borrowing to spend, and raise the share of their income they put into saving, if they can.

Those with debts try to pay them off. And those losing their jobs will struggle to pay those debts, including mortgages.

Repossessions and bankruptcies are sure to result, as the figures are already showing.

We have already seen retail patterns of consumers trading down to cheaper goods. While premium food brands are suffering, sausage and baked bean sales are up, as are cheaper cuts of meat.

Restaurants are facing a downturn in trade, and more people are buying ingredients for cooking at home - which is why the supermarket business is suffering less than others.

Big ticket items are being put off. Kitchens, bathrooms and carpeting are finding it tough going. Travel businesses are assuming a drop in those booking foreign holidays.

Car dealerships are having to discount heavily, and still suffering steep falls in business.

As we've seen most of the past year, the property business is in real trouble, with clear, knock-on effects for the construction industry.

While prices have fallen, at least as significant is how few properties are changing hands, because both sellers and buyers lack confidence to get into the marketplace.

In Scotland in particular, it started the descent into recession from a better position than the UK average, which has not been the case previously.

It has a bigger cushion of public sector jobs, which have more security than the private sector. The fall in house prices has been significant but not as sharp as parts of England.

Much of Scotland's less efficient, uncompetitive older industries were cleared out - painfully - in previous recessions, whereas one of England's big headaches is with car manufacturing, which is not inefficient but is part of a global crisis in the industry.

Scotland's biggest special concern is with the finance sector, which accounts for one in ten Edinburgh jobs, plus many more in Glasgow and Perth.

Many more business services companies are dependent on the big finance houses.

London is even more exposed to that, as is Yorkshire, but it is Scotland's reputation for canny money management that is taking a real pounding with the publicity this week for the Royal Bank's losses.

The uncertainty in banks' liabilities and throughout Britain's property markets has fed uncertainty in stock markets. With falling asset values on financial investments, it gets harder to see how and when that confidence will return.

• Bookmark with:
• |
• |
• |
• |
• - What's this?

Scottish Television was founded with the observation that it was "a licence to print money".

Not any longer.

It is now much depleted from its grand ambitions to build a major cross-media company based in Glasgow - which once included not only the stv licence and what was Grampian (now stv north), but also the Herald newspaper group, Virgin Radio and a major outdoor billboard business. It still has cinema advertising platform Pearl and Dean.

While it made a colossal mistake over its top price purchase of Virgin Radio, the company has found itself harshly squeezed by the bracing new environment of multiple channels, a downturn in advertising and a row over money with ITV plc.

The English and Welsh commercial broadcaster on Channel 3 provides much of the content for stv, as well as Ulster and Channel Islands television. But it reckons the networking arrangements are out of kilter, and that it "subsidises" its smaller commercial cousins to the tune of £30 million per year.

And if ITV plc doesn't get its way from Ofcom, it has threatened to give up its English and Welsh licences (including Border, which straddles the Scottish-English border), and become a purely commercial broadcaster.

By taking its ball away, it would leave Ofcom struggling to find another company capable of fulfilling its role.

The £30 million figure is disputed, of course. But while the companies are in a stand-off, and stv is overwhelmingly dependent on output from the vastly bigger English broadcaster, its share price has been in real trouble.

There are those who think it would be better if stv plc sold to ITV plc, but there seems little benefit for ITV to do so.

Everyone is agreed the current position can't be sustained, with these companies required to provide public service broadcasting, including their news programmes, but with a falling share of a hard-hit advertising pot from which to fund that.

Today, the regulator Ofcom has said - among many other things about the future of public service broadcasting - that it agrees there has to be an overhaul and it would prefer a negotiated one.

It said Scottish audiences, according to opinion polling, value stv news more than English audiences value their regional news, and that it is important the new model for supporting news programmes continue to provide Scottish and Northern Irish output.

It looks to a longer-term solution of a consortium of providers bidding for funds to run a news service on Channel 3 in Scotland.

It has also told ITV plc that if it is to be allowed to merge Border TV news with Tyne/Tees, there should still be two evening bulletins of south of Scotland news.

While it has ruled out the idea of the licence fee income being top-sliced from the ³ÉÈË¿ìÊÖ, it is positive about a ³ÉÈË¿ìÊÖ offer to share its resources with commercial broadcasters.

And it has some interesting responses to the proposal of the Scottish Broadcasting Commission, set up by Alex Salmond, to create a new Scottish digital channel.

It agrees with the SBC that the cost of this could be £75m, but warns the funding will be vital to determining what kind of output we get.

Pointing out that the idea now has consensus support behind it, the regulator puts an interesting challenge to the UK and Scottish Governments to come up with plans for how this might work - raising the notion that the two administrations might have to work together in this fraught political area.

Ofcom comes up with a plan that differs from a conventional channel: "a competitive fund which would support a series of inter-connected initiatives in Scotland-wide television, local television, online and radio", in co-operation with the new Gaelic channel.

The first criteria for this appears to be the idea's greatest weakness - 'discoverability'. If the content is spread so widely, how do you find out what's on and where?

It would give stv more output, though if it is even partly commercially funded, it could also spread the advertising jam more thinly. But while the uncertainty remains, the company continues to look vulnerable in the advertising downturn, and too dependent on its long-standing big earner, Taggart.

• Bookmark with:
• |
• |
• |
• |
• - What's this?

It's hard to see where Alistair Darling can turn next.

Room for manoeuvre by the UK Government is getting very limited.

The chancellor has done what he can for the banks: he's cut tax, he's boosted spending, he's stretched borrowing to the limits, while the Bank of England has cut interest rates to historic lows and now has new powers to expand the money supply.

In early autumn, he was ridiculed for saying we were heading into deep trouble: last week, another minister was ridiculed for saying she could see the .

Today, Darling was in Brussels - where I find myself this week - informing other European finance ministers about the new toxic assets insurance plan, and seeking a relaxation of banks' use of their capital to allow more lending.

What he came away with was "a reminder" that banks can use their capital that way, which sounds some way short of a change of rules.

As is increasingly the case, small but significant financial news reverberates and magnifies as it travels round the world.

On Monday, the Royal Bank of Scotland results spooked the markets, with the assumption that it's not the only one in such trouble, so that currency traders took refuge in the US dollar, and even the Brazilian stock market fell on the news.

A small downgrade in the Spanish government's credit rating has had similar knock-on effects.

Following similar news about Greece last week, Portugal and Ireland are now under review.

And with the British Government dipping ever deeper into the bond market, the risk of sovereign default - until recently, absolutely unthinkable - has hurt sterling on the currency markets.

The European Commission has this week told the UK Government its forecasts are over-optimistic and it is unlikely to be able to start tightening public spending from 2010 to pay off the new borrowing.

With Alistair Darling doing little to defend his most recent growth forecasts, announced in November, he must also be aware that the re-start of growth looks further away.

That could delay some sharp pain for the public sector (including Holyrood's budget), but at the expense of the whole economy and a longer haul back to stability.

With poor tax receipts and high spending, the banks' problems just pile on the pain, the liabilities and the risk.

The was not because it is about to fail.

The UK Government has made it clear that won't be allowed to happen.

But if the Royal Bank or others require the Government to stand behind them, the obvious next question is: how secure are the Government's finances?

• Bookmark with:
• |
• |
• |
• |
• - What's this?

The figures are truly mind-boggling, as the lets rip the latest volley of bad news from its balance sheet. It's known as kitchen-sinking, in that you throw everything out there at once.

Top line is the estimated loss this year of between £7 and £8bn, and a huge amount more to come, once it figures out the loss of what accountants call "goodwill", much of that on its purchase of Dutch giant ABN-Amro. That could be another £20bn, making this the largest loss in British corporate history, and by a very wide margin. The annual report, in five weeks, should give us the audited figures.

The pace of the accelerating problems is particularly alarming. While retail and commercial banking is holding up relatively well, the Global Banking and Markets division is facing £3bn worse losses for the final quarter of last year alone, when compared with the assumptions made three months ago.

The value of its global operations' risk-weighted asset base is down £200bn in the last quarter of last year, as it reported an acceleration of its problems from November into December, though sterling's weakness proved to help the situation by clawing back £70bn of that paper loss.

The good news for the Royal Bank is not so good for the taxpayer. The agreement by the UK Government to transfer its £5bn in preference shares (purchased as part of the October bail-out) to ordinary shares removes a £600m per year bill that the Royal Bank had to pay the government. At 12% per year, that charge was seen as damagingly punitive, holding back the bank's ability to get back to "normal" lending.

Part of the new price the bank pays is further dilution of the private shareholding, with the government stepping up its share from 58% to 70%. Full nationalisation may not be far away at this rate, and today's decision to take the shackles off fully nationalised Northern Rock is a sign the government is getting more relaxed about how to handle that prospect.

The need to get rid of the preference share stake had meant that new chief executive Stephen Hester was under pressure to sell anything to raise the £5bn for a buy-back. His sale last week of the Bank of China stake, for £1.6bn, was just one part of a programme of raising the funds, with the sale of the insurance division, including Direct Line and Churchill, still hanging in the balance.

We'll now have to see if Lloyds Banking Group, under which the Bank of Scotland finds itself from this morning, will seek the same deal to get out from under its similar preference share arrangement.

Other parts of the RBS deal struck with the Treasury include a £6bn extension of its lending commitment to larger corporations, while continuing its commitment to make lending available to smaller enterprises. With political pressure over the lack of clear movement on credit lines to business, the Government needs to see that feeding through quickly.

Its main means of doing that is the announcement this morning of the second vast tranche of banking bailout, this time without a clear figure attached, as the insurance of toxic assets looks like a bottomless pit, at least until the banks can be clear what their exposure is. Gordon Brown wants them to "come clean", but it's not clear they know how bad it is yet.

The banks taking part in the insurance scheme are not expected to pay in cash, but in handing over securities in their more reliable investments. That means the British Government holding a bigger tranche of mortgage debt.

And with recent talk of "quantitative easing" to try to avoid the threat of deflation - ie expanding the money supply, without actually printing more notes - it's worth noting that the Treasury announcement this morning gives the Bank of England's monetary policy committee the power to do just that.

• Bookmark with:
• |
• |
• |
• |
• - What's this?

I'm in Perth today, reporting on reaction to the half point cut in the Bank of England base rate.

So far, it's distinctly lukewarm. Even in the construction industry and the becalmed property market (the Perthshire solicitors' property centre reporting transactions down 78% on last year and average prices down 15.5%), there is scepticism.

Here, they raised their concerns about the knock-on effect on savers, who already faced interest rates nearing zero.

And there was a warning that repeated deep rate cuts simply signal the depth of the crisis, whereas prospective home buyers are looking for more stability and signs of confidence.

There is some recognition that weakening sterling should be good for the locally important tourism market, attracting foreigners and keeping Brits close to home for their holidays.

But so far, the pound has risen on today's news, reflecting relief in the currency markets that the cut wasn't deeper. It now seems to be driven by which way traders turn to find which currency zone is in the least trouble, and both the US and eurozone have had some grim indications lately.

The rate cut is big news today, but it seems attention should be more focussed on fiscal policy and its consequences.

One issue to watch is the potential for trouble governments will face in trying to raise an estimated three trillion US dollars worth of bonds this year. The relatively prudent Germans yesterday kicked off the bond market year, and the signs were far from reassuring.

• Bookmark with:
• |
• |
• |
• |
• - What's this?

Scotland's second biggest company is seeking almost £500m in new equity funding, saying it is required to exploit opportunities for acquisitions and new renewable developments.

Scottish and Southern Energy announced this morning it is issuing new shares to the value of £470m.

And with markets nervous about rights issues to shore up troubled finances, the chief executive's talk of "reinforcing our balance sheet" has contributed to it making it the biggest faller of the day on the London stock market, following a healthy rise over the past month.

But amid all the financial carnage, analysts reckon this Perth-based business is in relatively safe territory, and its move is a sound one.

Energy utilities are in one of the safer sectors during a recession, and today's trading statement says SSE remains on its course for its profit target this year, of which others could barely dream.

The former publicly-owned Hydro Board and renewables pioneer, it now trades as Scottish Hydro Electric, Southern Electric, SWALEC and Atlantic, and it announced last month it has doubled its customer base to nine million over the past seven years.

The share issue falls short of a rights issue, as it is worth less than 5% of SSE's £10.1bn valuation.

And it may become a familiar sight this year, as companies seek equity to replace the gap where debt funding used to be.

According to the SSE trading statement, the move is intended to support a £6.7bn, five-year investment plan, taking advantage of small and medium-scale opportunities as they arise, and to fund major wind farm developments.

Two of them are specifically cited, one in Scotland, one in Ireland, and together involve 300m of SSE investment.

Chief executive Ian Marchant commented: "Our programme of capital investment in assets which are of critical importance in the UK and Ireland, plus the ability to make opportunistic bolt-on acquisitions should they arise, continue to be at the heart of SSE's plans.

"This is well-illustrated by the new wind farm agreements we are concluding. The successful placing of shares will reinforce our balance sheet strength and enhance the range of options open to us.

"All of this will, in turn, help us to maintain over the next decade the track record of dividend growth we have built up in the past decade."

For a brief period at the end of last year, SSE was Scotland's largest company, its capitalisation passing that of the Royal Bank as its shares sunk.

But the injection of almost £20bn of government capital has pushed up RBS's value and put it back into top slot.

• Bookmark with:
• |
• |
• |
• |
• - What's this?

The North Sea oil and gas sector was seen as the cushion that might help Scotland weather the credit crunch. But not now.

The first casualty is due to be confirmed some time this week, as Canadian-based Oilexco confirms the administrators are moving in to its UK subsidiary, Oilexco North Sea Limited, which comprises all of the parent company's assets.

The bosses in Calgary, Canada, are not actually calling in the corporate undertakers, but the leader of its lending consortium is doing so, and that happens to be the publicly-owned Royal Bank of Scotland.

One interpretation of this is that RBS, as with other banks, is calling in its more questionable loans before the imminent deadline for signing off its accounts for the annual report, due for publication in six weeks.

Oilexco is not exactly one of the oil giants or a well-known forecourt brand.

As with much of the North Sea these days, exploration is carried out by smaller firms - even if small, in this case, means a London and Toronto stock market valuation less than a year ago of £2bn.

And unlike the giants, such speculators have to look to banks to provide finance.

It's not only that the banks become more risk averse, but the oil industry is being transformed by the sharp fall in oil prices.

Last summer, it soared to $147 per barrel.

By last week, it sank below $40.

Today, it rose markedly to top $50, due to concerns over the Middle East conflict.

But that is far from providing a safe margin for North Sea explorers, who face one of the more expensive environments in which to operate.

Some were investing on an assumption of at least $70 per barrel, and may be considering pulling back.

We should find out more about the overall picture from the industry body, which publishes its annual review of activities in just over a month.

Oilexco reckons there are strong assets that can be sold on to other explorers, including exploration licences and contracts through to next year, including a semi-submersible.

If they can find buyers, it is hoped the 50 Aberdeen-based staff and their systems can be kept together as a going concern.

• Bookmark with:
• |
• |
• |
• |
• - What's this?

Nationwide has confirmed that Britain's average house prices have fallen by nearly 14.7% over the past year. But has picked up something strange in Scotland - that it is the only part of Britain that saw house prices rise, albeit very slightly, at the back end of last year.

As these figures followed a quarter when Scotland's price decline was faster than other parts of the UK, Nationwide was right to conclude that its figures "suggest conditions in Scotland are still somewhat uncertain".

The method of measuring house prices is to take a range of typical homes and to watch what price they're fetching. This avoids going for averages, which can be distorted by Nationwide's mortgage book, dominated by south east England.

But what this fails to register is the impact of the fall in transactions. Nationwide puts it thus: "As house price expectations turned negative, the incentive to enter the market evaporated and buyer demand fell accordingly. As a result, housing market activity plunged to the lowest levels ever recorded".

With far fewer homes changing hands - the sellers reluctant to lower their price expectations and buyers fearful of what their purchase might be worth by next year - the figures could be distorted.

That said, the outcome of all this is that the average (privately-owned) Scottish home was worth £138,941 by last month, down 8.1% on the year, while the UK average was at £156,828, down by 14.7% on the final quarter of 2007.

According to Nationwide, Edinburgh's fall in prices, at 6%, was the second lowest fall for any town or city, beaten only by Durham on 4%.

One region worth watching is Northern Ireland, which has seen the peace dividend, allied to soaring prices across its international border, sending house prices up by record rates. They're now coming down by record rates, with Nationwide finding they fell 34% on the year.

Also this morning, Nationwide has published its regular measure of consumer confidence, and if you drill down into it a bit, there are some more interesting findings, some of them perhaps even hinting at good news for the economy.

The most bizarre figure, from a Britain-wide survey of 1,000 people questioned from mid-November to mid-December, is that 9% of people think the current state of the UK economy is good.

More significant is that people seem to think the worst may be over. Asked how people feel the economy will be after six months, people were more optimistic at the end of the year than they were last summer.

Running counter to that, the survey found expectation of future job availability has worsened over that period. By December, 63% of people thought there would be few jobs available by the middle of this year, and 21% thought there would be a strong labour market.

Two-thirds of people reckoned their household income will be about the same by the middle of this year, with 15% expecting higher earnings and 19% fearing they'll be lower, so that's fairly evenly balanced.

The potentially good news is in spending confidence. Asked if this would be a good time for a major purpose, such as a house or car, those in the survey registered a clear upswing in confidence.

Between January and October, those saying it's a good time to buy ranged from 11 to 18%. But by November that was up to 26% and last month it was 27%. There has been a drop, though slightly less marked, in the numbers saying it's a bad time to buy, most recently at 51%.

And although the numbers in the survey from Scotland were a small portion of the total, reducing their reliability, it did look as if Scottish confidence about future house prices is stronger than the rest of the UK.

Between April and November and across Britain, those thinking it's a good time to buy household goods, such as kitchen appliances, ranged between 25 and 28% for most of last year, until December, that rose to 41%.

The other potential for an upswing is from Nationwide economists reckoning there could be pent-up demand from those ready to get into the market once there is more confidence that prices are bottoming out.

Since 2003, first-time buyers have made up only 33% of transactions, compared to an average 46% since 1979.

If you assume the same proportion of first-time buyers wanted into the market, you could conclude that 750,000 people have been "locked out" of the market during the bubble, and these could start chasing starter homes when an equilibrium between earnings, prices and credit availability have come back into line.

That assumption, of course, is that Britain will return to its long-standing property-owning obsession.

It could, instead, take to a model closer to our European neighbours, with fewer people owning their homes and a much bigger private rental sector.

• Bookmark with:
• |
• |
• |
• |
• - What's this?

For those who think the media are to blame for talking down the economy, take a look at the Lloyds TSB Business Monitor, published on Monday.

There, you'll find business is taking the lead in gloominess.

Using Strathclyde University economists' surveying of 1,954 companies, the monitor has found the record of September to November showing declining figures and even worse expectations for the three months from December to the end of February.

It's no surprise these are the worst figures for the 11 years the monitor has been surveying business figures and sentiment.

But the sharpness of the decline is striking.

Top line findings from the three months to the end of November have 20% saying turnover is increasing, while 51% said it was in decline.

That 31 point gap was only a 10 point downturn deficit in the previous quarter, and a year before, companies with growing revenue were 16 points ahead of the fallers.

Worse off

Repeat business was much more likely to be down over the previous quarter, but the decline was not as fast as orders from new customers.

Meanwhile, concerns about cash flow, late payments and the cost of credit are on the rise.

All forms of business are suffering, but the message is clear that services are worse off.

Looking ahead to the current three-month period, only 10% of service firms expected growing turnover, while 60% foresaw a fall.

But look under the figures and you might discern at least one slightly hopeful sign coming from exports.

Those reporting export performance are saying it's down more than it's up, by a 22 point margin. But that was before the currency shifts became clear.

While 62% of companies expect exports to remain level, as many - 19% - think they will rise as think they will fall.

Ceramic pillars

In manufacturing exports, the optimists clearly outnumber the pessimists by a three to one margin.

On Monday, Wedgewood pottery, one of the founding ceramic pillars of England's industrial revolution, has called in the administrators.

And it may be that the painful shake-out in Scottish manufacturing over previous recessions has left it with fewer of these older industries facing tough times now.

Likewise, there is no obvious Scottish parallel to car manufacturing of the English Midlands, currently facing acute difficulties.

While services are in most trouble north of the border, manufacturing in Scotland looks better prepared for downturn than it has been before, and it may be better placed than its southern cousin.

• Bookmark with:
• |
• |
• |
• |
• - What's this?

A happy new year to you.

This comes with a recommendation that you seek your happiness somewhere that money and markets don't dominate.

And here's a multi-billion story for the early days of 2009 that will still be around for much of the next decade, with the bills still being payable for perhaps decades after that - the new bridge across the Forth.

Even for those who never use it, it will still affect everyone in Scotland, because the roads, other bridges, railways, schools and hospitals everywhere could be starved of capital spending while the £2bn (a latest estimate, and very much a ballpark figure) is found for a big bridge at Queensferry.

The question is how it's going to be funded, and we've just learned that the SNP Government's proposed funding mechanism has been rejected by the UK Treasury, as lacking in credibility.

The idea, as set out nearly a month ago, is to bring forward spending from future decades so that it can be spent in the next few years and then cut from subsequent years.

It's a strange way of accounting.

Faintly absurd

The SNP's critics say it's to distract attention from the failure of the party's Scottish Futures Trust proposals to provide a funding solution for the bridge or, so far, much else.

But you could also argue that the proposal is intended to highlight the faintly absurd position in which Holyrood finds itself.

If that was the intention, today's Treasury's response has helped make that case.

Treasury Secretary Yvette Cooper has said the SNP proposal is not credible, and has suggested alternatives.

One is to use the Public Private Partnership, or Public Finance Initiative, as it used to be known.

But she admits that will soon have to come onto government's balance sheet, so the main attraction of that is being lost.

She also knows opposition to PPP/PFI is an article of SNP faith.

Alternatively, the Scottish Government could squirrel money away by underspending over the next few years.

Missing link

But isn't this the same British government that is eager to find projects to bring forward to spend like fury so that it can kick-start the economy with a big fiscal boost?

On ³ÉÈË¿ìÊÖ Radio Scotland yesterday, Ms Cooper's boss, the Chancellor, Alistair Darling, responded to the SNP idea: "Their particular scheme where they were asking to borrow money from budgets which are yet to be allocated over an extremely long period - that's something that we simply don't do".

Really? Is he sure? Isn't that what government borrowing is all about? Isn't that exactly what has happened with PFI/PPP contracts signed for at least 25 years?

The missing link in this argument is the inability of the Scottish Government to issue bonds. Councils can do so, and the rail operators can borrow to build the Government's priority projects.

But the Treasury has never liked the possibility that an irresponsible Scottish administration could breach the UK's borrowing targets.

That argument doesn't look so strong these days.

It is hard to imagine any Scottish government so irresponsible that it breaches borrowing limits on the scale Mr Darling has achieved in recent weeks.

One element that could be overlooked in this exchange of letters between Holyrood and the Treasury is that they are both agreed the bridge needs to be built.

Scottish business couldn't agree more.

Huge headache

The idea of having the Forth transport link severed, if corrosion on the current bridge forces its closure, would cause a huge headache not only to the Fife economy but up to the north east and into the Lothians.

And business is already suffering from the costs of congestion on the current bridge crossing.

So there's a challenge here for the two administrations to show they can work together in a mature way towards achieving a shared goal.

If there are to be no bond-issuing powers for Holyrood, could this be a case, for instance, of the Treasury issuing bonds on behalf of the Scottish Government and guaranteeing them, while annually top-slicing the Scottish block grant with the costs of servicing that debt as it has to be paid off?

A final thought: the plan outlined by infrastructure minister Stewart Stevenson last month had £1.7bn sliced off the previous price of the new bridge, primarily by removing the public transport element and putting that onto the existing bridge as a dedicated bus crossing.

It could then have the new bridge with two lanes in either direction.

False economy

But two lanes in both directions is the current capacity on a bridge built for the traffic volumes envisaged 50 years ago, but which is now jamming almost every rush hour.

You could take a few buses out of that congestion, but how do we know that all this spending is going to leave anything more than the current traffic problems?

Could the reduced budget be a false economy?

According to Transport Scotland, the Government's infrastructure arm, there will be two lanes each way, as at present, but there will also be a hard shoulder in both directions.

That ought to reduce the congestion caused by accidents and breakdowns.

The Scottish Government's climate change targets mean they don't want to increase capacity for single-occupancy private vehicles.

For lone drivers, £2bn of bridge buys lots more jam tomorrow.

• Bookmark with:
• |
• |
• |
• |
• - What's this?