´óÏó´«Ã½

Stick to the knitting, says Sir Tom Farmer, a veteran of three recessions.

Aged 68, the grand-daddy of the Kwik Fit fitters is more of a man for re-tyring than retiring (his joke, not mine), and not at all well known for the production of woollen products.

It's the Leither's way of saying that entrepreneurs should stick to what they know when times get tough. Also have confidence in yourself. And within your team, have confidence in each other.

This comes with a plea to public authorities, including the Scottish Government, to look for ways of pulling back on red tape.

There's praise for some of what SNP ministers have done to cut through red tape on occasions that have brought them criticism for sailing close to the limits of planning protocol.

But they could do more, says Sir Tom. Regulation is necessary, but not enough is being done to hack it back.

If you want to hear more about his advice for budding entrepreneurs, you can hear him interviewed on The Business on ´óÏó´«Ã½ Radio Scotland, on Sunday, 1 March, at 10am.

And he's keynote speaker at New Start Scotland, an exhibition and seminar event on March 27 and 28 at Glasgow's SECC. Find out more about that at www.newstartscotland.com.

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• - What's this?

It's been an astonishing week in Scottish finance.

On the broadcast front, I've been at risk of drowning in red ink, with £24bn of losses for on Thursday and £9.9bn pre-tax losses for .

Due to past trading statements, neither has come as a surprise, but the figures should still give some pause for thought.

I was given even more pause for thought while interviewing .

While much of the media attention was shifting to his predecessor's pension, he wanted to be forward-thinking about his radical plan to turn around the bank, from bottom up and top down. How could we be confident that it will work?

"I don't think we can be confident," he replied.

This will be a difficult few years for the Royal Bank of Scotland, he went on, which will require "a lot of work and a lot of luck".

There's a lot of British government capital riding on him getting lucky.

The latest addition to the public bill for banking failure is the risk that the British public are taking on with the insurance of the most toxic assets.

RBS and the Treasury agreed early on Thursday morning that it would insure £325bn of the bank's assets, in return for a 2% premium, and the first £19bn being paid by the bank.

A similar announcement was expected from Lloyds Banking Group on Friday, but there has so far been no agreement on terms.

If this is insurance, it's not as we know it.

The premium is paid in new 'B' non-voting shares in the bank.

But as the government already owns much of RBS, it seems to be paying itself.

And the excess on any default is ultimately borne by the shareholders, so the risk comes back again to the government.

Also, if the government is injecting up to £19.5bn more into RBS, it seems to be only an accounting technicality that allows them to claim that this does not dilute the private shareholding.

A more fundamental problem is that the fundamental idea of insurance is that you spread risk.

But any way you look at this, the Asset Protection Scheme concentrates risk from several banks into one place - the Treasury, and therefore the British taxpayer.

It doesn't seem the kind of insurance policy to which Churchill, RBS's nodding dog, would say: "ohh yesh".

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• - What's this?

It's a busy day for news on the Scottish economy, and it doesn't get any cheerier.

A new analysis of the state of the public finances has just been published by the Centre for Public Policy for Regions, based at Glasgow University.

It has tried to absorb the implications of Alistair Darling's pay-back of the huge loans the Chancellor is taking out to get Britain through the worst part of the recession.

And while every aspect of this forecasting is in uncertain territory - more so than usual - there is a clear warning to Holyrood politicians that they are going to have to take some tough lessons in belt-tightening.

That may also be the message coming from Downing Street today, when the Prime Minister meets Alex Salmond and the first ministers of Wales and Northern Ireland, none of whom are impressed by the prospect of a sharp cut in grant already announced for next year.

It remains a matter of dispute whether it would be wise to start cutting public sector budgets and paying back debt as early as spring of next year.

But there is little doubt that the bills will have to be paid back some time, and these devolved administrations will feel some of that pain.

The Glasgow University study has three scenarios, the best of which sees hardly any real growth in Holyrood's budget between 2011 and 2014.

The worst of them, which they describe as an "eminently possible" outcome of the recession spending, would see recurring real terms cuts over those three years.

The end result would be a budget in 2013-14 some 7.5% lower than the peak year, which will be the one starting this spring.

Such a real terms cut would be set against the background of pressures from conventional spending on health, education and public sector workers, as well as new costs from transport and investment needs, the Commonwealth Games and the new Forth Bridge.

One of the CPPR's recommendations is that the Scottish Government needs a much tougher Treasury-type department to crack down on spending departments and do the unpopular stuff, having the long-term mindset and doing the contingency planning.

According to CPPR director Richard Harris: "The Scottish Government needs to start to make contingency plans looking into the distance rather than simply concentrating on next year's Budget".

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• - What's this?

As it was Scottish banks that played such a starring role in getting the economy into this almighty mess, it has been assumed that Scotland will suffer disproportionately badly.

The nation's foremost economic think tank said as much in its four-monthly analysis and forecast published last November.

But in the latest Fraser of Allander Institute commentary published today - the first since the credit crunch got seriously crunchy - its economists have changed their collective mind.

They argue the recession is now primarily a problem of a shortage of aggregate demand for goods and services.

The shortage of credit has ceased to be the primary characteristic of the slump, goes this argument, but is now only exacerbating the problems.

Finance may no longer drag Scotland below the performance of other parts of the UK. Indeed, it may be that some of the back office operations, which Scots do well and at competitive rates, are actually moving to Scotland rather than getting wound down by the nation's chastened, bonus-starved bank bosses.

So once again, there is some evidence that the Scottish economy may weather the storm relatively well - relative, that is, to some very heavy weather to be found elsewhere.

And further such evidence comes from the Council of Mortgage Lenders this morning, telling us that Scottish lending is down by 40%, but that's not as much as the rest of the UK, while its share of the UK's new lending is up.

Whatever the relative position, the raw figures remain sobering. The Fraser of Allander reckoning (no relation, by the way) is that the slowdown will be the most severe since the 1980s, and possibly worse than that.

Its forecast involves three scenarios, the central one of which puts last year's unemployment up by 14,200. This year, it's on course to rise by 94,200 and next year by 51,400.

In 2011, it would then pick up 3,000 new jobs and get back into healthier territory in 2012, with 14,500 more.

The impact would be to push total unemployment from 137,000 at the end of 2008 up to a peak of 210,000 in 2010, or 7.9% of the workforce.

That foresees nearly 160,000 job losses over three years. The worse case scenario would put 32,000 on top of that, with jobs growth waiting until 2012 to return.

Compare that with the way things looked to the Fraser of Allander team in November, when the central estimate, at 53,000 lost jobs over three years, was less than a third of the figure they now expect, and when the growth by 2012 looked much stronger than it does now.

What about the growth figures? In November, they reckoned on this year being the sole year of contraction, by 1.1%.

Today, it looks more like 2.6% contraction this year and 1.2% next year, with only 0.5% growth in 2011. The worse case scenario would keep Scotland in recession through 2011 before anaemic growth in 2012.

The relatively strong position of the Scottish economy is not only down to a reassessment of the damage that could be caused by its dependence on finance jobs.

It is also that Scotland is less exposed to the effects of the assets bubble bursting, not having become quite so irrationally exuberant as southern England, that it has a larger public sector and more dependence on welfare payments.

The commentary takes a look at responses to the recession, and concludes that the SNP administration's six-point plan can only have a "negligible" effect on the macro-economic picture.

There's no surprise there, as Holyrood doesn't have significant powers over macro-economic policy.

And the fiscal stimulus from the Westminster administration, despite giving a fillip to demand of about 2% of national income, is seen as "too little too late", particularly when compared with the United States' efforts.

There are recommendations for Alex Salmond's government. It could try using its clout as a very large customer, using those contracts to require more pro-active lending by the banks in Scotland.

Fraser of Allander also suggests short-term but intense training courses for those coming onto the unemployment register, while assisting redundant workers in starting their own firms.

I recall hearing about such a scheme at Ravenscraig, when the steelworks closed 17 years ago. Left to the market, many of the workers signed up to one attractive-sounding retraining course.

The result was that Motherwell became a world centre for small-scale travel agents, but with the market glutted, it was for a short period only.

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• - What's this?

Selling 460,000 copies every week - not far off one copy for every 10 Scots - you might have thought the Sunday Mail was in healthy shape.

Not so. Such is the ailing health of the newspaper industry that even the mighty market leaders are taking some unpleasant financial medicine.

The staff are to be merged with those who produce the .

Ten of those have already gone, and the management are hoping to make the rest voluntary redundancies.

But the National Union of Journalists reckons it will be unlikely to find all those job cuts voluntarily, as its journalists are so much younger than on other newspapers.

This is a heavily unionised newsroom, which last year implemented a work-to-rule in protest at the increasing workload, as staff numbers were slimmed.

The changes will also affect the smaller teams at Record PM, The Glaswegian and Business 7 - all distributed for free.

The changes are partly driven by falling circulation because of the internet and changing consumer choice.

With the Record's circulation at 371,000 on the average day, that's down more than 8% on last year, and continues to position it behind the Scottish Sun.

Until 2006, when it lost the top spot, it spent 32 years as market leader.

Advertising revenue is in even faster decline because of the recession.

And papers are feeling the impact of new technology: not only do people increasingly expect to get their news online and for free, but the software for processing news copy is changing and getting more efficient.

Trinity Mirror, the London-based company that owns the Glasgow-based titles, is investing in a software system that cuts out the number of process stages between reporter's notebook and the printing press. It has already done so with its Birmingham titles.

This Thursday, the parent company publishes its 2008 figures, which will provide a guide to the advertising downturn, and the extent of roll-out we can expect for other titles, possibly including the Mirror, Sunday Mirror and People.

The Daily Mirror is now below half the UK circulation of The Sun, its main rival.

The Record and Mail's merged journalist team is similar to changes and job losses being negotiated at The Herald and Sunday Herald, also based in Glasgow.

It doesn't say much about working at those heavier titles to find management has even more voluntary redundancies than they had wanted.

In Edinburgh, The Scotsman and its sister papers, Scotland on Sunday and Edinburgh Evening News, have recently seen two editors quit, with John McLellan appointed as editor overseeing all the titles.

An announcement of a more limited joint working arrangement is expected in the next few days, with the likely job losses being a relatively modest 11, with most of those voluntary packages already subscribed.

Indeed, the rumour mill is going significantly beyond that.

With The Scotsman's parent company Johnston Press facing a large debt overhang and dismal share price, its new chief executive John Fry could raise some useful capital by selling his Edinburgh flagship titles.

The most natural fit? The cash-rich, Courier/Sunday-Post/Press & Journal/Beano/Dandy publisher, DC Thomson.

This is "pure speculation", according to the Dundee family firm. But that doesn't mean it's wrong.

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• - What's this?

As with Edinburgh's troubled tramworks, the capital's burghers are wondering if bosses at their two biggest banks are ever going to get beyond digging very deep holes and staring into them.

They don't seem to have learned the first maxim of hole-digging: stop. It's partly that they haven't known how far they have to descend to reach the source of their toxic troubles. It's partly that they've been in a state of corporate shock.

With their annual results out this week, this won't be when they fill in the holes. The best we can hope is for the plans to do so.

To set expectations low and get more attention for their recovery proposals, both of them already put their humungously large losses into the public domain.

Next Friday, it's the turn of Lloyds Banking Group, which has taken on Halifax Bank of Scotland and got a nasty shock when, belatedly, Lloyds accountants examined the books in detail. Last year's loss for HBOS looks like £10bn, or £11bn, depending how you count it. What's a billion between bankers?

Chief executive Eric Daniels can be expected to lay out his plans for integrating Lloyds TSB with HBOS, cutting £1.5bn from his annual cost base within five years. With obvious overlap of branches and divisions, assume big job losses. Staff on both sides of this controversial merger are approaching Friday with trepidation.

We should also begin to find out the Lloyds' approach to the Bank of Scotland's corporate division, after it contributed £7bn of woe to last year's figures. That comes close to home for a lot of Scottish businesses, its leading entrepreneurs, its football clubs - which have become closely entwined with HBOS's now notoriously liberal lending and investment policy. How fast will that unwind?

With its results out on Thursday, the jobs picture at the Royal Bank looks slightly less bleak. New chief executive Stephen Hester has fewer overlaps. And because his Scottish staff do the less exotic stuff at competitive costs, they're more likely to be retained as core. The global markets division, which did the most damage, will get a dramatic and probably painful makeover. Insurance businesses, including Direct Line and Churchill, look the safest place to be, as they're seen as the most efficient already.

While the core will keep RBS in the world's major financial centres, the non-core bit will strip out those parts at the margins and place them in a very large corporate bargain basement.

That will probably represent, very roughly, a quarter of the trillion-plus pounds of assets on the bank's balance sheet. That will also include much of the toxic debt that the Government has been struggling to find a way to insure.

This radical restructuring means that as much as £300bn of RBS business will soon be on the market. Expect that to include Asian bits of its Dutch acquisition, ABN Amro, which are surplus to requirements. And while it will keep its core American assets, Citizens and Greenwich Capital, parts of them will be available for offers.

But don't expect rapid sales, as there aren't a whole lot of buyers out there. The RBS recovery plan is scheduled to take three to five years, which may make some investors impatient. It depends how fast the broader economy gets through its current turbulence.

The main investor will have to be very patient. That's you, me and Chancellor Alistair Darling. And as RBS headquarters borders his Edinburgh constituency, the HQ is as secure as anything on these financial quicksands - just so long as it doesn't fall into the tramworks.

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Katherine Garrett-Cox doesn't warm to questions about gender in business, about being a "supermum", or her nickname of Katherine the Great.

The chief executive of Alliance Trust, based in Dundee, usually prefers to keep a low profile and be judged by her results. Unlike those in Iceland who say their banks were too testosterone-driven and now need women to sort them out, she plays down any difference between men's and women's approach to business.

In an interview for ´óÏó´«Ã½ Radio Scotland, she does, however, point out Alliance Trust has not only a female chief executive but a woman in the chair too, Lesley Knox.

It's appropriate for Dundee, which has long been renowned for its strong women leaders, from the jute mill workers to Ma Broon.

So to focus instead on her results, there was a period last year, around the point in August when the 41-year old Surrey-born financier stepped up to the top job, when the gap, or discount, between the underlying assets and the fund's market valuation, made her "vexed". But having switched to cash, mainly UK Treasury bills, in the first half of last year, her investment strategy has brought the investment trust through the financial tempest relatively well so far.

Now in charge of Scotland's fifth biggest company, a "venerable" pillar of the nation's financial life for the past 120 years and now valued at £1.78bn, she contrasts her approach with the big boys down the road in Edinburgh: "The key to our success is that we didn't try to be too clever".

"We understand what we do and I think that's where a number of big companies went wrong. They got too aggressive. They didn't understand the risks they were taking on and I think that will take some time to unwind. And yet it provides opportunities for companies such as us".

She went on to explain the early retreat from banking stocks: "At a very early stage, we identified that a number of them were running risks that we didn't think were appropriate".

Says Garrett-Cox: "We're at a very interesting juncture of the financial services industry and Scotland in particular. For those businesses who remain focussed, keep doing what they've always done, if it's been successful, there are great opportunities.

"It's obvious the financial services sector is going to be hard hit by what's going on. There's not a day goes by you don't read depressing news about job cuts and one of the things we're keeping a close eye on is the knock-on effect.

"A lot of people will be in the unfortunate position of losing their jobs over the next 12 to 18 months. But what's quite interesting about Scotland compared to the rest of the UK, Scotland has a high percentage of dual earners in families, which we think will mean Scotland will be better protected than the rest of the country."

Being located in Dundee is no disadvantage, particularly when people are being laid off elsewhere in the finance sector and looking for new opportunities in smaller organisations where they can make a difference.

And the distance from the City of London, or even Edinburgh, has been no obstacle to recruiting some "excellent" new staff in the past 18 months, says the Alliance Trust boss.

* You can hear Katherine Garrett-Cox's full interview - including her approach as an active shareholder, and the question of taking stakes in the tobacco industry - on The Business, on ´óÏó´«Ã½ Radio Scotland at 10am this Sunday, 22 February.

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• - What's this?

A very important document has just landed on ministers' desks at St Andrew's House. I hear that the reporter's findings on the Beauly-to-Denny electricity grid upgrade were delivered this week, and ministers will soon have to say whether they accept the recommendations.

Anything other than a go-ahead for this spinal grid connection (from the Highlands, near Inverness, into central Scotland, near Stirling) would be astonishing, though the conditions may require burying cable through some of the more sensitive landscape.

The £300m project, jointly backed by Scottish Power and Scottish and Southern Energy, has provoked controversy, not only among those who think a doubling in the height of many of the old pylons will represent many blots on a beautiful landscape, but among those who think the planning system has been a huge drag on necessary development.

Change to the planning law, which are still slowly being implemented, mean there will never be such a long process again on a project designated as having national significance.

Unleashing the potential for transferring renewable energy from north and west Scotland to population centres is a key element of a process across several fronts that you can sense picking up speed. Amid the economic gloom, the brightest prospect for investment to continue is in renewable energy.

It has been given a significant boost by the European Commission's backing for grid connections harvesting offshore generation - wind, tidal and wave - and linking them across the North Sea.

And that, in turn, has been boosted by the vulnerability of the European Union to Russia continuing to play power games over gas supply with its former Soviet satellites. When Brussels eurocrats look at a map of the continent's energy sources in future, the renewables potential to its north-west plays a sizeable role.

When I visited Brussels recently, a spokesman for the commission told me: "Scotland has a huge potential in wind energy. Some of the biggest wind farms in the world are based around the coast of Scotland and this potential could be further developed. There is also potential for wave energy.

"We consider the North Sea area and Scotland in particular could be used as a flagship for renewable energy, and for that we want to develop the use of smart grid that can bring this energy onshore for consumers."

And Donald Macinnes, chief executive of Scotland Europa, which represents a range of Scottish interests in the European capital, commented: "Talking to other nations - Norway, Iceland, all these places - are looking at the same thing, and Scotland is in a very good position to exploit these networks. We'll have to work closer with our neighbours. We're starting to do that, but we'll have to work harder on it."

There is agreement across the EU to push for 20% of all energy coming from renewables within 11 years, and because that includes heating and transport, the implications of the ambitious target are that electricity generation has to carry much of the burden.

So with the European Union looking to Scottish renewables potential, the UK Government has its own similarly demanding targets, and those are aligned (though not by any political design) with those of the Scottish Government, which wants to see 50% generation from renewables by 2020, up from around 20% now.

So with everyone agreed on the task in hand, the industry reckons it can push ahead with investment. Recent days have seen the Crown Estate Commissioners agree terms for major new offshore wind projects, including the Pentland Firth.

Scottish and Southern Energy has just totted up all its investment programmes for the coming three years, and reached a total of £3bn. That includes western Europe's biggest onshore wind farm between Biggar and Moffat, costing around £600m. The Griffin wind farm in Perthshire will be around a third of that cost.

The Perth-based company, which has become Scotland's biggest corporate as banking stock has sunk, is relaxed about the Westminster-Holyrood row over the next generation of nuclear power, because it puts all the more onus on Scottish ministers to clear any hurdles faced by renewables.

That, in turn, becomes a subject Alex Salmond is taking to the British-Irish Council in Cardiff on Friday, to push the case for sub-sea grid connections. The major generators have this week jointly submitted their proposed map of grid upgrades to the UK government, including several of those sub-sea cables.

The west coast doesn't look like taking as high a priority as the east, where power lines from the North Sea into Peterhead could then be directed down to the English coast around Lincolnshire, and possibly from there into the continental market. It's very expensive stuff, but could be one of the recession's more positive legacies.

There remain some tricky environmental questions, however. We're already used to objectors to onshore windfarms. The offshore variety may have impact on bird and marine life.

But it's noticeable how this has created tensions within the environmental movement. Across the Atlantic, the newly-agreed fiscal stimulus package in the USA includes provision for new power lines to get renewable power from hot, windy deserts into the cities.

Some argue those have to go ahead to shift from climate changing power generation to renewables, but they also have objections from those who want to protect habitats - and the American green lobby can no longer unite against the common enemy of George Bush.

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• - What's this?

The announcement on puts the Government's shareholding in a new light.

With 68% ownership of the troubled company, it was always clear that the Treasury could make demands on the way it operates. But we have repeatedly been told that the Government doesn't want to micro-manage.

Better to let the Royal Bank do what it takes in commercial terms to get itself back on to the front foot, went the argument, at which point the Government can sell off its stake, possibly at a tidy profit.

Well, with a huge paper loss on the £20bn bail-out/investment, the political pressure over the bankers' bonus culture has brought a sharp end to the talk of being hands-off.

There is, after all, no other major shareholder who would take the lead in announcing it had determined the shape of a company's remuneration policy.

Indeed, it makes you wonder why there is such interest in or concern about the prospect of RBS, and perhaps Lloyds Banking Group, becoming fully nationalised, when the Government has all the power it needs without having bought out all the shares.

The headlines on Wednesday morning, as the Treasury had hoped, are about Alistair Darling cracking the whip and bringing RBS excess under control.

But not everyone is agreed that's what has happened.

Some analysis of the figures is that the proposed bonus pot of £1bn is not far off what will be paid out - the difference being that much of it is being deferred and dependent on future performance.

Everyone is agreed that much makes a lot of sense, instead of the bonus culture depending almost entirely on short-term gain.

So even if the cut in bonuses falls some way short of the "90% cut" spin, at least it's some progress towards a more sensible, sustainable banking culture.

The episode hints at how much there's tension, manoeuvring and uncertainty in the nature of the relationship between bank management and its Government shareholder.

Neither side is quite sure what the rules of engagement are, but we're a bit clearer how it's going to work.

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• - What's this?

I've just returned from some filming in Moodiesburn, Lanarkshire, which boasts a Scottish exports success story that is actually doing well out of recession.

Devro produces the skins for more than half of Britain's sausages. That's more than 1.6 billion bangers. The company also has operations in the Czech Republic, Australia and the USA, extracting collagen from animal hide to produce edible tubes in mind-boggling quantities, of varying width, colour and crunchability.

Apparently, the French like their saucissons to be a bit more resistant to biting than the Brits, the Germans are less concerned about their wurst being fresh, while the Chinese represent a promising new market, developing a taste for western-style bangers.

With sausages one of the products doing well out of people 'trading down' from pre-cooked and premium foods, it was announced today that Devro's underlying profits for last year were up 21%.

Helped by sterling's decline, the figures represent modest progress in volume terms, but any positive growth is a rarity in today's economy. Watch out, however, for the pensions warning in the annual report, with the fall in asset valuations last year leaving a large gap in liabilities. Expect to hear lots more about that from across the corporate world.

And there are perverse effects from recession. One of the clouds on Devro's horizon is that the downturn in the furniture business and aerospace, with their demand for leather, means that the hides required for collagen, produced as a side product of leather in tanneries, are going to get harder to source and possibly more expensive.

To underline the effect of trading down in food sales, Domino's Pizza today announced profits up nearly 25%, with people shunning restaurants and staying in. With a trading update also out today, Asda is crediting its low cost brands with healthy sales figures.

This effect is particularly noticeable in food, because, of course, people have to keep buying it. It's hard to find with cars or kitchens, for instance, where people can defer purchases for years.

But it extends elsewhere. Pontin's holiday camps are going for a major investment and expansion, claiming to have a sharp increase in bookings, while L'Oreal cosmetics company announced today it's going for its own lower-cost value range.

About time too. I'm no expert, but I've long thought cosmetics hugely overpriced.

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• - What's this?

The demise, for now at least, of Local Income Tax from the SNP Government's legislative plans for Holyrood has excited much political comment. But what about the implications for public finances?

Much of the row revolves around the warning in Alistair Darling's pre-Budget statement last November that he was planning £5bn of spending cuts (or efficiency drive, as some prefer to call it) across UK Government spending.

On the back of a St Andrew's House fag packet, it was reckoned that Holyrood might face a £500m cut in its 2010-11 Budget, which was duly presented as another sign of Old Albion coming over all perfidious.

But if the SNP administration is basing its estimates on last year's pre-Budget statement, it must be about the last group doing so. Not even Alistair Darling is willing to defend it, knowing that a very different picture will have to be presented with his Budget on 22 April.

If all the other forecasts are any guide, that will mean the recession is much deeper than it looked to the Treasury in November, and that recovery is going to come much later.

The £5bn figure, due to kick in during 2010-11, was based on the projection that the UK economy would be pulling out of a fairly shallow recession by the end of this year.

But with the CBI today adding to the independent evidence that the Treasury will have to borrow much more deeply than it already estimated - to the tune of £100bn, according to the business organisation - it means that balancing the Treasury books will mean much more debt needs paying off, and the crunch on tax take may have to be delayed until the economy is in a less fragile state than it will surely still be by spring of next year.

So the Holyrood debate over money is missing at least four points. One, that the £5bn has not yet been allocated to Whitehall departments, and until it is, it is hard to see how it would impact on the Scottish Parliament block grant.

Two, that there will probably have to be much deeper public spending cuts if the debt is to be paid off over the next ten years or so.

Three, that the Government's fiscal stimulus, of tax cuts and spending push, may have to be retained into the fiscal year 2010-11, meaning the public spending cuts won't crunch until later than Alistair Darling planned or than John Swinney feared.

And four, that all the countries facing recession and using a fiscal stimulus, large and small, are having to plan for the eventual pain when the bills come in. This is far from unique to Westminster and Holyrood.

Add to that one downside of the Local Income Tax proposal that has been exposed by the economic downturn. The indications from November and December of HM Revenue and Customs collection of income tax (bracketed with capital gains tax) are of rapidly falling revenue.

In November, it was down 4.6% on the previous November, and December was down 5.3% on the year before. That means the decline was acclerating. This Thursday, we should see the January income tax take, which will reflect the fall in Christmas bonuses across the economy.

The figures bandied around the Local Income Tax debate were open to dispute, but the decline in revenue so far, if applied to a local income tax, would leave an additional gap in council funding of at least £60m.

That's the downside of a tax which is buoyant, in that it goes up and down with income, causing a lot of pain for council budgets.

The other way of looking at it is that council tax fails to adjust to falling income, so it's more likely to be individual householders who feel the pain.

That's why this might be an opportunity for everyone at Holyrood to think again about council funding, and to start by pulling the Burt Report off the shelf, which looked at the options and came up with a property-based plan more closely allied to ability to pay.

That's named after Sir Peter Burt, by the way - the same former Bank of Scotland chief who's been a lead player in the HBOS saga of late.

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• - What's this?

It's nothing new for an incoming chief executive to make the balance sheet look bad, as a means of getting the best spin out of subsequent improvements.

But if that's what Eric Daniels at Lloyds Banking Group has in mind, he's taking something of a risk with the scale of today's astounding news.

Having just taken Halifax Bank of Scotland under the wing of the Lloyds TSB group he already led, he announced this afternoon that the HBOS balance sheet has landed the joint company in £10 billion of trouble.

The Lloyds TSB part of the merged business delivered a £1.3 billion profit, according to the trading update.

But the problems at HBOS are now far bigger than previously estimated, and the previous estimates were bad.

The top line loss on HBOS is £8.5 billion, to which other elements are added to round it up to a neat ten, most notably £850m losses on sale of businesses.

Market dislocation is blamed for £4 billion of the trouble, driven by falling asset quality when HBOS went into the market for what would become toxic assets and the valuations on those assets have since fallen.

Impairments in the HBOS corporate division mean £7 billion of loss, principally from applying Lloyds TSB's more conservative approach to accounting.

This seems to refer to the practice of revaluing assets on company books at the price at which their equivalent have recently been traded, which is a controversial approach when so many assets are finding it hard to find any market in a price can be set.

As part of this write-down, the company is absorbing some of the pain of British home-owners, as it holds more than quarter of Britain's mortgage market.

So it's having to take the losses in asset value which accompany falling values for homes, and with more trouble unravelling in the commercial property market, to which it is heavily exposed.

Eric Daniels is a conservative American banker, and likes to do things more by the book than it seems his former colleagues at HBOS were doing.

But having a reputation as conservative is not going to last long if you take a reckless decision to take over a bank addled with toxic debt on its balance sheet, and without seeing just how dangerous that was as the banking sector turned so sour.

That, after all, was what left Sir Fred Goodwin, late of the Royal Bank of Scotland, looking so sheepish in front of the Treasury select committee on Tuesday - and out of a job.

Yet again, Scotland's reputation for canny money management is being dragged through the mud. The only mitigating factor is that it's competing with so much other dire news today from the rest of the world economy.

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• - What's this?

Our nation's leading economists are unimpressed by the quality of recessionary debate by the commentariat, which includes ... well, probably those know-alls who write blogs and sound off on the airwaves, whoever they may be.

With the sponsorship of their own industry body, Universities Scotland, these leading laboratory boffins of the dismal science have come up with their own commentary.

And unlike some others, they have graphs, tables and case studies. It's called evidence, and they would prefer it dominated the debate rather than "whomever shouts loudest".

Cynics won't be surprised that such a group should reach the conclusion that university level education and research is the key to unlocking the nation's future.

Their paper, 'What Was/What Next?', doesn't actually appeal for more cash. Led by economics professor Anton Muscatelli, principal of Heriot-Watt University and soon to take over at Glasgow University, they are subtler than that. And such cynicism shouldn't stop their work from getting attention, not least because it makes for provocative reading.

To cut through the econo-speak, one sentence sums it up: "If we do no more than fix the holes in the hull of our economic ship in recession, we will find ourselves adrift with no engine once the recession is over".

What constitutes the plugging of such leaks?

Some of the policies being enthusiastically supported by the Scottish Government, others pushed by the opposition, and even a few supported by all sides.

Apprenticeships, for instance. That brought Labour support behind the SNP budget last week. A good idea, surely? No. The economists' evidence says Scotland has already excelled, by international standards, at post-school, sub-degree training and that appears to be at saturation level.

They even suggest you stand a stronger chance of being unemployed with apprentice-level training than if you hadn't bothered.

The political attachment to apprenticeships "increasingly looks like a hangover from a previous age", and smacks of an "anti-intellectualism directly opposed to Scotland's economic interests".

(It's tempting to wonder if these guys have had need of a plumber recently, and if so, did they wonder why academics are worse paid. But that's anecdotal evidence, which is banished from this analysis.)

Too many graduates? Wrong again.

That's where skill shortages and skills gaps are found and forecast.

And rather than take a view of the economy in terms of "people-shaped holes", they urge a more dynamic sense of preparing for jobs we haven't yet envisaged. In nano-technology, for instance, there are no jobs outside universities for now.

But if you wait for them to come on stream, the nano-technology industry will already have been established somewhere else.

With renewable energy technology, biotechnology, data storage and creative industries, nano-technology is held up as the kind of business that could be the smart place for Scotland to put its effort.

Better that than try to shore up industries that are already becoming unsustainably uncompetitive.

That puts sacred employment cows at risk. Economic history includes a graveyard of once great Scottish industries that didn't die, but moved elsewhere, leaving much pain behind when Scots lost their competitive advantage; textiles, shipbuilding, steel, microchips.

Should we perhaps be adding financial services to that list, as we watch IT-enabled services shifting to low-wage economies where skill levels are rising fast, notably China and India?

And if we are to avoid a return to debt-fuelled spending boom, is retail any place to plan our future?

The Big Idea is to aim not at a job-saving strategy, but a job replacement strategy.

And in what kind of company? At Scottish Enterprise, its new focus is on companies with growth potential. Smart thinking? Wrong again.

The economists reckon it would be smarter to aim for lots of small competitive companies in a brains-driven economy rather than lots of jobs in a few corporations.

They also emphasise the need to focus on exports, to plug Scotland's long-standing non-oil trade deficit.

Simply by building an economy aimed at selling goods and services to one another is no way to grow employment. Construction, they point out, employs roughly the same share of jobs at the start of the 21st Century as it did 100 years before, because there's a finite amount of demand for buildings in Scotland.

Surely there can't be much dispute over the Scottish Government's high profile cutting of business rates to help corporate growth, learning the lesson of Irish growth, Holyrood's push of resources into cutting class sizes, its splurge on reducing rail journey times?

Wrong on all counts. Each of them is criticised for failing to target resources where they can have most impact.

There is a detailed debunking of the link between tax cuts and the Celtic tiger's growth, as if recent events in Ireland hadn't debunked enough.

And in the other cases, the economists warn that resource is not being properly targeted to where it can have most effect, both in skills and in providing incentives for tackling Scotland's long-standing, long-noted and "terrible" private sector research and development deficit.

"Scotland's performance is poor," says the report. "Our national spend on R&D is better than embarrassing only because of the contribution of universities."

Scottish business spend on it, as a share of national income, stood in 2005 at little over half of the UK or European figures and a sixth of Finland's.

"This is a significant failure in the Scottish economy which has been tolerated for too long without action."

And while there may have been "hidden innovation" in the once mighty financial services industry, we now know the finest mathematical modelling graduates were actually being paid squillions to apply their brainpower to devise the fiendishly complex derivative assets that brought about the banks' downfall.

"The UK has been complacent about it its poor R&D record and may now pay a price," says the report. "Scotland is in a worse position again."

With that being one of few references to the economic powers reserved to Westminster, this is a document aimed explicitly at the Scottish Parliament. So will it find a receptive audience?

Actually, this might be rather well-timed. The passage of the budget in recent weeks - blocked at first, then approved with only two votes against one week later - hints at a state of flux in politics as MSPs and their parties struggle to find responses to recession.

Alex Salmond yesterday made clear he's in mid-term mode, which is as much a time for re-energising his administration as it is about planning for another one.

This is the year to do some serious thinking and ground preparation for all the parties' 2011 manifestos.

The answers to these tough economists' challenges will be a test of them all and of Holyrood's maturity as it reaches its 10th birthday.

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• - What's this?

Diageo, the world's biggest alcohol company, has produced its half-yearly results this morning, and the market is not impressed by reduced profit targets.

From Guinness to Smirnoff, the company has impressive reach into the world's pubs, clubs, off licences and livers.

But it is Diageo's dominance of the Scotch whisky industry - with 40% of the global market including the Johnnie Walker brand - that has particular interest north of the Tweed.

And the half-yearly trading update gives reason for some worries for the 10,000 Scots directly employed in making, bottling and distributing Scotch, with 40,000 more in the supply chain.

Although there are healthy effects on the balance sheet from the weakening of sterling, Diageo has told shareholders it wants to cut £100m from its cost base, meaning an unspecified number of job cuts.

Its biggest rival, Pernod Ricard, has half-yearly figures out tomorrow, which will show if there's a trend emerging.

After a record year in 2007 produced £2.8 billion in exports for the whole industry, the signals from Diageo's report are that there are of some sharp declines in volume sales.

The company recently opted to push up its prices to improve margin, so the reduction in volume is not something worrying the company's finance department so long as net sales value continues to rise.

For Johnnie Walker, for instance, volume is down 6% in the most recent figures, while net sales are up 5% (these figures comparing the second half of 2008 with the second half of 2007).

That drop in volume should worry those concerned with jobs in Scotland, for whom volume is more important than value.

The sharpest decline in demand was in Spain, the industry's second biggest market, where the bursting of the property bubble has put it in economic trouble similar to Britain's and Ireland's.

Scotch has become the cool, young person's drink of choice. But over the year, Diageo lost 20% by volume there, and 18% by value.

The J&B brand was down 25% across Spain and Portugal. Partly, this is put down to the company refusing to supply some outlets where they feared credit default.

In the Latin American and Caribbean markets, the economic downturn is being blamed for disappointing figures, including a drop in airport duty free sales hitting Scotch particularly hard.

The more positive growth areas include Russia and across Asia, though the more mature South Korean market has taken a hit and Johnnie Walker has taken a 14% drop in Chinese sales by volume.

In the USA, the largest single market for Scotch whisky, Diageo has pushed up the prices on two-thirds of the produce it sells, so volume is down there too.

Other telling findings about the way recession is affecting the drinks industry include the decline in Guinness, including its own troubled Irish home turf.

The toucan is selling a whole lot better in Africa, with sales up 25%, and Malaysia and Indonesia also taking to the black stuff in fast-growing numbers.

The biggest change is in the slump in demand for ready-to-drink products, many of them alcopops mixed with vodka.

That is down sharply across Diageo's markets, with interesting lessons for alcohol campaigners coming from Australia.

The Canberra government slapped a 70% increase on ready-to-drink products last April, and Diageo reports that led to a 34% cut in its volume sales.

Another telling part of the results is that Diageo is saving itself a whole lot of marketing money with the sharp cuts in advertising costs.

Good news for its shareholders, but a further sign of trouble for newspapers and beyond.

Friday 13 February Pernod Ricard has just released its half-yearly results, and the view from the Paris headquarters - with profits up 5% in the back half of last year - looks healthier than it does for its main rival across the Channel.

The wine and spirits company reports that sales of Perrier-Jouet champagne has suffered from the downturn in the United States, but otherwise, there is not much sign of a recession.

Of its main Scotch whisky brands, Ballantine's is growing strongly in China. Along with Clan Campbell, it is also doing well in France.

It reports good performance in eastern Europe, but "difficult situations, notably in Spain, UK and Italy".

But then there's a fine business euphemism about the current six-month accounting period: "Visibility is limited for the second half of the year".

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• - What's this?

The announcement of 2300 job losses from the Royal Bank of Scotland, spread around the UK, is only the start of the financial job losses we can expect over the coming months and years, though I can offer a tiny hint of Scottish silver lining to a very large economic storm cloud.

Underlying the unemployment figures out this morning, is the spread of the recession from construction and property through retail and into every sector of the economy.

But despite banks having been the catalyst for much of this downturn, they have been slow to shed staff, at least outside London.

Now, they are starting to do so, both to slash at their costs because their balance sheets are in such a bad shape, and because less money flowing through the economy means less business and fewer transactions for their staff to process.

The word from Gogarburn, the Edinburgh global headquarters of the Royal Bank of Scotland, is that there will be more news of that later this month when the bank publishes its annual report.

It will also make clear how it intends to shed parts of the business that are under-performing or seen as at the fringes of their target markets - while admitting that around 15% of its assets identified for disposal may have to stay onboard for a year or so while there are so few buyers in the marketplace and prices are so low.

Don't expect the employment news to come in a raw headcount of thousands of jobs.

More likely are cost cutting targets for each of the bank's divisions, with managers then required to figure out how best to implement them.

But the ballpark figures go like this...

The Royal Bank employs nearly 180,000 people throughout the world. Of them, 106,000 work in the UK, and more than 15,000 are in Scotland.

The likely scale of cost cutting is expected to range between 10% and 20%.

Apply that to the staff numbers, and you could see between 10,000 and 20,000 UK workers losing their jobs - or, according to Unite, the trade union, paying the price for management mistakes.

Will it affect Scotland particularly harshly, as it has the headquarters operation and Edinburgh has a high number of banking jobs?

For Scots, that's where the sliver of silver lining is, because the answer is: not necessarily.

The Scottish elements of the bank tend to be those that are core to what it does, and does well. Scottish staffing looks like being let off relatively lightly.

The more exotic end of its investment banking has been done in London and New York, and that's where the financial job losses are already hurting.

It is worth noting, amid all the rows about bonuses and in the face of an expected £28bn loss, that much of the Royal Bank had a pretty successful year last year.

Most of the damage was done in a global markets division that has perhaps as few as 500 managers and traders working in it.

That said, even at the most optimistic out-turn from these ballpark figures, RBS staff in Scotland should be bracing for at least 1500 job losses over the target turnaround period of three to five years.

The pessimistic figure is around 3000, and that's without knowing how deep the recession is going to be.

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• - What's this?

Who would have thought there could be so much interest from a Paisley lawyer-turned-banker being questioned by a Dumbarton teacher-turned-MP?

But this was less about Sir Fred Goodwin or John McFall. After three hours of hearings at the Commons finance select committee, it has been the ex-chairman and ex-chief executive of Halifax Bank of Scotland who have had the worst of it.

This is not quite what was expected.

It was Goodwin who was seen as public enemy number one in leading the Royal Bank of Scotland into disaster.

Having acquired and grown his American subsidiaries into the country's sixth biggest banking presence, two reputable American publications have named him as "the world's worst banker".

But he has probably given as good an account of himself as anyone could - at least anyone having just pitched his company and the country into tens of billions of pounds of trouble.

Partly that was through conceding, with his former chairman Sir Tom McKillop, that the ABN Amro purchase was "a big mistake" - and one that had the backing of the bank and shareholders.

Of the four, Sir Fred came across as the most reflective and thoughtful about what had gone wrong, while Sir Tom continued to look like a rabbit that not only got caught in the headlights, but run over several times.

The duo from HBOS were not so willing to go for the abject option, and Andy Hornby was keen to stress that he'd only been in charge for two years.

His predecessor, James Crosby, had been in post while the key strategic mistakes were being made.

Hornby and former HBOS chairman Lord Stevenson, faced prolonged questions about the evidence from John Moore, a former HBOS head of risk, who was sacked four years ago after he had persistently raised concerns that the bank was growing too fast without adequate attention to risk.

They were determined not to concede that Moore had got it right and they had got it wrong.

That was cleared up, with a nine-month inquiry alongside the Financial Services Authority, insisted Stevenson.

Indeed, although we heard apologies, the blame was being shared with the FSA, with credit ratings agencies, and above all with the markets which, we were told, turned on RBS in the space of only a few weeks after the Lehman Brothers collapse last September.

No-one saw things could turn on the Royal Bank so fast.

It's less easy for McFall and his select committee to call these markets to account. But they did ask a short, but telling, series of questions about relations with institutional investors, finding that until very late on, their only concern was to maximise returns rather than the capital base, liquidity or risk.

As some of these are the people in charge of managing Joe Public's pension funds, there may be some interesting exchanges to be had if MPs turn their attentions in that direction.

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• - What's this?

It took only five minutes in the Thatcher Room of Westminster's Portcullis House just before 1000 GMT for the long-awaited word "sorry" to be drawn from the former chairmen and chief executives of the Royal Bank of Scotland and Halifax Bank of Scotland.

They all knew it had to be said, and spread it generously around shareholders, staff, communities and, to a lesser extent, taxpayers. Between them, they had the demeanour -Sir Fred Goodwin, in particular - of four miscreants coming before the headteacher for having pauchled the petty cash from the sixth year common room and blown it on online poker.

As the squirming continues through the morning on the bonus culture (blamed on investment banks and American imports), the lack of banking qualifications (only Sir Fred comes close, being a chartered accountant), and the calamitous RBS purchase of ABN Amro ("We made a bad mistake, but at the time it did not look like that"), there's been some interesting comment from Susan Rice, who has emerged from the merger of HBOS with Lloyds TSB as a very powerful player in trying to get Scottish banking back on its feet.

The general manager of Lloyds Banking Group in Scotland told a conference yesterday: "There has sometimes been blind optimism in the good times, but it's hard to find optimism now. I would suggest we need some more caution in the good times and perhaps more adventurousness in the difficult ones".

And for those wondering what she thinks about the shortage of credit from banks, she appeals for an end to "pointing fingers" and says the shortage is down to foreign banks - American, Icelandic, Irish - getting out of the UK lending market.

The view from Edinburgh's Mound looks like this:

"For us, banking is about transparency in product and pricing, it's about lending responsibly to people who can and will repay their loans. And if we say 'no' to a request for credit, we may have made a tough but it's a correct decision because we're acting responsible. This is the kind of approach to banking we want to see dominate in the future. It's not just about a profit and a deal - it's about those things being delivered within a framework of responsibility and fair play. We have to find the balance between prudence and sensible lending without stifling the enterprise we need to stimulate our national economy".

More later from the Thatcher Room...

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• - What's this?

More evidence of the nature of the downturn and how the patterns are developing.

This is from the purchasing managers index, carried out monthly by Markit Economics for the Royal Bank of Scotland, so it doesn't have the more common current focus on financial and credit difficulties.

There should be no surprises that the findings look ugly.

Nor is it surprising that they are the worst ever: this index is only 11 years old, so it hasn't seen a recession before.

It is the patterns that are most interesting, and particularly that manufacturing is now outstripping the service sector.

Markit's David Fenton says there is "an ominous decline in new orders" as customers delay their purchasing and new business is harder to find.

Companies are using the slack in new business to reduce their backlog of work, while stocks are being run down rapidly.

You might think the lack of orders might speed up delivery times. Not so.

There seem to be problems with the availability of some input goods, so sellers are getting slightly worse on that score.

Manufacturers are shedding staff on an alarming scale.

Across that sector, 27% of companies surveyed said the reduced their workforce during January, while only 5% said they increased it.

Compared with the back end of last year, the employment impact is clearly accelerating.

In the service sector, it was the travel, tourism and leisure business that cut their workforce fastest last month, while the new economy of technology, media and telecoms were facing many of the same problems.

While inflation is confirmed as much less of a problem than last summer, the striking feature is that there is a slight uptick in input prices.

This is being explained by sterling's decline.

With inflation causing much less concern than the prospect of deflation, it can be forgotten that a falling currency imports inflation.

But with demand so flat, there's less evidence that prices are being passed on.

Similar survey material from across Britain shows how Scotland is faring in this recession.

On output data, it's doing slightly worse than the UK average, and on employment, it's doing slightly better.

The areas facing the worst problems, according to this survey material, are the West Midlands - confirming it is now manufacturing that is now leading the decline - and Northern Ireland, where the collapse of house prices has been most severe.

There is a sort of good news: while the decline continues, the evidence from similar indices across the eurozone, the USA and Russia all agree with the UK and Scottish figures in showing the rate of decline found in December may be slowing up a bit, which is of course, the first sign that the floor of this decline may be within sight.

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• - What's this?