Scottish Agenda: The Irish, not Obama, set the best example

By Ian Fraser

Published: The Sunday Times

Date: March 29th, 2009

The delicate art of handling recessions, which includes preserving a semblance of economic wellbeing without necessarily frightening the horses though excessive doomsday talk, does not come naturally to any government.

When the administration concerned doesn’t have control of the fiscal levers — as is the case with devolved administrations — or has no control over the value of its currency — as is the case with members of the eurozone — managing through a downturn becomes even more perilous.

So you can rest assured that when the G20 summit rolls into London this week there are going to be some big disagreements. Much of the pre-summit talk has been of gaping rifts between countries who believe in throwing everything they can at the recession in the hope it will go away — even if it will take at least two generations of taxpayers to pay off the accrued debt — and the rest. The former Czech prime minister Mirek Topolanek and EU president labelled the former approach “the road to hell”.

In his heart of hearts, you can tell Gordon Brown would like to join Obama in this “well intentioned” spendthrift camp. However, following some rather pointed remarks from the Bank of England governor Mervyn King last week, coupled with a stark warning by the bond markets, Brown is beginning to wonder if he’s going to be able to continue to pursue such a Keynesian approach.

In the opposing camp are more cautious nations, such as Germany. This group is willing to indulge in a few economic support measures, like helping out a car manufacturer. They also wish to maintain a semblance of prudence, however.

And finally, there is a group of economic basket-case nations, arguably including Iceland, Ireland, Hungary and Latvia, which have little or no scope for further international borrowing and must struggle to cope with the downturn through a painful mixture of tax rises, spending cuts and currency devaluations.

While the austerity measures introduced in the latter group in recent months are going to spell a tough few years, at least future generations of taxpayers will not be lumbered with the the debts of their profligate forebears.

In this spectrum of economic responses, Alex Salmond sits firmly in the Obama camp. As the commentator Alan Cochrane pointed out last week, Salmond “appears to be saying — stimulus now, stimulus tomorrow, stimulus for ever and a day. And to hell with payback!”

The first minister does not feel that his administration or the failed Scottish banks bear any responsibility for the recession, and therefore sees no reason why Scotland should face a £500m cut in the block grant in both 2010 and 2011.

Despite a long-term, reasonable campaign to have the money reinstated, one suspects Salmond’s pleas have fallen on deaf ears in Number 11. We’ll find out in Alistair Darling’s budget next month.

So perhaps this Obama wannabe is going to have to face reality and become an emulator of the Irish taoiseach Brian Cowen instead. Having his allowance reduced would force Salmond to make some genuine efficiency savings in Scotland’s bloated public sector.

Interesting conflict

There were some extraordinary scenes in the audit committee at Holyrood last week. Sir John Elvidge, the head of Scotland’s civil service, and his head of human resources were accused of talking “bullshit” by the committee’s convenor, Hugh Henry.

The spat revolved around whether the Sir Humphreys were being economic with the verité about the departure of Guy Houston, a former senior official at Transport Scotland. Houston resigned last year after it emerged he had attended meetings relating to the £2.5 billion

Scot Rail franchise extension deal, despite holding shares in the incumbent holder of the franchise, First Group. The Aberdeen-based company last year had its Scottish franchise extended to 2014.

That one may have been totally above board, but it certainly makes one wonder about other conflicts of interest at the top of Scotland’s public sector.

The right track

Might we see high-speed rail links between Scotland and London before the 2020s are out? It seems that, finally, lessons are being learned from the disastrously expensive and protracted upgrading of the west coast mainline, during which £500m was paid out to train companies that suffered delays.

Well, it seems Westminster is finally getting serious about putting in at least one dedicated high-speed track.

Earlier this month Lord Adonis, the rail minister, said firm proposals can be expected by the end of 2009 and the government has already formed a company to consider the case.

If the new line brings Edinburgh and Glasgow within three hours of London, the French experience suggests that two thirds of those travelling north-south would use the train rather than fly.

It’s the sort of long-term, targeted investment in infrastructure that could help Brown restimulate the economy while benefiting the environment. Let’s hope Adonis and Geoff Hoon, the transport secretary, push this one through, without too many delays.

This was the Scottish Agenda column published in the business section of The Sunday Times Scotland on March 29th, 2009. To view this article on Times Online click here.

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