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Could Ryanair point the way to the future of Britain's public services?

Just as you pay extra for priority boarding or to check in bags, you could pay more for your own hospital room instead of an open ward, a premium rate to use your local swimming pool when it's less crowded, or for a better quality university degree course?

Not controversial enough? Well, how about a tenner for a visit to your GP?

A premium rate to skip hospital waiting queues on non-emergency operations?

Or fees to get a place at a council school with smaller class sizes and better exam results?

Don't expect them to feature in any of the imminent party manifesto launches.

But the idea of more charging for use of public services is being seen (by some who don't have to appeal for votes, of course) as one of the approaches to the gigantic challenge facing Britain's public finances.

Specifically, the idea is being highlighted by the public sector team at consultants PricewaterhouseCoopers.

In analysis published today, they argue that if Britain were to raise the level of non-tax revenue from around 4% of GDP to nearly 6% - in line with Australia, Canada, Japan and the US - it could close half its huge fiscal gap.

But then, these countries have a lower tax take.

The European way currently brackets Britain closer to France, Germany and Italy, with higher tax revenue and lower user charges as a share of GDP.

Congestion charges

There could be benefits besides increased revenue: it would reduce demand and cost, it could change behaviour (fewer missed medical appointments and reduced car use) and it could enable greater choice to citizen consumers over service levels.

PwC only suggests where increased charges might fall in four broad categories;

In health: prescription charges and dental care.

In education: fees for university tuition and adult skills.

In transport: congestion charging, with road and bridge tolls.

In local authorities: more for parking and leisure.

You'll note that the first three of those present something of a problem for the Scottish government, in that its first two years in office have seen moves in the opposite direction.

Tolls have been removed from bridges and university endowment fees have gone.

And today saw another tranche fall off prescription charges.

SNP ministers have chosen to make such services free for all, while removing means-testing.

But in conceding very tough times ahead, they're going to have to decide where cuts should fall, or taxes and charges should increase.

And without much tax-varying potential, charges may prove a relatively attractive option.

More means-testing could become the least of several evils.

And it's at the heart of a debate opened up last week by the Scottish government and engaged today by the UK government, as Labour set out plans for funding long-term care for the elderly.

When we talk about care being free for such care in Scotland, of course user charges are already there for the so-called 'hotel costs' of an elderly person renting a room and paying for food.

Nothing off limits

It's worth noting the contribution to the public spending debate from Crawford Beveridge, former Scottish Enterprise chief executive, now California-based business executive and leader of the task force asked by finance secretary John Swinney to "consider the implications" of forecasts of public spending reductions in Scotland.

It's also worth noting those terms of reference.

"Considering the implications" doesn't mean coming up with a programme of cuts.

But it does let Beveridge's team prepare the ground for the Scottish government to introduce some unpalatable measures, and perhaps a U-turn or two.

In an interview for Newsnight Scotland, Crawford Beveridge agreed with independent calculations that Scotland will have to find more than £3bn in real terms cuts over the next three years, saying that's the same order of cuts reckoned by the Scottish government's chief economic adviser.

That's roughly a 10th of all spending.

And he stressed nothing is off limits.

He made it clear that he's already looked at the possibility of selling off Scottish Water, and found one significant problem would be that the proceeds would go to the Treasury rather than St Andrew's House.

Here are two quotes from the interview that give a clear view of his direction of travel:

"We've been given a remit that we should not exclude anything. Local authorities, the NHS and civil service have done a very good job and exceeded the efficiency savings they've been asked to make over the past couple of years.

"Now we're down to not being able to meet these cuts through efficiency savings alone.

"And so we're going to start making some hard choices. It's not our job to make those choices, but to lay out what they might be and then allow parliament to consider what the choices may be."

Salami slicing

What's his view of taking the same cut out of every departmental budget?

"My personal view is that salami slicing is a very difficult way to go because it usually means that you're asking people to do a lot more with a lot less resources," says Beveridge.

"When we do this in industry, we try and set priorities and say 'these are the things it's essential we protect and these are the things we need to take some cuts in'."

The same view of efficiency measures is taken by PwC: "The lesson from history is that a focus on efficiency is rarely enough to turn around major fiscal deficits - governments must transform their approach and seek radically new ways of doing things".

Along with user charges, it suggests there should be extension of a health service pricing mechanism to other services.

That means some procedures have a tariff set, for which rival hospitals have an incentive to compete.

Could that apply to schools? To social care?

We'll have to wait until June to see if Crawford Beveridge is putting a strong emphasis on user charges.

As a clue, in his Newsnight Scotland interview, he pointed out some better off pensioners could afford to pay their bus fares.

Out of the silo

In the business of government, one of the challenges is how to get ministers to think beyond their departments and give up budgets for lower priority programmes?

PwC's report includes two novel ideas, at least for Westminster and Whitehall.

One is to get them to agree to the scale of departmental cuts before allocating departmental portfolios. It's not clear how you could do that without having leaderless departments for a prolonged period.

But Scandinavian governments has already shown how you can take ministers out of their departmental, or so-called silo, mindsets by taking them out of their departments - putting them all together in one office block.

Indeed, isn't that what the Scottish Government already does? So already, maybe it's half way to solving its problem.

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• - What's this?

Another British Airways strike, and a successful legal challenge to Heathrow's third airport: reminders of Scotland's vulnerability when it comes to international connections.

While opinion is deeply divided around London's main airport, further away from the metropolis, there's not much doubt from businesspeople that more capacity is needed.

As The Independent's respected travel editor argues, BA's strike flight schedule shows that when there's a constraint on capacity, the axe is taken most swiftly to Scottish routes.

That's why the planned third runway at Heathrow and a return to government support for developing direct air links are a feature of the early responses to a Holyrood inquiry into Scotland's international trading links.

The Scottish Chambers of Commerce are most vociferous in their urging for improved links, along with a "desperate need" for improvements to port, rail and road infrastructure.

According to the forum: "It's reached the point where Scotland needs to invest heavily in improving its economic competitiveness. At present, we are operating well below our potential".

Just one of the ideas to boost exports is a tax break for research into foreign markets.

Extremely cluttered

Among the submissions, there's plenty praise for the role of Scottish Development International, jointly run by the Scottish government and Scottish Enterprise.

Some, however, complain about the complexity of organisations in Scotland and at UK level, which is seen as hard-going for exporters and harder-going for inward investors.

"Extremely cluttered" is how Scottish Engineering describes it. Oil and Gas UK says it would make more sense to put Scotland's trade efforts together with the rest of the UK's (which doesn't seem all that likely while the SNP is running the government at Holyrood).

From the Scotch Whisky Association, reinforced word-for-word by its largest member, Diageo: "A more co-ordinated, long term export strategy at national level would be beneficial. It is unclear, for example, how Scotch whisky fits into the Scottish government's international strategy".

An unexpected contribution comes from Mongolia. It's not noted as a major trading partner. And consular attache Kenneth Stewart reckons it will stay that way if his attempts to get support for a trade mission get nowhere:

"From the Mongolian perspective, we sit on one of the largest untapped mineral resources in the world and as the Mongolian Scottish consulate, we have been directly approached by regions within Mongolia to introduce Scots companies to help them develop these assets.

"One would have thought that this was meat and drink for Scottish Enterprise to help us pursue and support. Unfortunately so far, either due to lack of commercial nous, global knowledge, foresight or manpower resources within the Scottish Executive, we have been met with inertia".

Bollywood bonanza

It seems those manpower resources have had their Asian attentions focussed instead on India.

Today, we got a strategy for engagement with it, recognising that, well, it's very big and increasingly important, and it's time we did more about it.

So Scottish government policy now wants to create the conditions for talented Indians to live in Scotland, as 3,000 graduates chose to do between 2005 and 2008, using more flexible visa rules. And vice versa, for Scots going east.

There's much talk of links in education, research and culture, building on Scotland's past success at attracting Bollywood film makers. There's a hope held out of improving air links.

And there's a lot about encouraging tourism from India to Scotland, which is reckoned to have generated £25m in 2006.

It's all part of the big picture approach to boosting exports.

Given slack consumer demand, low investment, and a looming crunch in government spending, exports look like the only way to grow the economy. And they are proving slow to respond to the opportunity presented by weakened sterling.

There's a catch with that strategy, however. Britain is far from being the only country wanting to grow out of recession by boosting its exports.

A rough totting up of all those countries hoping to do precisely the same amounts to 80% of the world economy. To succeed at exporting, you need someone else to import. So who's going to do that?

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• - What's this?

Is it merely ironic when a former KGB agent owns a newspaper called The Independent?

"It is... Are you?" as its early advertising went. And is Mr Lebedev?

At a price knocked down so far it's negative, it's symbolic at least of the cheapening of assets denominated in sterling, when sought by foreign oligarchs.

Then what are we to make of Scotland's beleaguered rival newspapers, who have struggled to meet the challenge of digital media, now finding common cause and getting government backing for the takeover of the country's beleaguered commercial television news?

This is apparently in the name of innovation.

I, meanwhile, have been at the day-after-the-budget analysis by the Institute of Fiscal Studies. Not much irony there. Nor much change to report on their previous horrendously big deficit figures, as Alistair Darling's Budget tinkered only at the edges of the Big Fiscal Picture.

Tough or vague

But it was a reminder of the breathtaking scale of the cuts that will be required to plug the nation's financial pothole, particularly if some services are to be protected.

Put a reassuring arm round hospitals and schools, for instance, and you find everything else will have to take a 20% cut over the next four years.

Labour wants to protect those schools and hospitals, at least for two years, as well as policing and overseas aid. Tories have only said the NHS and aid are off limits. Lib Dems aren't guaranteeing anything, which is either a sign of toughness or vagueness.

There hasn't been much discussion of which bits of the Holyrood budget each of its parties are wanting to protect, or how they are going to implement the resulting big cuts that will dig deeper into everything else.

But don't under-estimate the significance of Shona Robison, the health minister, announcing on a busy budget day that the cost of free personal care for the elderly looks pretty daunting within two decades, rising towards £8bn per year.

That isn't news to demographers, but it's news that the Scottish government has conceded there's a big problem, which will need some big thinking.

Perverse incentives

The IFS take on the Budget takes a harsh look at the Government's treatment of stamp duty, making a compelling case that this deserves the special accolade of Britain's least efficient tax. 

Before Labour came to power, there was a flat percentage rate take on home purchases. As Chancellor, Gordon Brown brought in a series of stepped increases, to increase revenue from the better off, and to ensure the Exchequer enjoyed some of the party that home-owners were enjoying until the financial crisis.

Now, Alistair Darling has made a complex system far more complex, with distinctions being drawn between top rate residential and non-residential property at the top end, and between first-time buyers and others below £250,000.

The IFS case is that cutting stamp duty for almost all first time buyers creates all sorts of perverse incentives.

For instance, because the stamp duty holiday is temporary, they now have an incentive to save more tax by buying a home that's bigger than they need.

There's an incentive to bring forward purchases to fall within the two-year period it operates, with a resulting slump when it's over.

And as any couple with one partner who has previously owned are disqualified from the tax exemption, there is an incentive to avoid joint ownership. What does that say about supporting stable household formation?

Blowing price bubbles

At the top end, it's an easy political hit against those in very big houses. But it's an odd tax system that adds £10,000 of tax for one extra pound of expenditure on a large house. That's what the rise in expensive houses is doing as purchases go through the million pound threshold.

The bigger question is why the Government is reinforcing Britain's obsession with home ownership, which has led to price bubbles in the past.

And the notion of a stamp duty is a strange thing for the Government to levy, when it creates an incentive for home-owners not to move house. An efficient tax would encourage people to move to a house of a size and in a location that suits them best.

What does stamp duty say about this and any government's commitment to labour market flexibility?

Such is the complexity of the system now that perhaps the seeds have been sewn of stamp duty's eventual abolition - if only the Government could do without the revenue. 

And right now, it most certainly can't.

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• - What's this?

It's a bad day for scrumpy, cider and the Wurzels, and a good day for kids who make their living making and playing computer games.

Duty on cider is soaring by 10%, on top of an alcohol tax accelerator.

The cynic might look at a map of the cider-producing counties of England, and find few marginal constituencies in which Labour is a contender at the general election.

The alcohol tax move is hardly going to make any difference to the big questions about the state of the public finances.

Raising tax on alcohol may not even raise revenue. It could cut consumption as well as tax take.

Indeed, at least implicitly, that may be the intention for health and social reasons.

Dundee games

And one impact it looks likely to have is that the whole dispute over minimum alcohol pricing in Scotland may be rendered redundant.

Raising the floor on taxation, and targeting the strongest cheap drinks, notably ciders, most closely associated with late-night violence, could make it unnecessary for the Scottish Parliament to legislate for minimum pricing, while avoiding all the complications of minimum pricing under European law.

Another of the few sweeteners to come out of today's Budget that has a direct impact on Scotland is in the computer games industry, offering the same tax relief on investment as are already enjoyed by the film-making industry.

That's already going down well in Dundee, one of the main centres for what has become a very large employer with high quality jobs.

The games industry body reckons on 9,500 "highly-skilled creative jobs" throughout the UK in July last year, across 240 companies, and supporting a total of 27,000 people in studios, publishing and retail.

The lobbying operation has been arguing strongly that other countries are offering tax cuts for the games sector, notably Canada.

I'll leave others to develop the metaphorical links between the Budget, the election six weeks from now and Scotland's best-known computer games export: Grand Theft Auto.

Lending ombudsman

Of course, the Budget's not going to be judged by its impact on Scotland, but on the whole of Britain and on the election result.

The £82m in additional consequential spending for Holyrood will fill some potholes in the Budget and the nation's roads, but it's not going to fill the hole in spending plans and expectations.

Some of the more eye-catching ideas are not going to cost the Treasury anything, but they ought to go down reasonably well with business.

For instance, there's to be an adjudicator in disputes between banks and their business customers, and the small businesses dependent on public sector contracts should get their invoices paid faster.

It's not big picture stuff, but it should help.

Meanwhile, delays in the introduction of fuel tax will only delay the pain for rural businesses and others.

Expect that to be a big issue in Britain's rural and marginal constituencies - including those already counting the cost of the great cider-drinkers' tax raid.

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• - What's this?

Laptops containing vital accounts information are missing.

So is £82m.

And there's a paper trail featuring three collapsed travel companies, hundreds of redundancies and the holiday plans of tens of thousands of people.

We're back to talking Globespan and its FlyGlobespan airline, which collapsed together just before Christmas, and about which regular readers of The Ledger will recall some previous unravelling of the story.

This is also the story of E-Clear, the card transaction company that withheld around £34m of payments.

Administrators of both Globespan and E-Clear are laying out a bit more of the story.

Globespan's creditors were told by its administrators on Tuesday that unsecured creditors can expect 5% of the money they are owed.

That comes with a call to government and regulators to speed up the phasing in of the regulation of such transactions company, which is not due to be complete until spring of next year.

Snowbirds

On Wednesday, while the City of London digests the Budget, administrators for E-Clear are setting out their stall to creditors.

It's a big stall, but with nothing much on it.

They say £82m is being claimed by creditors, but there's next to nothing left to distribute.

While Globespan accounts for about £35m of that, the biggest creditor is Sunwing, owed £46.7m.

Slovakian airline Sky Europe is also wanting £4.4m back.

There is confirmation in this that E-Clear's problems stemmed from trying to pay off its exposure to the collapse of XL and Zoom airlines in summer 2008, using the money being generated by its continuing airlines.

So this may just be ineptitude on a very substantial scale.

One of those companies that continued to operate was Go Travel Direct, later renamed Go Travel South, based in Nova Scotia, and set up by Hugh Boyle, one of the Scottish brothers behind Zoom.

That collapsed a month ago, with E-Clear being blamed again.

That left a lot of Canadian 'snowbirds' either stranded in Florida and the Caribbean, or with their future bookings worthless.

Rolls-Royce Phantom

A somewhat smaller creditor was Swimming Nature, whose swimming lesson bookings were handled by E-Clear, and which was left £210,000 out of pocket.

The details from BDO, the E-Clear administrators, hint at a luxurious lifestyle being enjoyed by Elias Elia, boss of the transactions company.

He had a Rolls-Royce Phantom on hire purchase, and used his company loan account to buy a Ferrari F430 Spider, a Mercedes and a Range Rover.

Ahead of his company's collapse, some £50,000 had made its way into the hands of a former E-Clear employee, who had become an employee of E&K Elian Estates, a related Cypriot company "apparently to meet certain expenses in the event that the Royal Bank of Scotland decided to freeze the company's bank accounts".

Half of that has been repaid so far, with the rest spent on those expenses, including the public relations fees for those employed to tell me, among others, that E-Clear was in fine fettle.

But there are other details yet to be uncovered by E-Clear's administrators.

That's because they found vital paperwork and laptops missing.

Only with the help of the landlords of Elias Elia's offices did they pay a visit to his other company office in Mayfair, from which some paperwork was recovered, but not all the laptops.

Stand by for more news from the forensic accounting front, after E-Clear's administrators have talked things over with their creditors.

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• - What's this?

By far the biggest riser on the stock market today is .

That partly reflects the Edinburgh-based oil explorer beating market expectations. But in the oil exploration business, the more important figures to watch are in reserves and future prospects.

There's good news on both, as Cairn seems to report quite regularly. Reserves in its gigantic Indian oil field are showing signs of being even bigger than expected, and the company wants permission from the Indian government to boost production by nearly a third.

Next stop: Greenland. Cairn now has a partnership with Petronas, and is bullish about the prospects there. It's hard to be sure what lies under the seabed, as there's been so little drilling west of Greenland before. The company will know more when its leased drill ships get to work this summer.

And it's taking a bit of care to make sure it keeps social and environmental concerns under a watchful eye, where tiny local communities face a big impact from the arrival of big oil.

Two figures in today's announcement from chief executive Sir Bill Gammell that ought to give pause for thought: chances of success off Greenland are put between 7% and 14%.

That's the thrill of the oil business. The upsides are immense, but so are the risks.

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The headquarters' power source in another major Scottish company looks like it's getting unplugged, both exiting the country and the transparency of the stock market.

Bosses at with the Northstream property and ports consortium bidding to buy it. They have to, because that same consortium owns 27% of the company already.

And there is a unanimous rejection by Forth Ports' directors of the tabled bid. But the language from the Leith-based company is clearly not opposed to takeover.

Yes, its annual figures come with a statement saying it has strong prospects for delivering continuing shareholder value. It has to say that as well.

But the statement has the look of a company hoping for a better price for takeover, rather than preservation of its independence.

As with Venture Productions, taken over by Centrica last year, here's another of Scotland's top 20 companies with its corporate power going elsewhere.

It might make you wonder what happened to the talk of "economic nationalism" which was voiced when Scottish Power was taken over by Iberdrola. A similar national interest argument came chocolate coated when Cadbury fell prey to Kraft.

We heard calls for it to become more difficult to take over British companies, which presumably would have to apply to British predators as well, including an invitation from Business Secretary Lord Mandelson for views on the subject.

One of the responses is the Association of British Insurers pointing out the fees made from takeovers are themselves a very large incentive driving the process.

Docks down

That said, the Forth Ports results brought some interesting reflections on the state of our trade.

Of course, lots of trade is carried out digitally and by air freight (Edinburgh's tonnage up substantially last year) . But shipping ports, including five locations on the Forth, another on Tayside and the huge Tilbury docks on the Thames Estuary, tell their own story about the collapse of trade last year.

Sharply down were container movements in and out of Grangemouth. It handled 139,000 boxes last year, down 11%.

Likewise, the harsh decline in construction can be seen in port movements, with timber supplies down more than 50% and iron and steel down nearly 30%.

For similar reasons, at Leith, grain, aggregates and cement fell sharply, but steel pipes and coal tonnage were up, leaving its totals the same as in 2008.

That steel pipes element tells you something about the growing business in offshore activity, particularly in the construction of renewables kit. Leith, says its owner, is being considered as a base for a renewable energy construction yard.

So too with Dundee, which had notably little activity with its volume down by 20% on 2008 - and 60 acres of spare land, ripe for development as a "renewables park".

By building four biomass plants at its sites that Forth Ports also hopes to get into its own niche of the renewables boom.

At Tilbury docks, its container services division had a "very disappointing year" - down a whopping 19% to a figure that remains a whopping 278,400 containers.

It's as clear a picture as any of last year's exports crunch.

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• - What's this?

Was the Financial Services Authority too short-sighted to look beyond the M25?

It's been blamed for lots of other things, but now metropolitan myopia has been added to the charge sheet.

The idea is that the institutions that failed, or would have failed were either in Scotland - Royal Bank of Scotland, Halifax Bank of Scotland and Dunfermline Building Society - or the north of England - Northern Rock in Newcastle and Yorkshire's Bradford and Bingley.

This notion comes from the Scottish Parliament's economy committee. And as in the style of much of its on the future of the Scottish financial sector, it's not really a clear conclusion: more of a sort of vague question.

The report came on the same day that confirmed 350 jobs are to go in Glasgow. From what I hear, it has more to do with the need to fill space in a Cardiff office on long-term lease than a reflection on the workforce at Barclays Partner Finance - a specialist for point-of-sale retail loans.

Failed catastrophically

The economy committee at Holyrood had an impressive cast of witnesses, in a bid to look ahead rather than reflect on what went wrong. Westminster has already done quite a bit of the latter.

But the MSPs didn't miss the opportunity to take a hefty kick at those who "failed catastrophically" in the role, as set out by Adam Smith, for banks to facilitate the general good of the wider economy. It was down, they concluded, to greed.

"Never again can banks and the financial sector be able to hold a gun to the collective heads of the taxpayer where the consequences of their failure are too terrible to imagine," they concluded.

And there's concern the greed goes on, at least according to the trade union evidence, which is quoted suggesting that heavy loan selling pressure is still being applied by managers on their frontline staff.

Looking ahead, the report has some tensions in what it's trying to say. How do you get more competition in Scottish banking without harming the existing Scottish banks and their employment levels, and what would that mean for the RBS's headquarters functions they want to preserve?

It's not spelled out that the banks should be broken up, separating the risky bits from the essential stuff, but that's heavily hinted at, adding some weight to the Barack Obama/Mervyn King momentum towards that.

Capital core

And with Lloyds TSB Scotland now on the market, how do you get commitment to Scotland from its new owners, but duck the question of whether it could or should be headquartered in Scotland?

There was some talk of a Scottish buy-out of the branch network and its financial wiring when the European Commission forced that on Lloyds Banking Group. But it's gone quiet. It's looking less of a viable option when you consider the scale of capital core that would be required.

Then there's the question of what happens to RBS once - if - its share price gets high enough for the Government to sell its enormous stake. Is there any way of stopping it being taken over by another bank, losing its headquarters operation in Scotland? This report doesn't say.

And on that theme of building the public's shareholding value, note what Lloyds Banking Group has : that it is considerably more upbeat about its prospects of getting back into profit this year.

So, having set out with its inquiry to find a vision, the Holyrood conclusion seems to be: have another inquiry. This one should be by the Office of Fair Trading, saying it has failed to keep a watch over the dominance of Scotland's two big lenders (it raised its clear concerns before, and was ignored).

Meanwhile, the Vision Thing is being left to ministers, who have barely altered the financial services strategy in five years.

Since then, there's been quite a bit of change.

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• - What's this?

As the crunch looms on public sector spending, how much money is already committed to private finance projects?

It's a question asked by members of the House of Lords, who have produced a significant contribution to a neglected debate.

In Scotland, the question has been neglected partly because the SNP promised to use an alternative to the Private Finance Initiative, introduced by the Tories from 1992 and since modified by Labour as Public Private Partnerships.

Unfortunately, it seems someone in SNP headquarters seems to have mislaid the fag packet on which that policy had been drawn up. And the Scottish Futures Trust is a long way from what we were led to believe it could be.

This week saw the first sod cut on the new Southern General Hospital in Glasgow, and that's being done under conventional procurement. Likewise, the plans for the so-called Forth Replacement Crossing.

Optimism bias

So what happened to PFI and PPP? The Lords point out nobody has taken a close or an extensive look at it for at least 10 years. It's one of those areas in which the Treasury committee of the Commons may have been too busy looking outward to the financial services industry to have spent much time looking inward to Government and the workings of the public finances.

What the Lords have concluded makes uncomfortable reading for those who have depended on private finance to build public projects - and they've been doing that on a very large scale since the policy was last examined.

It's hard to find out how much is now owed. That's because so much of the accounting is done, deliberately, off the public balance sheet. Their Noble Lordships want to see private finance accounts separately and fully published.

They also want to see clarity on the poor comparisons that are drawn between conventional public procurement and private finance projects. The former has something called 'optimism bias' built in, which adds a colossal chunk of estimated spend on the basis that planners tend to under-estimate.

Take Network Rail's reckoning on building high speed rail. It did its calculation of cost, and then added 66% on top of that for optimism bias, so it played a very large part of the £34bn figure. That same element doesn't seem to be included in private finance, so it's hardly a level playing field.

Built to last

This latest investigation is sympathetic to some aspects of private finance. Most controversially, it suggests the transfer of maintenance and support services on public buildings like hospitals and schools could be extended to the actual provision of healthcare and education.

But the concerns are there too, including the secondary market. That's the way in which builders can win a contract, and then sell it on once they have extracted their value from it. Operating that way, the incentive is removed for including quality materials, built to last, when it will be another company carrying out the maintenance over the next three decades.

It's all rather timely, points out Lord Vallance, former BT chief and now chairman of the Lords' economic affairs committee: "The Government must carefully monitor public finance projects' contractual commitments to ensure they do not mean other spending priorities are sidelined at a time when public expenditure is constrained."

Perhaps an inquiry should also be held into the House of Lords before it's abolished. Unfashionable and undemocratic though it may be, there's a value to having an expert eye on big financial issues that elected politicians would rather avoid.

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• - What's this?

Windfarms, nuclear, carbon capture or lots more filthy coal? The question of how to keep the lights on is keeping policy-makers working late into the night.

A conventional response is from the energy utilities themselves. They're telling government and regulators: give us adequate rates of return, with market signals on your preferred generating mix and guarantees of market security, and we'll put the generating capacity and grid improvements in place.

That conventional response is to build big new power stations, and even more new wind turbines. A less conventional response is to build much smaller, more local power stations, which could combine heat with power.

And there's another response, set out this morning by Aggreko, along with its annual figures: put in lots of temporary capacity, with capital costs per megawatt around a third of conventional power stations.

That's a big opportunity for Aggreko, the Glasgow-based company, which only 13 years ago was spun out of the venerable Scottish food processor, Christian Salvesen, and which today announces its revenue has powered through the billion pound mark.

Superbowl power

The company grabs headlines by providing the extra power required to keep the world's great events from blowing a fuse; the Vancouver Winter Olympics following on the Beijing Games, 20 consecutive Superbowls, the FIFA World Cup later this year, and Glastonbury music festivals among many others.

In Vancouver, the stadium at the opening ceremony required the support of five units, each reckoned sufficient to power a 100-room hotel.

But Aggreko may grab the headlines by other means, if it's right in an unusually open assessment about the way ahead for the energy market. The highlights:

It estimates the compound rate of growth in global demand for electricity will be around 4% per year, while the growth in capacity will be around 3%. By 2015, that leaves a gap growing each year by 50,000 megawatts (as a guideline, Scotland's demand is around 6,000 megawatts).

That gap is likely to be widest in emerging markets, by which they mean developing countries. But there's a significant gap opening up for developed economies too.

They suffer from the twin problems of ageing power stations, with insufficient planned replacement, and the need to shift to low-carbon generation.

Breaking bow wave

The scale of the problem is shown by Aggreko's reckoning that between 2000 and 2007, the amount of generating capacity outside China that was over 40 years old more than doubled, and yet the amount of new capacity being commissioned outside China fell sharply. By 2015, more than quarter of the world's generating capacity (again, outside China) will be more than 40 years old.

"We believe the developed world is building up a bow wave of delayed investment that, sometime in the next ten years, will have to break," says the power company. "The most immediate effect of the wave breaking will likely be rapid inflation in the building costs of new plant as plant operators rush to order the plans that should be in construction."

With a sceptical eye on wind power, it quotes figures from Ireland's 900 megawatts of installed capacity. In the first quarter of last year, there were 12 occasions when power output varied by more than 100 megawatts within 15 minutes, and 76 occasions when that happened within 30 minutes.

Peak output was 940 megawatts, but when the wind drops, it's down to nine megawatts. And in winter, the wind drops most when it gets coldest, and demand is highest - as indeed, it's been doing this winter as well.

Confiscation

To policy-makers, that's the headache of providing baseload when the wind drops. To Aggreko, it has the sound of a loud 'ker-ching'.

It reckons conventional power plants, whether gas, hydro or nuclear, will struggle to justify capital costs when they are intended for intermittent use. So the company is offering its multi-fuel generators, which can be powered up within 30 seconds. And coming in one megawatt blocks, it can be picked up and moved to where it's needed within a couple of days.

The plan is to be ready for this new market emerging from around 2015.

Meanwhile, the many markets in which Aggreko operates brings with it at least one risk - its equipment being confiscated. That's happened on two occasions in the past three years over tax and import duty disputes.

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The flexing of shareholder muscle is keenly awaited, in the wake of the abuses of corporate power and bonus-driven idiocy that led to the Great Banking Burach.

They're being told they should share some of the responsibility for their failure to curtail or perhaps even to spot the excess and short-term incentives.

As with bank reform, there's a lot of waiting for others to make a move.

But now we've got a rippling of activity from one of Edinburgh's most muscular money men - at least measured by balance sheets.

It's one of two important developments for the sector in recent days, along with signs of success in a lobbying battle to keep the European Commission from over-regulation of the sector.

First, to Keith Skeoch. The boss of Standard Life Investments is a lot more than an Edinburgh fund manager.

He's chairman of the Association of British Insurers' investment committee, and chairman also of the Institutional Shareholders Committee - described as an umbrella group of umbrella groups, drawing together an awesome amount of investing clout.

He's responded to an invitation to Treasury minister Lord Myners to discuss the shareholder concerns the two men now share.

SLI was one of the biggest investors in Edinburgh's two big banks - that is, until one got sold to Lloyds and the other found itself with the government camped out on its front lawn in possession of an 84% stake.

Conflict of interest

Skeoch's letter, placed quietly on his company's website at the back end of last week, shared much of the government's view of bank executive pay and bonus reform, with one exception - the target set for Royal Bank's chief executive Stephen Hester is to reach a 70p share price within three years if he's to get two-thirds of his potential bonus pot of £9.6m (it's now trading below 38p).

Standard Life Investments doesn't agree that share price is a good target, arguing it's possible for RBS to hit the target share price for a given period but not in a way that's got long-term sustainability built into it.

That sounds like a conflict of interest between the government, wanting to bail out within five years or so, and an investor which wants to be into the RBS and elsewhere for many years after that.

More significant, perhaps, is the invitation from Keith Skeoch to Lord Myners to take on banks' vast fees for under-writing share offerings.

This has rumbled before. There is some talk of a consortium of the big insurers, including Aviva, the Pru and Standard Life, getting together to undercut the banks with their own under-writing vehicle at much lower prices, and the letter hints at that talk continuing.

'Fees fan the fire'

The thinking at SLI is that the fees paid to banks for under-writing are supposed to reflect the risk they carry of the offer being under-subscribed.

But in offerings where that risk is hugely reduced, as we've seen in the strange months we've just been through, that risk is hugely reduced while the fees stay stubbornly high.

"Such fees serve to fan the fire when bankers' pay comes into focus," Skeoch writes to Myners.

"We are examining ways to try to address this concern but I do not under-estimate the challenges to achieving meaningful progress.

"I urge you to give this matter further consideration since a joined-up approach is more likely to be successful than unilateral ones."

You might wonder why shareholders in banks such as RBS - the government and SLI - are complaining. After all, it's in their banks' interest to make exceptional profits in their investment bank divisions - or to avoid even more exceptionally large losses.

But the wider picture is that other companies, in which SLI also has major stakes, are wanting to raise finance and find the cost of financing can be awesome.

High hedge funds

To European regulation: Readers of the Ledger with a strong sense of recall will be aware that fund managers were very alarmed by the proposed directive from the European Commission, which was intended to teach the City of London a lesson by bringing its hedge funds under a bit more control.

It's argued that the catch-all nature of the proposal would have put a big new regulatory burden on Scotland's investment trusts.

But the latest to emerge from Brussels is that lobbying has secured changes to the draft directive as it makes its way through the legislative process.

There's a blocking minority, through the qualified majority voting system, which is against a proposal to stop European investors from using so-called Alternative Investment Fund Managers outside the EU.

It also looks like compromise will be required on the idea that AIFMs should park their assets with an EU bank or credit institution, which would in turn be responsible for losses.

More on 23 March, when the European Parliament debates the impact on investment trusts.

I'm told it's heavy-going for Brits trying to roll together coalitions of national votes.

In the eyes of their 25 European partners, neither the UK nor Ireland has much liquid political capital in Brussels when it comes to financial regulation.

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The case for English regions may be making a comeback, prodded into new life by Scotland's push for more taxation powers.

Thirteen years of Labour government have seen much promise but not much delivery on the regions taking power from the centre.

For much of that time, deputy premier John Prescott huffed and puffed, and got nowhere much, other than a humiliating rebuff to a very mild form of devolution on offer through a north east England referendum.

But now, with an election imminent, there's talk once again of more autonomy - at the same time that the Treasury's tax take is on course to rise by £19bn per year.

This was part of the thinking set out by Liam Byrne, Chief Secretary to the Treasury, during a visit to Edinburgh. His comments on the SNP government having to tighten the screw on its efficiency drive were intended for the party political battle, and they have predictably provoked a response. But there were more significant messages.

'Look in the mirror'

Byrne was announcing that HM Revenue and Customs is setting up its own advisory group to examine how reforms to taxation proposed by the Calman Commission on Scottish devolution could be implemented in practice. And while that doesn't mean English regions will get the same tax-varying powers, their future is being linked to the process.

The idea is to have something with which to run after the election, either for Labour's return or as a challenging set of proposals for the in-trays of incoming Conservative ministers. It might also be argued that the idea is to have some momentum on the issue, with which to answer Scottish Nationalist challenges.

For a recap, Sir Kenneth Calman's proposals were that Scots should pay 10 pence less on all rates of taxation, while having an equivalent amount of revenue deducted from the Holyrood block grant.

There would then be a decision for the Scottish Parliament to decide each year - arguably the most important decision it would take - on whether to match UK rates, undercut them which would mean lower resources, or levy a higher rate of tax than the rest of the UK to pay for a higher level of service.

With Alex Salmond having just fired off a request to the three main Westminster parties to hold off on spending cuts, Scotland Secretary Jim Murphy remarked: "The idea is to stop looking to London for more money and to look in the mirror for more money.

"Rather than sending the same letter endlessly to London, and rather than the superficial politics of generating unnecessary squabbles, folk in the Scottish Parliament have got to look across parties and build a consensus for what people want it to do."

Share the prizes

So much for that party political points-scoring. Back to the English regional stuff, and time for more autonomy? Not as much as Scotland, but, according to Liam Byrne:

"Calman is very significant, because over the decade ahead, we've got to ensure the UK has greater flexibility in its nations and regions.

"We've got to get power out of Westminster and Whitehall over the next 10 years.

"We need stronger regions in England. The lesson I've learned over the last few years is that Regional Development Agencies in England have been a godsend for economic growth.

"They've made an enormous difference in my region, the West Midlands, so I do think we should begin studying how that tier of government could be stronger still. It's going to be really important in making sure the prizes of the future are fairly shared throughout the UK".

Job subsidy

Other key messages from a meeting with the great and good of civic Scotland: the government's bill for tax credits has soared. We won't know how much until the election.

But there are clear signs of how much tax credits are being drawn into household incomes, supporting people whose employers have cut their earnings, often through part-time hours.

With the Scottish Trades Union Congress calling for job subsidies to keep people in jobs, the response from the UK government is that tax credits are already effectively providing that role.

In for the Skill

Manufacturing is making a sort of a comeback, but are the skills there to sustain its growth? And if not, is the Scottish government's training agency doing anything to help?

That's the message put bluntly by Peter Hughes, chief executive of Scottish Engineering. He's got some half-decent news from his latest quarterly survey. Larger firms and electronics are seeing order books filling up again.

Companies like Wood Group, Aggreko, Clyde Union and Weir Group are seeing positives flow from the weak pound and export potential. Operating in the sectors that benefit most from overseas government stimuli, such as power station construction in China, they're in relatively good shape.

It's a tougher battle for smaller companies, particularly in metal shops. Terrible figures improved hugely to the December survey, but still fell short of a surplus of companies reporting growing figures over those reporting falls. That improvement was sustained on most counts, but didn't get much better than December.

While optimism is on the up, the exception seems to be the fabrication end of manufacturing - though my most recent experience of a fabrication yard was of a business that couldn't possibly meet the amount of demand blowing its way from the renewable energy industry.

The Scottish findings chime with the Purchasing Managers Index for UK manufacturing, out today too, and showing the fifth successive month of growth. Likewise, the UK manufacturing employers federation found a return to growth from the start of this year.

Dr Hughes has long complained about the terms of credit from banks. No change with this quarterly message, but there's a new target for his sharp tongue, with his call to Skills Development Scotland (SDS) to "stop navel-gazing" and start setting out its thinking and plans for training in the sector.

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