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Is there an escape route for George Osborne since his tax raid on oil and gas producers backfired?

It seems the government may be looking for one - if only a bit of wriggle room, because the big picture shows that extra £2bn is needed each year to make the Treasury's sums add up.

It looked a decisive and populist Big Oil-bashing move to increase the supplementary add-on to corporation tax from oil and gas producers - up from 20% to 32%. That's on top of a 30% corporation tax rate for the sector.

It looked a bit less decisive today, after industry body Oil and Gas UK met no fewer than four Whitehall ministers. With representatives of the Treasury, energy ministry and Scotland Office, the number attending suggests this backlash - apparently unforeseen, or at least under-estimated - is being taken seriously.

The oil industry said it was "a full and frank exchange of views". Ministers said it was "constructive and forward-looking", suggesting the full and frank parts were in one direction.

Squeezed hydrocarbons

The business lobby is still absorbing the shock of the tax increase, putting the marginal tax rates on some fields up to 81%. Already, Statoil, Valiant, Faroe and Centrica, have stalled investments, or announced they're under review.

The sector's warning investment is threatened in increasingly expensive and hard-to-get mature and new fields. It's pointed out this is an industry that doesn't have to invest in UK waters when there's so much else to exploit elsewhere.

So why not hold on to Britain's reserves until peak oil forces prices higher? That, argues the industry, would compromise the infrastructure of platforms and pipelines necessary to keep squeezing hydrocarbons out the North Sea. Fail to keep investing in them, and you'd need impossibly expensive new infrastructure some years over the horizon.

The industry argument is also that basing the tax increase on the profits from higher oil prices fails to recognise that oil and gas prices have become decoupled.

Because supply is eased by Liquid Natural Gas options and by the development of shale deposits, gas has become much cheaper than oil, and gas is nearly half of what comes out the North Sea at present.

The energy-equivalent price for gas if it were converted into oil is about $60 per barrel, while Brent crude was trading today above $116.

Volatile prices

But George Osborne's reckoning last week was that high oil means high profits, and so the higher tax can be aligned with the oil price. Perhaps the wriggle room could extend to different tax rates for oil and gas - though that raises the question of what you do in fields that produce both.

The chancellor justified his budget surprise last week by pointing out that the previous tax rate was set when oil was about $66 per barrel. And he suggested that the tax rate could come down if it falls in future from $116 to a threshold of $75, and if it stays there. For how long, and how far the rate might fall, he didn't say.

What Environment Secretary Chris Huhne was emphasising after today's meeting is that that threshold for reducing the 32% rate is open for consultation. That's where a little wriggle room might be, without the government having to concede its £2bn annual tax take.

But even if it came down, the unpredictability of such a tax regime doesn't much impress those doing investment analysis, when the tax rate might alter on the basis of a highly volatile commodity price - and in the case of gas, the price of a commodity they're not actually producing.

Dirty kit

And another thing: decommissioning. Watch out for this as a coming issue. Estimates of the cost of scrapping and recycling all that dirty kit in the North Sea is put at between £20bn and £30bn over the next 30 years.

That's a big business opportunity for some. But there's uncertainty on a vast scale on how it gets paid for.

Offshore companies are obliged to pay, and if smaller companies working the mature fields turn out to be too small to do so over coming decades - if they go bust, for instance - the obligation reverts to previous field operators. They're often the Big Oil companies.

To cover that, companies selling on assets are looking for letters of credit from the buyers at 150% of liability. Even if they can provide that, it means a big constraint on the new owners' ability to keep investing in the fields. If you assume decommissioning will cost £30bn, it suggests £45bn is potentially being tied up.

What the industry wants from the Treasury, which could reduce that bill hugely, is clarity on tax write-offs. It expects there will be some, but how much?

Depending on when oil and gas fields started producing (and I should pay due credit to Derek Leith of Ernst and Young for explaining this to me) the tax relief should be between 50% and 75% of the bill.

Last week's tax rise came with a warning that it won't mean an increase in tax relief potential.

And George Osborne promised there would be clarity on the issue by next year's budget.

There may well be more clarity. But after last week's budget shock announcement on the supplementary charge, and some unwelcome tax surprises before that, the offshore sector's asking whether future chancellors can be relied upon to stick with that clarity?

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• - What's this?

As a fast-moving consumer good, Irn Bru has kept up an impressive pace through the downturn.

Owners AG Barr, based in Cumbernauld, say such products benefit from people treating themselves at the supermarket checkout when more expensive pleasures challenge stretched budgets. It's also down to famously savvy marketing.

Full-year figures, out today, show profits for last year are up 13% to nearly £32m.

The whole soft drinks market had a pretty good 2010, according to marketing firm Neilson - up by 7% in value, and 3% in volume.

AG Barr's portfolio of brands didn't quite match that pace of growth.

It did well in still drinks, but Irn Bru's growth failed to match the previous years.

Last year, revenue was up 4%, following growth of 5% the year before and 8% in 2008.

It was helped by a promotion with 250,000 Irn Bru beach towels for Scottish customers.

Its marketing has always been strong on irony.

Fledgling brands Taut, Vitsmart and Findlays (no, I hadn't heard of them either) are getting less attention, while the core brands grow.

And the strategy of pushing into the north of England is working.

Irn Bru revenue there is up 10%, helped by rugby league promotions.

Management focus is to remain there, with particular strengths in Yorkshire, Lancashire and the north-east.

There doesn't seem to be any punishment of the company for closing its Nottinghamshire plant.

Cricket pitch

Russian demand for Irn Bru bombed with the oil and economic downturn there.

The company had got in to the country opportunistically, beating Coca-Cola when its market opened 20 years ago.

But post-slump, sales are coming back, up 10% last year, and with total exports up 26%.

While rugby league sells in the north of England, cricket sells to ethnic minorities.

So Barr's is using cricket to back up its 2008 acquisition of Rubicon fruit drinks - a premium product it describes in its "exotics" range, which already had marketing roots in England's ethnic minorities.

Rubicon sales grew 22% last year, and they have nearly doubled since AG Barr bought it.

The clouds on the horizon from the Cumbernauld head office and bottling plant are in raw material costs.

Plastic bottles are getting much more expensive, and so is the energy required to make them.

Investment in more efficient equipment is helping offset that, and it has helped to hand Eddie Stobart the role of warehousing and shifting goods to market.

But costs weighs on companies with price-sensitive products like this.

That energy bill should be helped when its Cumbernauld wind turbines are operational.

Reassuringly, unlike Irn Bru, they're not made from girders.

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• - What's this?

The oil and gas sector has been a good friend to chancellors of the exchequer for more than 30 years.

And for those who thought it was in terminal and rapid decline, today we got evidence that the relationship is still going strong - in one direction at least.

Chancellors like the offshore industry rather more than it likes the Treasury. And if there's one thing that really riles leaders in the offshore sector, it's sudden changes in tax regime.

This may have been a budget for growth, but it doesn't look helpful to growing the biggest single investing sector in Britain.

In any case, the "budget for growth" argument looks somewhat weaker when you look at the Office of Budget Responsibility report, out on Budget day, which says the measures for business growth might help in time, but for now - it's not going to make any difference to OBR trend growth assumptions. Ouch.

In the oil and gas sector, they plan over long-term time horizons, investing in kit that costs billions and lasts a generation.

So having thought they had an understanding and listening ear in the coalition government, they were stunned to find that the tax bill is going up by £2bn.

Last financial year, the industry was paying £6.5bn across corporation and petroleum revenue taxes. This year, buoyant oil prices have pushed that up to £8.9bn. Next year, with the higher rate, the Treasury take is forecast at £13.4bn.

No stability

According to Ernst and Young's oil and gas expert, Derek Leith, oil fields will face a marginal tax rate as high as 81%.

"This demonstrates to industry in an unambiguous fashion that there is no real concept of fiscal stability in the UK," he said.

"Many companies will be frantically re-appraising their plans for capital investment in the UKCS in the coming days".

Trade body Oil and Gas UK says investment will be decreased, imports of oil and gas will be increased and UK jobs will go overseas, following oil basins where the tax regime is more investor-friendly.

The added complication is that George Osborne says the tax rate could come down if the oil price does. But it's not clear how long that lower price would have to be sustained, or how low the tax rate could go. That's unhelpful if you're making a business case for investing billions.

You can choose to interpret this as so much bleating from an industry making vast profits from the windfall of high prices. There isn't much doubt that George Osborne wants to bracket Big Oil with Big Banks in the public's demonology. In return, he may find the industry less friendly in future.

Cash cow

How will this play in Scotland? Will people be more grateful for some pressure being taken off fuel prices than they will be irritated by one of the country's big and successful industries being treated as a cash cow?

We may know more as people get to debate this through the election campaign. But when Gordon Brown doubled the rate from 10% to 20% in 2006, also infuriating the industry, it didn't play as a big issue with the public.

Former Labour Chancellor Alistair Darling concedes that the Treasury has previous on this, but claims the latest tax grab is on a new scale.

He argues the industry's investment decisions are usually made far from the UK, often in the US, where capital expenditure can as easily go to African or Asian prospects.

For the SNP, it's certainly a powerful reminder that the North Sea keeps on giving. Alex Salmond was pointing out today that the extra oil and gas corporate tax would allow a 50p per litre cut in tax.

For those arguing for lower fuel prices, there has to be a question over their green credentials when they are quick to abandon a fuel price accelerator specifically designed to encourage less fossil fuel use.

Banks thumped

On that front, it's worth noting that at least one measure in the Budget should help investment in Scotland's renewable technology. Putting a floor under the price of carbon, in the emissions trading scheme, also puts a floor under investment decisions, and helps add the predictability that investors crave.

The Green Investment Bank remains on track, but it's moving very slowly down it. £3bn is being committed to help fill the funding gaps that the market won't. It hopes to lever in as much as £15bn from private sector partners.

But the scale of the challenge is such that the GIB needs access to market borrowing, and it's not going to get that for another four years - crucial years for the sector.

In other parts of the Scottish economy, the banks are unhappy they're getting thumped again. This much was predictable. Even as corporation tax rates were cut faster than expected, it was offset by a higher special levy on banks. The bankers point out they are facing four different tax regimes within two fiscal years.

The life assurance sector will take time to absorb changes to its tax regime, with drastic change to the way tax relief is calculated for those who write protection policies. At least that's been well trailed within the business, but there's not much agreement on whether it's going to constrain the market or simply mean higher costs for customers.

The digital games industry is pleased about research and development tax credits, making their investment go much further. But they're very unhappy that George Osborne remains unresponsive to demands for special tax breaks that could help them compete for talent with Canada.

Pothole priority

With £70m more than expected to spend at Holyrood next year, and a total of £112m spread unevenly over four years as a result of this 2011 Budget, that is thrown into the Holyrood election campaign as a modest source of spending sweeties.

That some of it is attached to an English priority of filling in potholes, on which £100m is being spent down south, will surely fuel demands for Scotland's roads to get similar treatment.

The element from shared equity support for first-time home-buyers (£250m for England) is already being claimed by the construction industry.

Some is being spent on skills and science, which may not be seen as needing that extra spend.

Tax holidays

Some of the money is attached to the plan for 21 new enterprise zones in England.

Scotland had them in pre-devolution days, including, at different times, Arbroath, Dundee, Inverclyde, Invergordon, Hamilton, Motherwell and Monklands.

But there is evidence suggests such zones don't work well - that they merely relocate business activity, create jobs at very high cost, and don't have the hoped-for lasting effect.

Nevertheless, the coalition government's approach to regional policy may provoke Scotland's politicians to consider whether they could usefully learn lessons in focussing regeneration attention with business rate holidays, relaxed planning and more generous capital allowances.

The other factor that may play into Scottish politics and its economy is a renewed look at whether Northern Ireland deserves its own reduced corporation tax, to limit the damage done to business by having corporation tax at more than twice the rate charged across the Irish border.

In the unlikely event the Treasury accepts that case, be sure that it will fuel a lively debate about doing likewise in Scotland.

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• - What's this?

It's a big ask for the next administration, but Jim Mather, Holyrood's enterprise minister, is retiring from frontline politics and signing off from a trip to China with an ambitious programme for Scottish trade.

Similarly, it's a statement of intent from the new boss of Scottish Development International, Ann McColl, getting some momentum behind the trade and inward investment agency after a lengthy hiatus without a chief executive.

The plan is to boost the size of the Scottish economy by between £1.5bn and £2bn through trade and international investment.

Compare that with electronics exports these days which currently amount to about £4bn.

The challenge continues: to increase the number of companies that export over the next 10 years by 30% to 50%, with at least 8,000 more businesses having the skills to go international within the next five years.

That should be allied to improved productivity to compete in that international market - up by as much as 20% in those companies supported by SDI.

Globally-mobile people

Significantly, the agency hasn't given up on quite large-scale inward investment projects.

Within five years, it is aiming for 25,000 to 35,000 new jobs through foreign investment, with at least 8,000 at the high-value end of the scale.

That comes with an improved supply chain within Scotland.

The aim is to ensure that the inputs of materials and supplies to these inward investment projects could reach as high as 50% from Scotland.

Seeing that as an ambition tells you a lot about the nature of inward investors, and their lack of local economic roots.

There are no great innovations apparent in how this can be done, or which sectors are to drive it.

The newer elements are a focus on attracting high-skilled internationally-mobile people to Scotland, while attracting foreign finance to fund new investment and infrastucture in Scotland, as much as foreign corporations to locate here.

Can it be done? Well, for an independent take, it's worth taking a look at the latest thoughts of the Centre for Public Policy for Regions at Glasgow University.

Keenly aware it's at a vital moment in the electoral cycle, it's set out a review of the past decade for devolution, with a look ahead to challenges.

Catching up

Looking back, it compares how Scotland, Wales and Northern Ireland have compared with the UK as a whole.

The conclusion is that, at least until 2009, the Scottish economy picked up the growth pace to reach the UK level of income generated.

Northern Ireland has made little headway, and Wales may have fallen back.

What's odd about this - and the CPPR has pointed this out before - is that the political class fighting the Holyrood election don't seem keen to take the credit for this relative success.

Perhaps they don't trust the figures, and they may have a point.

If they can't be trusted, nor is there any political demand for more reliable figures - only the sound of frustrated economists.

Instead, it seems the political response in Scotland is to stick to the more familiar narrative that Scottish growth has been lagging and there's a need to catch up.

Perhaps to declare success is seen as declaring complacency.

But if it's caught up, then what? Well, that's where the CPPR economists have some noteworthy points.

They say it's time to take an urgent and thorough look at, and then overhaul, Scotland's private sector research and development.

The research it cites puts Scotland at the bottom of the British nations' and regions' table for R&D, blue-sky innovation and product innovation.

The public sector does well in R&D. As the trade strategy trumpets, the university sector punches well above Scotland's weight.

Faltering path

Likewise, there are strengths and weaknesses in skills. If neither the weaknesses nor the R&D shortfall are addressed, then that healthier growth path will falter.

And on that hot topic of university funding, there's a challenge here from the economists to those fighting the Holyrood election: concentrate new funding in early years education, where it has most impact, rather than pouring more into higher education.

And if neither student fees nor a graduate contribution are an option, be clear that the consequence is either cut costs, and accept lower quality, or the money required to fill the wide gap in university funding will have to come from elsewhere. So where will it be?

Finally, the warning is to stop muddling through on capital spend. If the Borders rail project was marginal in the good times, do we know how it stacks up with slower growth and austerity?

No, we don't. Indeed, the last assessment of major capital projects was in 2008. And budgets are much tighter now. So what's it to be?

The answer should come from a finance department that's separate from other portfolios in the Scottish cabinet, says the CPPR.

However well John Swinney has held together his vast ministerial empire - including Mr Mather, his energetic number two - the CPPR says tougher times require a tougher challenge function, with a newly-created joint audit and efficiency office.

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• - What's this?

It costs your energy supplier an average of £37 to send out bills, wait for you to send a cheque, chase up the bill, carry the debt and eventually process the payment.

So it's justified in charging that much more to those who get their bills on a quarterly basis rather than paying by direct debit - or so says the industry regulator, Ofgem.

But is there any explanation for charging £114 more, on average, and in some cases as much as £180 more?

That's the question Ofgem is putting to Scottish Power, in an investigation it's launched into the Spanish-owned, Glasgow-based energy supplier.

Across the Big Six players in the energy supply market, the average saving for customers switching during last year from conventional billing to direct debit was £66.

The answer I've been given by Scottish Power is that there's a big discount for prompt payment, averaging £65 per year. That brings the gap down to £12. But is that enough to satisfy Ofgem? Find out later this year.

Radical shake-up

It's part of a terrible start to the week for the energy companies - and potentially quite a good one for their customers.

Having been cheered by the new pricing regime for electricity distribution networks announced on Friday (see my previous entry in The Ledger), the energy companies have been walloped by the regulator this morning with news of a radical shake-up of the way they operate.

The root of the problem is that around half of customers don't look for the best price, but stick with the historic monopoly supplier of energy in their region or nation.

Those who have the same power company supplying gas and electricity, who pay by direct debit, manage their accounts online, and who have a track record of shifting supplier, get the best deals. The price of not doing so is high, and those most likely to pay it are the better-off.

Sticky customers

Take, for instance, the management of accounts online. Between September 2009 and March 2010, energy costs fell. Those with online accounts (one in eight of those with dual fuel bills) saw their annualised bills fall by an average of £100, according to Ofgem. Those with conventional, offline accounts saw them fall £50.

The lack of customer switching is demonstrated by the market power of those with the legacy of customers from pre-privatisation days.

Around Britain, of those who don't source gas from the same firm that supplies electricity, 75% of customers look to British Gas or Scottish Gas (the same company, owned by Centrica).

Of those who don't source electricity from the same firm that supplies their gas (let's call them electricity-only accounts), 73% stick with the company that supplied them by nationalised monopoly until being privatised in 1990 and 1991.

In Scotland, the loyalty to the legacy supplier is significantly higher. Scottish Hydro-Electric (part of Scottish and Southern Energy) has 85% of electricity-only customers in the north of Scotland. Much of that area is off the gas grid, so it has no option but to be electricity-only.

Scottish Power inherited customers from the South of Scotland Electricity Board, and still has 82% of electricity-only accounts.

Ofgem is now saying that it's too expensive for those who don't switch, or can't be bothered.

The estimated sales margin on those who are pre-privatisation legacy customers is reckoned to be nearly 6%. Those on dual fuel (gas and electricity) accounts are paying a margin of 3.7%. Those who switch deliver a margin under 2%.

That's because companies attract switchers with introductory offers, which of course hit their margins, but can be cross-subsidised by those sticky customers.

Simpler pricing

But Ofgem also reports that the Big Six energy suppliers have told it that they intend to keep roughly the same number of customers in future.

That's partly because they have to balance demand with their supply of power. It could also be because they have a tacit agreement not to drive down margins by competing for customers.

Ofgem interprets it as a lack of competition. In other words, if companies are complacent about the number of customers they've got, then the market isn't working.

That's supported by a rise in margin on the average customer, reaching a record early last year, and getting close to it in December.

A telling graph in the Ofgem report shows how that margin has widened, and that a typical £1,180 dual fuel bill is for energy that costs less than £500 in the wholesale market.

This range of evidence is the basis for the regulator's proposal that companies should have to auction up to 20% of their supply, allowing entrants into the market to shake things up.

That's a significant blow, particularly for Centrica, which has invested heavily to secure its upstream supply of gas, and is reported this weekend to be interested in a new acquisition in Dutch waters.

Ofgem wants much simpler pricing structures, and an end to the rolling over of fixed-term contracts.

There's a balance to be struck here, as Ofgem acknowledges. Prices are going to have to rise to pay for investment in renewed generating capacity, a shift to renewable energy and the cost of the reconfigured distribution grids.

But if they are to rise, customers have to know the increases are fair and the industry remains competitive in order to keep downward pressure on prices. At the moment, customers don't and can't.

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• - What's this?

How much is a view worth? We've become used to campaigners against onshore windfarms warning about the harm to the scenery.

Now we've got three scalps from the wind energy sector with the knocking back of proposals for turbines close to the coast of the Solway Firth, Wigtown Bay and the south-west of Kintyre.

This follows local opposition to the idea of huge turbines within 12 miles of shore. And being that close, these farms fall within the remit of the Scottish government.

Its announcement on Friday was strangely quiet about the success of people power in knocking back the plans.

Richard Lochhead, the environment secretary, laid stress instead on the six zones that are getting outline planning approval; off the firths of Tay and Forth, east of Caithness and west of both Islay and Tiree.

He claimed that they could be producing six gigawatts of power within nine years, enough to power three million homes.

That seems an improbable figure for six small sea zones, which would at least require unlimited access to capital, rapid investment also in grid links and steady high winds - which have been notably absent for another winter.

Expect more excited claims with announcements about the sector before the government is effectively dissolved for the election campaign on Tuesday night.

And that's just in the short-term. The map of medium term prospects for near-to-shore wind farms includes large areas off the Moray coast, south of Barra, the northern Minch, north and west of Lewis, north of Sutherland and around Shetland.

Tourism hit

The report on green energy from the deep blue sea sought to quantify the value of a sea view, as well as other economic impact from offshore renewables.

To say the figures are imprecise would be something of an understatement.

But the harm to other parts of the economy from all 10 of the short-term projects originally proposed (one, at the Bell Rock, was withdrawn) shows some impact to commercial fisheries, up to £1.65m, with nearly as much harm to shipping and ports.

It's tourism which takes the big hit, as people are reckoned to shun areas with turbines spoiling the view. That could do £3.8m of harm, with recreational angling taking another hit of £1.2m.

Then again, it could be rather less. At the lowest end of the scale and assuming the best, the cost to others, including tourism and fisheries, could be as little as £340,000.

Or looked at over the next 50 years, the total harm to the economy from this first phase of inshore marine wind farms could be £169.

Then again, it could be £1m.

Nuclear tainted

These calculations, and the access to capital for this industry, become rather more important as the gears are suddenly crashed on the question of future of energy supply.

Nuclear has been tainted, in a big way, by continuing events at Fukushima-Daiichi - a long way from Islay and the Moray coast, but closely tied in to the future shape of energy supply.

If the next generation of nuclear is now in doubt, with the UK government now warning of soaring insurance costs, the financial argument is skewed back towards fossil fuels and renewables.

Gas is the fossil fuel of choice, being cleaner, and with the liquid natural gas tanker market developing fast, along with shale deposits allowing American - and perhaps soon European - producers to reduce their energy dependence on volatile parts of the world.

But renewable power also requires regulatory help. Some of it came from Ofgem on Friday, when the regulator set out the sticks and carrots by which it wants energy companies to invest in new grid networks.

There are technical financial decisions to be made about the rate of return on investment that can be assumed, and the rate of depreciation of assets, and on that basis Ofgem has now set out its pricing regime.

So by setting a relatively high rate of return, and by assuming those grid assets will depreciate over 42 years instead of 20, lots more investment could become possible.

What it announced certainly seemed to please the energy companies' investors, if the stock market is any guide.

It's less clear that it will please customers. Remember this new investment has to be funded, and that's where households and businesses will feel the heat.

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• - What's this?

Why do you get paid more or less than others around you?

Perhaps you're less experienced, you've got different responsibilities, you've got more bargaining clout, or you're less well educated and skilled.

Or perhaps you're doing the same work as the people around you, but you're female - though there's evidence also that being either taller, slimmer or better-looking has a significant and quantifiable impact as well.

There's no equality legislation in place to account for such injustice. Not yet anyway.

What about if you're older? It may not just be your income that suffers but your job that is lost if you struggle to keep up with change in the technology you're expected to use at work.

Robots and cash machines

The reasons for Britain's income inequality over recent decades has been set out in a new academic paper by Stephen Machin, director of the Centre for Economic Performance and a member of the Low Pay Commission.

His findings may not contain any startling surprises.

There's clearly a return on education that rapidly widened pay differentials in the 1980s, and continued to do so over the next two decades, though at a slower rate.

The decline of union membership since the 1980s had an impact, particularly for the lower-skilled workers whose wages had been propped up by use of their collective clout.

From 1999, the introduction of a national minimum wage helped close that gap at lower levels.

But the strongest theme coming through the research is the impact of machines.

Where people were doing jobs that could be replaced by machine, then they often were. That went for those on car assembly lines, replaced by robots, and for bank tellers, replaced by cash machines.

Those that aren't easily replaced by computer - typically using thinking skills and in non-routine operations - find it easier to hold on to jobs and maintain earnings power.

And it's not only at the upper end of the skill spectrum. Cleaners and care workers are not readily computerised, so they're still necessary.

That story is an international one.

Machin concludes there's not much governments can do in the long term in the face of such economic trends and the power of technological innovation - other than endlessly improving the skills of the workforce through education and training.

That's a point worth underlining with survey evidence just out from the offshore oil and gas industry.

While the rest of the economy toils, across 110 firms, Robert Gordon University researchers found the biggest challenge they face is in getting the skilled workers they need.

If engineers are in short supply, and in an international market for their skills, their pay will go up, and there's a warning from the engineering training council that could jeopardise the very projects widely expected to rejuvenate the North Sea industry.

Pay fines

In the face of this, the attempt to narrow earnings gaps, at least in the public sector, has run into difficulties.

Will Hutton, of the Work Foundation, was expected to find a formula for narrowing inequality, when commissioned to look at the issue for the UK government. That's where he was heading in his interim report.

But in the final version (you'd be forgiven for confusion - there have been two Hutton reports in two weeks, one into public sector pay, the other into public sector pensions) what Will Hutton found was that it's not that simple.

Linking top pay with the lowest pay level is undermined when you have widely varying lower pay levels.

That would have justified paying the directors of research laboratories (with better paid young recruits) many times more than those who run complex parts of the NHS, with poorly-paid workers.

What he's suggested is something rather unusual that I discussed in The Ledger very recently.

Bonuses for top earners in the public sector could be replaced with higher salaries from which sums could be deducted for under-performance or failure to hit targets.

As I pointed out before, Nottingham University psychology research shows a fine on pay is a better motivator than a bonus, as people work harder to protect things they think they've already secured.

Silver strugglers

What, then, of the older worker? Other research published this morning in the Economics Journal shows people over 60 being pushed into early retirement by new technology.

A study by Avner Ahituv and Joseph Zeira, from Haifa and Jerusalem universities, has looked at the impact of rising technological know-how on raising wages and keeping people at work, and set against the 'erosion effect' of older people having less incentive to keeping up with the latest technological requirement, on the grounds that, well, they'll be off soon, so why bother?

It seems the erosion effect has won over the wage effect.

The study quantifies it: a 1% rise in the annual rate of technological change in a given sector of the economy increases the probability of a worker aged over 50 losing their job in that sector by 3%. The effect is stronger for those over 60.

For those of us heading fast towards Saga territory, it's easy to see it happening around us.

I sometimes get the sense that the ´óÏó´«Ã½ is kept on air only because of colleagues aged under 30 who know which buttons to press.

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• - What's this?

More than ten million newspapers have been sold across the UK today.

I can't know that, of course - it's merely a reliable guess.

But the industry is close to the Sunday total falling through that level, as daily papers have already done.

Ten million sales still represents a lot of paper, to be sure, but the rate of decline in sales isn't letting up. And some Sunday papers are showing the pressure.

For the Sunday Herald - based in Glasgow, with the smallest circulation of any title classified as 'national' - the latest industry circulation figures are particularly alarming.

It relaunched in January, and saw a couple of weeks of healthy sales as customers tried out a single-section magazine design.

But those customers have fallen away fast. Its February sales were 23% down on February last year, at only 33,000.

Why? My hunch is that a Sunday paper that can't be separated over the brunch table (particularly the sports section) is much less attractive to readers and less conducive to household harmony.

Spat sparked

The sharp fall has sparked a spat between the Sunday Herald's editor, Richard Walker, and the group editor at The Scotsman/Scotland on Sunday in Edinburgh.

Richard Walker laments the impact of Scotland on Sunday marketing aggressively, with reduced price in the west of Scotland, to exploit the Sunday Herald's weakness.

He points out the result could be that the overall indigenous Scottish press will be the victim of such tactics.

John McLellan at SoS responds that's pretty rich coming from a Glasgow paper that lowered its price to non-viable levels for much of last year. You can read more about it at the website.

They're both right, but the tenor of the spat suggests that The Scotsman group, owned by Johnston Press, scents blood from its rival, and has no qualms about trying to kill it off.

Cost-cutting cycles

But the Sunday Herald isn't the only one crashing through previously unthinkable circulation thresholds.

With the once-mighty Daily Record now selling below 300,000 in Scotland, the February figures show The Herald just above 50,000, and The Scotsman just above 40,000. Scotland on Sunday has sales north of the border of 53,000 - holding up better than the industry average.

Its other rival, the Sunday Times, has fallen through the 60,000 sales barrier since it ditched much of its Scottish content in one of the industry's relentless cycles of cost-cutting - though its Scottish decline has not been far off that of UK sales.

The most recent figures for the 'non-national' titles issued last month (they're only issued every six months) show The Courier down by more than 4% in a year to 63,000, and the Press and Journal down 3.5% at 73,000 for the second half of last year.

At 54,000 average daily sales, the Glasgow Evening Times continued to lose readers faster than other evening papers, with the Dundee Telegraph a rare case of putting on sales - up a few hundred to 23,000.

Most vulnerable

Johnston Press, owner of the Scotsman group, this week reported full-year financial figures with advertising revenue falling much faster than circulation, and accelerated by the cuts in government spending on ad space. So the newspaper nightmare goes on.

But for those fearing they look most vulnerable, one small beacon of hope comes from The Independent. It sells fewer than 200,000 copies across the UK, and fewer than 8,000 of them in Scotland.

But its fall in the past year has been much slower than its better-resourced competitors. And in Scotland, the daily and Sunday has actually put on (a few) sales.

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When Scotland's rugby team runs out at Twickenham this weekend, they'll be running out onto a giant corporate logo as much as a sports pitch.

The RBS brand not only rubs off on the players. It's also intended to rub off on the target market.

It's with that in mind that we've been looking at the relationship between sport and business. It's usually known as sponsorship, but John Scott, chief executive of Glasgow's Commonwealth Games team, says it's more of a partnership.

The appeal is partly because sport is a giant billboard for brands.

To illustrate that, consider that CR Smith gained almost certainly the highest profile of any glazing and conservatory business in Scotland through shirt sponsorship of Rangers and Celtic. That still goes on, but its name was last on Old Firm shirts from 1984-87.

Sponsorship/partnership money also eases open the door for business people - and crucially, their clients - to get access at least to the aura around their sporting heroes. And it can be used by some companies with internal messages to staff.

Multi-sport frenzy

This is a huge market. For next year's London Olympics, £700m has already been pledged in sponsorship fund-raising, with a target of £750m.

Among the big names is Lloyds Banking Group, reputed to spending more than £50m.

Will that leave a sponsorship fatigue afflicting Glasgow for 2014?

Not so, says John Scott. He says it will encourage potential sponsors by showing how much a two-week event can deliver.

And he's got a lot more flexibility than the Olympics, for instance in being able to bring supermarkets on board (barred from Olympic sponsorship because the International Olympic Committee has already done its deals in that area) and in linking brands to particular sports.

Recent experience isn't so great with the Commonwealth Games.

Delhi had a bad experience, partly through an undeveloped sports sponsorship market, but also because such money as there is can be seen pouring into cricket's Indian Premier League - showing that some sponsors prefer to keep their brand profile up over a long sports season rather than two weeks of multi-sport frenzy.

You can hear more about that on Business Scotland, this Sunday just past ten on ´óÏó´«Ã½ Radio Scotland, including an interview with John Scott.

Cleared desk

The programme also features an interview with David Nish, on his first year in charge of Standard Life.

In shaking up the traditional Edinburgh institution, he's taken a wrecking ball through the company's executive suite, and even cleared his own desk - at least of a computer.

Listen in, just past ten on Sunday, or hear it again by iplayer or podcast.

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Some heavyweight players in the Scottish economy are this week showing the advantages of having a global reach.

Results from Weir Group, in the sweet-spot of oil and gas, power and mining, reflect a company that doesn't do all that much in Scotland any more, but is at the heart of the world's growth areas.

Contrast that with publishers Johnston Group, owner of The Scotsman - turning an operating profit at least, but its strategy to combat falling newspaper advertising and revenue (ad spend down 7% last year, and the public sector cuts exacerbating that in the fourth quarter of 2010) has been cutting costs.

Standard Life turned in some impressive figures on inflow of assets and savings, which chief executive David Nish is presenting as an unleashing of the pent-up potential of the Edinburgh life and pensions company.

Spooked market

And then there's Aggreko, headquartered in Glasgow and with a Dumbarton assembly plant. More than 300 workers at that plant have some good news with an increase of £60m in this year's capital expenditure, to £320m.

The ebullient chief executive Rupert Soames spooked the market a bit by suggesting that the company is none too certain about the impact of international events.

He doesn't seem to have any inside knowledge of what's going to happen in Libya, Saudi Arabia and the Persian Gulf - any more than the rest of us. He was stating, as he puts it, "the bleedin' bloody obvious" when he said the world's looking a bit more uncertain now than it looked a few months back.

With his company's global reach in providing temporary power, he doesn't have any generating kit at the mercy of events in North Africa. But he does have a modest amount - 140 megawatts of capacity - in Yemen, and more in the Ivory Coast, where civil hostilities are hotting up.

And if oil prices are to continue their upward rise, then in a business based on oil-burning generators, you have to wonder at the impact.

Sporting megawatts

In the safer territory of North America, Aggreko's reporting on a bumper year of Winter Olympics in Vancouver, a hot summer requiring lots of air conditioning, a boom in Alberta oil fields and the energy-intensive business of cracking shale for natural gas, plus the clean-up around the Gulf of Mexico after Deepwater Horizon did its worst. The company would be going some to get that lucky in one year again.

On sport, Aggreko was helped also by supplying a lot of megawatts to the World Cup in South Africa and the Asian Games in China.

Soames points out that a business that does extremely well out of major sporting events is at a slight disadvantage from their tendency to fall in even-numbered years.

So this year won't deliver the bonanza of revenue gold medals from the world's great stadiums. The London Olympics in 2012 will, however, with Aggreko recently signed up as exclusive temporary power supplier.

Energy flutter

The Ledger's noted before Rupert Soames' outspoken warnings about the lights going out if Britain doesn't tackle its rapidly-approaching crunch-point in retiring old power generating capacity. That could be great news for Aggreko, but less so for the nation as a whole.

Does the chief executive think that situation is changing at all?

"What's changed," he says, "is that Paddy Power is now taking odds on power cuts in the UK by 2015."

And will he be having a flutter down at the bookmaker himself?

It seems he's taking a big enough gamble on our energy future by other means.

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Arguably the most powerful man in the Scottish economy is departing, and don't underestimate the implications.

Archie Kane, who heads up Lloyds Banking Group north of the border as well as its insurance division, has announced he won't stand for re-election in May to the board of the financial giant.

Aged 58, he's retiring.

I'm told it'll be an active retirement.

But the timing seems to have rather more to do with the new chief executive at LBG making his presence felt with some organisational changes - and Archie Kane is one of them.

Antonio Horta-Osorio recently replaced Eric Daniels as chief executive, bringing his experience from running Santander's operations in the UK.

That involved wrapping a range of well-known brands - Abbey, Alliance and Leicester and Bradford and Bingley - into that of the Spanish parent company, while also buying a chunk of RBS business that the European Commission forced it to sell.

He's decreed the Lloyds insurance division - one of the biggest in Europe - is to be split between general insurance and the life and pensions business that includes Scottish Widows and Clerical and Medical.

New division chiefs are moving in promptly to take them over.

Younger brand image

The future of Bank of Scotland and Lloyds TSB Scotland - as with Halifax, the English part of Lloyds TSB and Cheltenham and Gloucester - is changing also.

The new chief executive has already said he's accelerating the sale of Lloyds TSB Scotland and Cheltenham and Gloucester, which was the price exacted by the European Commission for permitting Lloyds Banking Group's bailout.

As for the other big brands, there's been a head of retail across the whole group, Helen Weir, and it's been announced she's stepping down.

From now on, these brands will be run more independently of each other, with their bosses answering up the chain to Senor Horto-Osorio.

Halifax is already taking on a younger image, distinct from Bank of Scotland, while BoS shifts closer to the more staid and traditional image projected by Lloyds TSB.

Pulling the plug

So much shifting of brands around... does it really matter?

Well, consider this: in the two and a half years since Lloyds TSB took over Halifax Bank of Scotland, much of the work of the new Lloyds Banking Group has been unravelling the immensely overstretched loan book built up by HBOS.

The people in charge have been deciding where to pull the plug and where to let businesses survive across much of the Scottish economy.

That process is still going on.

There's a lot of it to be done, and as the recovery continues, with asset values rising (albeit slowly in many cases), there's an expectation that Bank of Scotland/LBG (as with other lenders) will get out with what it can from many of its troubled business customers, increasing the rate of those being pushed into administration.

There have also been decisions to be made about rationalising its asset management division, with Scottish Widows Investment Partnership (previously part of Lloyds TSB) winning out over Insight Investment, and keeping 400 jobs in Edinburgh.

Lloyds has also fended off investor pressure to sell off Scottish Widows.

Powerful voice

Now, it's not clear how all these decisions have been made and how influence has been wielded internally.

And several big figures in Scottish business say they've found lending decisions have all been moved from the Mound in Edinburgh to London head office.

But it's fair to assume that having Archie Kane on the board of directors and spending much of his time on the Mound has been a powerful voice for keeping the substantial Scottish end of the Lloyds Banking Group in the forefront of minds in London headquarters - and that at a time when the HBOS legacy has stretched patience with the company's strong Scottish roots.

Those working in Bank of Scotland retail now answer to Peter Navin, who has been retail director in Scotland for the past two years. He's not on the board of directors.

Indeed, he answers to Joy Griffiths, and she isn't on the board of directors either, but answers to the chief executive.

A significant Scottish presence at the top table of one of the country's two dominant lenders has been removed.

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Where do you go when you've got 100% of your market? Down? Or into England?

It's a choice faced by Business Stream, the arm's length company spun out by Scottish Water, to face what we're told is the world's only competitive market for water and sewerage.

Of course, that doesn't include residential supply, which remains a monopoly.

But the 130,000 business, non-profit, public sector and charity customers inherited by Business Stream when the market opened up nearly three years ago, can take their business to four other registered competitors.

How many have done so? Hardly any.

Business Stream has 97% of the market, which doesn't look to most folks like a properly functioning market.

One reason may be that the competitors are only interested in picking off the most lucrative customers.

But as chief executive Mark Powles told me in an interview for Business Scotland, his 200 staff - headquartered in Edinburgh's Gyle - are motivated to get up each morning eager to ensure that they keep their customers happy, often by providing advice on how to use less water.

Waterwatch Scotland, the consumer watchdog, doesn't agree. It warned last August, and it's still warning now, that the switching process is too difficult.

Lobbying hard

Even with Business Stream's success in holding onto customers, the only way appears to be decline, so how does Mark Powles grow his company?

The answer is added services, and looking to growth in other markets.
And England's £2bn market for water and sewerage is looking very attractive.

It's been half-hearted in going for competition so far. Only the 2,000 biggest, single-site water users can tender for services.

But this summer, Business Stream hopes the UK government is going to open it up further. To that end, it's lobbying hard. And oddly enough, so is its regulator.

The Water Industry Commission for Scotland is making big claims for what could be achieved if England went the same way as Scotland.

What's doubly odd is that Business Stream is wholly owned by the Scottish government, which hasn't been noted for its enthusiasm in driving competition into the delivery of public services.

It might not be particularly pleased to find such pressure for de-regulation coming from government-owned companies or agencies based south of the border.

Next question is, what happens if Business Stream is successful and gets into a newly-competitive English market?

Expanding there will require some big capital costs. Where would that come from? Being government-owned, it would have to come out of Holyrood's hard-stretched capital budget.

You can hear Mark Powles on Business Scotland, available not only on ´óÏó´«Ã½ Radio Scotland just after 1000 GMT on Sunday, but subsequently on iplayer and by podcast.

And while you're at it, you can find out there why taking on a franchise is proving a popular way of starting out in business, both for entrepreneurs and for their lenders.

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Scotland's unemployment predicament has looked slightly less unimpressive in recent months, though it's been hard to tell why.

After a start to the recession that saw its relatively strong employment picture stay ahead of the UK, the start of last year saw that sharply reversed. Then at the end of the year, Scottish unemployment starting falling a bit while employment rose.

The economic brains resident at the Fraser of Allander Institute have been considering why this might be, and this week's report (I'm catching up with it, after several days away from the coalface) has a sort of explanation.

It may be that Scottish jobs were lost during the downturn at a faster rate than in the rest of the UK because employers in the rest of the country hoarded their valued staff. Scottish employers may not have valued employees quite as highly - or they weren't so willing to keep paying them for under-production.

Come the upturn and a slow recovery, the labour hoarding in the rest of the country means that expanded production can be achieved without taking on extra workers, while in Scotland it means more recruits are needed.

We heard from Scottish Engineering trade body, with a generally upbeat assessment of its members' order books, that recruiting young people with the necessary skills is returning as a growing concern.

Consumers lacking confidence

The second explanation offered by Fraser of Allander is that the shift between full-time and part-time jobs is operating differently in Scotland from the rest of the UK. Improving employment figures could be explained by relatively more part-time jobs being created in Scotland.

The economists don't seem strongly persuaded by that argument, reckoning that perhaps there's a combination of such explanations. And with public sector cuts, they don't expect the improving trend at the end of 2010 to be sustained.

With consumer confidence in a parlous state, they have also cut back their growth forecasts slightly.

This hefty tome was published in a busy week for upsumming. Andrew Goudie, who has only a few months left before his retirement as chief economic adviser to the Scottish Government, published his occasional, easily-digested update on the world, UK and Scottish economies.

While having a civil servant's caution, there's a strong hint that the official growth figures for the final quarter of last year are not going to look good. The UK figures plunged to a 0.6% contraction, and it looks like Scotland's figures - once Dr Goudie's statisticians catch up with them - will be in the same region.

He concludes that GDP growth is likely to remain "volatile for the foreseeable future". This is to be expected at this stage in the recovery, but there may be some amplification by temporary factors such as the severe weather. Output is expected to remain below pre-recession levels until well into 2012.

Sophisticated businesses

Both of these surveys highlight structural problems, with Fraser of Allander talking of an "intrinsic competitiveness problem". It cites evidence that Scottish labour productivity growth is weaker than the UK, yet labour costs are about 3% lower. The logical conclusion: low investment and low capital per worker are not the only problems.

In short, Scotland's not doing enough with the resources it's got, including its workers. And its export base is too narrowly focussed, and declining.

The recipe for growth is a familiar one with a twist; developing companies of scale, attracting inward investment, boosting innovation, research and development and something called "business sophistication". Apparently, that includes leadership and enterprise.

From Inverness, independent economist Tony Mackay this week offers another survey of the Scottish economy, gently reminding readers that the past five years have seen more accuracy to his forecasting record than others.

His forecast for this year is 1.6% growth, while Fraser of Allander prefers the look of 1%. Next year, FoA says 1.6%, while Mackay Consultancy says 2.1%.

With much statistical analysis in this publication, Tony Mackay seeks to sum up the position of the Scottish economy with a telling illustration.

So he's chosen the vastly expensive Royal Navy submarine, HMS Astute, aground off Skye last year - lying stranded, waiting for help, and pointlessly belching fumes.

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If the banks aren't lending to business, perhaps business is looking in the wrong place.

That's according to Mark Hoban, Financial Secretary to the Treasury, when speaking to Scottish Financial Enterprise in Edinburgh today.

He was giving a round-up of government policy on regulation and promoting growth, reminding a receptive audience of how important the financial sector is.

But the bit that's still missing is how to get finance to small and medium size businesses (SMEs).

That was underlined by this week's report from Holyrood's economy committee into the enterprise agencies, totting up the £262m of equity investment by Scottish government agencies, and saying that the case for more funding for private business is urgent.

According to the Treasury minister: "If we want a private sector recovery, this is something we have to address."

SMEs are "easily the nation's largest employer" (though some might argue with how easy it is to be an employer), and "it's their success that defines growth in the economy".

Over-reliant on banks

There have been credit guarantees, the growth fund and a promise from banks to reach lending targets, "but it's also apparent that many businesses still feel shut out of the equity financing market.

"They've become over-reliant on bank lending as their primary source of external finance, when other types of funding would better suit their needs," he said.

The government is looking at Britain's strength in equity markets - representing 70% of the European total - and asking why it isn't sufficiently liquid for smaller enterprises.

"There's a real opportunity to do more," said Mark Hoban.

Quite what he meant we don't know, as this speech was delivered behind the SFE's closed doors.

But it may be that this refers to UK government's look at the possibility for a range of stock exchanges located around the the UK, as they were until the 1970s.

But as readers of the Ledger know, attempts to rejuvenate the idea - in Wales and in Birmingham - have been rather less than successful in unlocking new sources of funding.

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