SNP wins first budget vote

Something extraordinary happened last week, though you wouldn’t have realised from the patchy coverage it received in the press. The minority nationalist government in Scotland got its first budget accepted, in principle, by parliament by a majority of two votes. Only nine months ago, the consensus was that the SNP would be lucky to survive this long as a government, let alone get its its high-spending policies onto the statute book more or less unscathed.

The arithmetic seemed insuperable. The SNP have only 47 seats in the Scottish parliament out of 129. Labour have 46, the Conservatives 17, the Liberal Democrats 16, the Greens 2 and the independents one. A measure of Alex Salmond’s vulnerability is that the independent MSP, Margo Macdonald - an ex-nationalist rebel by the way - only needed to cast her solitary vote against the SNP for the government’s majority to disappear. Perhaps this explains why she won a pot of money for her Capital Development Fund in Edinburgh.

But if the SNP are so weak, how did they manage to get their budget past the combined strength of the unionist parties? Well, first of all by winning the tactical support of the Scottish Conservatives. The Tories have been nowhere in Scottish politics in the last couple of decades and are desperate to show that they still matter. Their policy has been to support the SNP to the extent that they endorse specific parts of the Conservative’s own policy programme: cuts in business taxes, more police on the streets and a drugs rehabilitation programme.

As it happens, the Tories didn’t get very sound assurances on any of their demands. In the budget debate the financial secretary, John Swinney, promised to look at bringing forward a reduction in business rates for small companies and increasing police numbers, but he said he could not give any guarantees Still, it was enough for the Tories to get that much recognition, and they supported the nationalist government in the key vote.

Labour accused the Tories of being “the useful idiots of separatism”, but Labour are looking not a little stupid themselves. Real questions have to be asked as to why the main opposition party found it so difficult to impose its political personality on this budget given the SNP’s numerical weakness. Labour spokesmen complained about broken promises from the SNP on class sizes, grants to first time home buyers and student debt. But they were unsuccessful in winning support in committee for their own policies on more apprenticeships and social spending guarantees.

Labour’s lack of edge may be a result of the trauma it experienced when it lost office in May. The party has been in denial since the Scottish elections when it insisted that it had won a kind of moral victory. The nationalist experiment would be short-lived, they consoled themselves, and the crunch would come over the budget. But Labour has shown itself to be singularly ineffective in shorting in this government’s life. Shadow ministers are clearly suffering from the loss of civil servants to crunch numbers and develop policy. Labour MSPs are finding that it isn’t so easy to be an effective opposition, that it requires hard graft and difficult choices.

The SNP is used to thinking for itself, and doing without civil service briefs. The nationalists entered government with a panache and purposefulness which impressed and energised officials. Swinney struck a concordat with Scotland’s local authorities to end ring-fencing of spending, and in return won a freeze on council tax. This drove a wedge between Labour politicians in the Scottish Parliament and in Scotland’s council chambers, where Labour are prepared to work constructively with the government.

The SNP administration is still living dangerously, but it is also delivering on its key promises on reducing business rates, cutting prescription charges, restoring free school meals, cutting class sizesin primary schools, scrapping student fees, boosting renewable energy. After the election we all pointed to the wish list that was the SNP’s election manifesto, and scoffed at their ability to deliver. How would they pay for it all? Well, mostly they have. The only really serious concession won by the opposition was to keep Edinburgh’s costly tram scheme, which may turn out to be a millstone round the oppositions parties’ necks.

There are still questions about how this government is going to fund its programmes given that this is the tightest fiscal round since devolution. The Scottish budget will rise by little more than than half the rate of previous CSRs. The SNP still has to say exactly how it is going to save some £1.6 bn over the next three years by “more efficient government”.

And the budget bill has still to pass through its second stage where amendments can be made in committee. But the key vote on principle has been taken. The opposition parties will find it very difficult now to derail this budget without derailing the entire budget process and forcing a reversion to last year’s estimates. This was the most serious test of this minority government and to everyone’s surprise it has passed.

Yet more dodgy donors

Perhaps they should all just resign in one go so that they can collectively ‘clear their names’. Well, there’s strength in numbers after all, and nothing could be worse than having this endless succession of senior Labour figures paraded across the front pages over dodgy donations. This affair is now completely out of control.

Latest minister caught in the headlamps is the health secretary, Alan Johnson, whose campaign for the deputy leadership accepted three grand from an anonymous donor through a front man, Wasseem Siddiqui, who had no cash and no job. The Sunday Mirror claims that Johnson’s people also admitted failing to declare nine thousand pounds worth of donations.

No, I don’t really understand what was going on here either. Johnson denies any wrongdoing, but so did Peter Hain. The truth is that we are beginning to lose our bearings in the donations affair, and it is becoming increasingly difficult to determine what actions constitute sleaze and what don’t. The threshold of public infamy keeps falling week by week. Even the Prime Minister, Gordon Brown, has had to apologise to a court in Edinburgh for failing to declare a £200 bill from the 2005 election campaign.

Of course, they’ve brought it on themselves, not least by passing the very laws Labour politicians have been transgressing with such alacrity. Moreover, Labour seem to be obsessed - to the point of self-destruction - with introducing mechanisms to hide the identities of donors to their campaigns. The dodgy donations started with the party general secretary, Peter Watt, conniving with North of England property developer David Abrahams to set up a network of proxy donors to funnel funds to Labour in defiance of the rules.

Some five thousand in proxy cash went to Harriet Harman, the Labour deputy leader. She is now reportedly going to be questioned by police, which will spin this scandal out even further. The police have hardly started investigating Peter Hain, who resigned last week over undeclared donations. And Wendy Alexander is nervously awaiting her fate this week as the Electoral Commission grinds towards some kind of verdict on her illegal donation from the tax-exile businessman Paul Green.

In recent times a degree of sympathy had been building up for Wendy Alexander for being forced to wait in suspended animation for t wo months while the Electoral Commission tried to to get its act together. All over £950. However, Wendy’s people did her no favours over the weekend by declaring that she would not resign even if her case was handed on to the police. The Labour MSP Jackie Baillie said that, unlike Peter Hain, Ms Alexander would “stay on and fight for her reputation”. I don’t know what planet she’s living on,. but it’s not this one.

The Scottish Secretary, Des Browne, then blundered onto the scene by announcing on yesterday’s Politics Show, that there would be no more Labour resignations in the donations row. How does he know? This was a crazy statement to make. For a start it makes it look as if Labour is above the law. It also lends credence to the rumour that there had been a kind of ‘plea bargaining’ deal struck with the Electoral Commission under which Wendy Alexander and Harriet Harman would be allowed to walk provided that Peter Hain took the rap.

If the Electoral Commission did enter into such a deal it would be beyond its authority, and would constitute a real scandal. By what right does it usurp the justice system? And who is Des Browne to decide when politicians resign? He has undermined the credibility of the Electoral Commission and has prepared the ground for an assault on Wendy’s integrity almost whatever the commission says this week.

The most likely outcome is that the police will not be called in, and that Wendy Alexander will receive a rap on the knuckles from the Commission for letting her campaign break the rules. It will be a kind of ‘not proven’ verdict: ‘not guilty, but don’t do it again’. It appears that Labour have managed to persuade the Commission that if they don’t draw a line somewhere, then politicians will be paralysed with fear and will spend all their time checking and rechecking their accounts instead of running the country.

But the trouble is that any perceived attempt to cover up or excuse wrongdoing, however minor, is in this climate going to do damage to the government. Whatever happened to “zero tolerance?”, people will say. Where is Gordon’s “moral compass” now? Public cynicism about politics will go off the scale.

Indeed, the dodgy donations affair is becoming eerily reminiscent of the ‘back to basics’ scandal that destroyed the Tories in the Nineties. Again, it began with a moral pronouncement: the call by the Prime Minister, John Major, in 1993 for a return to family values and moral certainties. As we all know, back to basics became ‘back to my place’, as a succession of senior Tory figures ended up resigning after being found sleeping in the wrong beds.

It was of course absurd that ministers were losing their jobs because they had been unfaithful to their wives - what had that to do with running the country? - but they had set themselves up by posing as moral guardians, and as such made themselves targets. Brown’s “moral compass” may have done the same for him. It now seems to be open season on Labour politicians; no one is safe.

And. yes, I have some sympathy with Labour when they insist that the Tories are just as bad on dodgy donations. Last year, David Cameron, the Conservative leader, admitted receiving more than £7,000 in invalid donations to his Witney constituency party, and the shadow chancellor George Osborne has been caught not declaring hundreds of thousands in donations on the register of members interests. The two top Tory donors - Lords Ashcroft and Laidlaw - don’t even appear to pay tax in this country, and live in Belize and Monaco respectively. How can they expect to be able to donate millions to a political party if they don’t even live here?

And what about Alex Salmond? cry Labour, as the FM is found intervening, for the second time, in a planning issue - this time on behalf of an SNP donor in Aviemore. But because of their own endless scandal, Labour are in no state to hold Salmond to account for this, or the Trump golf-course affair. The donations conflagration is consuming the Labour party from top to bottom and rendering it hopeless as a government in Westminster or as an opposition in Holyrood. And until the fire burns itself out, nothing is going to work, and Gordon Brown is going to be toast.

Zut alors! Rogue Trader loses it.

I don’t know about retail prices, but inflation in financial fraud is clearly rampant. No rogue trader would get out of bed for the £800 million Nick Leeson blew on Barings bank ten years ago. Le Rogue du jour, Jerome Kerviel, who nearly broke Societe General, had to gamble away £3.6 billion make any kind of impression. It’s tough out there.

And political rogue traders are also upping the ante. Gordon Brown is bidding to be the greatest of all time by betting £50,000,000,000 of our money on Richard Branson to win on Northern Rock. It’s a give-away that dwarfs state subsidies from the 70s; financial irresponsibility on an epic scale. The equivalent of the entire UK education budget being put in the hands of a bearded tax exile who’s littered the high streets of Britain with his failed ventures in soft drinks, clothing, pensions. You name it, Virgin failed at it.

As LibDem Vince Cable put it (quoting this column from last week as it happens) Gordon Brown has “nationalised the risks and privatised the profits” of Northern Rock. Branson would be laughing all the way to the Virgin bank, if he actually possessed a banking license.

But at least Gordon has put more police on the streets. Yes, the boys in blue are back on the beat - only they’re not collaring criminals but marching to demand the government honours its pay promise. The police say they are owed £40 million. But, look, the government can’t just throw money around. It’s not as if Scotland Yard is a bank, after all.

Back in the bad old days, when Britain still had industries, the police used to get on the street to batter striking miners senseless. So the question arises of who is going to beat marching policemen senseless? Perhaps they should round up all those redundant miners and steelworkers and give them a crash course in crowd control courtesy of our friendly security companies like Group 4.

Indeed, perhaps the police should privatise themselves? They’d get a better hearing. The government used last week’s stock market crash as a convenient cover for its latest U-turn to business. It had threatened to take away the tax advantages enjoyed by small businessmen who, for some reason, only pay 10% tax when they wind up their businesses instead of the normal 40% on capital gains. Nice little earner. But after much lobbying, the government has agreed to restore the tax break, at a cost of £200m. Which is five times what the police were after.

All of which pales into insignificance beside the £7billion that City financiers have paid themselves in bonuses this year. Yes, the international financial system may be in ruins, the stock market may be crashing around our ears, the banks have collectively blown $200 billion on sub-prime mortgages and brought the world to the edge of the financial abyss. But hey, regulator, just don’t touch those bonuses! After all, they’re worth it.

Legislate in haste, repent at leisure. Labour's donations laws come back to haund them.

Legislate in haste; repent at leisure. When Labour passed the Political Parties, Elections and Referendums Act, 2000, it was meant to be the final word on sleaze. The law was to be zero tolerance, strict liability, and would clean up politics once and for all. No one was to escape the net. But they never expected the net to catch an entire shoal of Labour fish wriggling in disbelief.

Following Peter Hain’s departure from office, to help the police with their inquiries, there are a number of prominent Labour figures potentially in the dock. The elusive northern property developer, David Abrahams, who connived with the Labour’s former general secretary, Peter Watt to set up a network of illegal proxy donors to channel 600,000 in illegal donations to Labour politicians.

Our own Wendy Alexander’s case is with the Electoral Commission, and the deputy leader of the Labour Party, Harriet Harman, also accepted an impermissible donation. Questions have been raised about the Glasgow-based businessman, Imran Khand, who reportedly donated £300,000 to Labour through a front organisation, the Muslim Friends of Labour.

No doubt there will be others. The mystery is why Labour politicians were so ignorant of their own law. The Electoral Commission assigned £180,000 for education programmes to ensure that party officers and elected members would be in no doubt of their obligation to obey the letter of it. Not money well spent, it seems.

But Labour politicians are incensed. Suddenly they've realised that no one is safe from this terminator statute. Politicians aren’t accountants, after all, and most of them are as uncomfortable with figures as the rest of us. There could be any number of obscure anomalies buried in the accounts of Labour politicians which they don’t know even how to look for. As Donald Rumsfeld famously said, it’s not the things you know you don’t know that cause the trouble, but the things you don’t know you don’t know.

You can sympathise - well, a little. Anyone who has ever been under investigation by the Revenue or VAT inspectors or had their expenses examined knows that accounts are very rarely glitch free. You can be incriminated by any number of minor infractions which you weren’t even aware of. And of course, for agencies like the Revenue, ignorance is not a defence.

But as fallen politician plead workload or plain incompetence, they’re being watched by an electorate whose patience is wearing very thin. Why should MPs get off because they ‘didnae ken’, when that defence doesn’t work for ordinary people? The trouble is that politicians really don’t see themselves as ordinary people There is a presumption of collective innocence - they really don’t think that the rules apply to them.

It’s always ‘other people’ - sleazy Tory politicians, corrupt businessmen, dodgy lobbyists - who are the targets of the anti-sleaze laws, not their own kind. Most become indignant at the mere suggestion that they could break the law. And if they’re found bang to rights, they attack the law itself - it was ‘badly drafted,’ ‘wrongly interpreted’, the law enforcement agencies were ‘political motivated’, ‘the other parties are just as bad...’ etc..

Why should busy politicians have to give up their careers, say their apologists, just because some underling didn’t register campaign donations on time? Or because some numpty solicited a donation for an impermissible donor and tried to cover it up? Or had set up a network of fictitious donors to disguise the scale of contribution from businessmen? As Wendy Alexander has said, there was “no intentional wrongdoing” so why should they be treated as criminals?

The Electoral Commission - a Labour creation - now bears an onerous responsibility. It has become the guardian of political probity, and holds in its hands the very future of the government. If it decides this week that other Labour figures should, like Hain, have their cases referred to the boys in blue, then the damage to Gordon Brown’s administration will be incalculable. If his Scottish leader, his UK deputy leader, a slew of senior office-bearers and others we don’t even know about are forced to resign then it would be curtains.

Mind you, Wendy Alexander’s team are now saying that even if the Electoral Commission finds against her, she will not resign. They accept that the law was breached when she accepted a £950 donation from the tax-exile businessman, Paul Green, but insist she knew nothing of it, even though she had sent a letter of thanks to his Jersey address. Her campaign team claimed that the donation had not come from Mr Green but from a UK based company, Combined Property Services. This was untrue.


But it was, we are assured, a muddle not a fiddle. Why should she be faced with resignation for a mistake she didn't make over a few quid? Well, the problem here is that the law is very tightly drawn, and the actual sum involved doesn’t really come into it. As the “regulated donee” Wendy Alexander is responsible for everything that happens in her name. And despite her defiance, even a mild censure from the Electoral Commission might be enough to end her career.

What the Electoral Commission will have to do this week - if it exonerates Ms Alexander - is explain convincingly why, when the law has been broken by the admission of the parties involved, the case should NOT be referred to the relevant authorities. In short, why the police and prosecuting authorities shouldn’t at least take a look at it. After all, the Electoral Commission is not judge and jury, but a regulator. It is supposed to refer any cases where there is a prima facia breach of the law over to the agencies equipped to assess them.

The danger here is that if the electoral commission doesn’t make a convincing case for leniency it will undermine its own credibility as well as Wendy Alexander’s. The public will lose trust in the Commission and whatever trust they still have left in politicians. Indeed, in different circumstances, you might have argued that cases like this should be handed to the justice system as a matter of course, if only to reassure the public that there is no case to answer.

Could Wendy Alexander tough it out if that happened? She won’t “walk away from her reputation” we are told. But what reputation would she have left? The Prime Minister himself said that Peter Hain had done the “honourable” thing in stepping down to clear his name. Would Wendy be able to argue that her infraction is so minor that she can remain honourably in post? The court of public opinion will have to judge that.

I wouldn’t like to be the legal eagle in the Electoral Commission who has to adjudicate on the Wendy Alexander episode - it looks like a no win situation. If she’s exonerated, a lot of people will claim a cover- up; if they call in the law, it’s probably the end of her career. Either way, the very foundations of this government are shaking - and we’ll learn in a few days whether Labour's own law is going to be Wendy’s undoing.

The Scottish government goes sub-prime.

Well, it was nice while it lasted. Until recently, the Scottish government seemed to be talking sense about housing. It had quietly abandoned that manifesto commitment to giving a £2,000 bung to first time buyers. The SNP minister, Stewart Maxwell, said the priority was to improve planning laws to promote house building and abolish or curb the right to buy council homes. Hear hear.

Unfortunately, he takes a step backwards today by announcing a £24 million shared-equity schemes to first time buyers in Scotland. This means the state giving tax-free loans to people who can’t afford the excessive prices being charged for those pokey flats that are being pushed up everywhere. This is economically illiterate.

All shared equity will do, in a condition of housing scarcity, is push prices up further, put public money in the pockets of estate agents, and land yet more young families with loans they cannot afford. Make no mistake: these are sub-prime loans underwritten by the government. They are an incentive for people to enter a market which is profoundly oversold and due for a crash. Those shared-equity home owners will see their 60% stake drop in value. And they will also have to shoulder the costs of maintaining a difficult-to-sell property in a time of declining or static house values.

The only good thing to say about the shared equity scheme is that the sums involved are so small it is unlikely to make a great impact. But why do it at all? Well, because a terror stalks the land: the terror of falling house prices. Governments north and south say they want affordable housing, but they are afraid of the political consequences of falling house prices. Just look at the panic headlines recently when the rate of house-price inflation faltered in England.

But falling prices are a good thing. Most politicians now realise that house-price bubble is a gross economic imbalance which has created hardship for thousands of young families and undermined the banking system. However, they are scared that a drop in prices will bring the kind of economic chaos that is happening in America. Well, get used to it, because it is coming here as well.

There is no way that house prices at 8 times average earnings can be sustained. These prices will have to come down, either through a crash, rampant inflation, or through a phased reduction in prices. House prices cannot rise forever, and the longer governments prolong the inflation the worse the consequences will be.

Government ministers have forgotten that to get out of a hole, the first thing you have to do is stop digging. Instead of desperate attempts to keep prices high, they need to introduce policies which will stabilise the economy by managing the orderly decline in house prices, which must come if we are to avoid another credit crisis. This can be only achieved by returning to the traditional lending standards of the mortgage industry.

First: restore the old building society benchmarks limiting loans to three or three and a half time income with deposits of 15%. These rules were there for a reason. Long experience had shown building societies that throwing money at people only fuels house price inflation and leads to default. Loans must be proportionate to peoples’ long term ability to pay. “Teaser rates” which keep repayments artificially low for the first two years of a loan, should also be banned.

Second: interest-only mortgages should be outlawed, as should “suicide” loans which are higher than the value of the property. Banks like Northern Rock - which the taxpayer has had to bale out to the tune of £50bn - were lending up to 125% of the value of the house. This is instant negative equity, and utterly irresponsible.

Three: end self-certificiation. It is unacceptable for brokers to connive with mortgage-seekers in misrepresenting the borrower’s earnings so that the banks can give them loans they cannot afford. Lenders should be responsible for defaults on mortgages which are loaned to people who lack the means to pay for them.

Four: end the securitization of mortgage debt. The reason sub-prime has been so toxic is because the banks sold their mortgages on to third parties, thus washing their hands of the loans. Or so they thought. Banks which make loans should keep them on their books, and should finance them out of deposits. This is the “old fashioned banking” that the Chancellor, Alistair Darling, advised banks to return to after Northern Rock.

Five: make housing an economic objective of the planning laws. At present you can build any number of out-of-town shopping centres, because they create jobs, but you can’t build houses. Houses are just as important as Tesco supermarkets. Local authorities should be given emergency planning powers to zone land for house building and ordered to provide infrastructure

Six: end right-to-buy and restore council housing. Under right to buy councils have sold off all their housing stock in the most irresponsible exercise in public asset-stripping in history. Councils should be able to issue bonds to finance homes for rent, which provide a social and environmental benchmark which the private sector will have to meet. Social housing was there for a reason: many people will never be able to afford houses, and many others in insecure jobs may not want to take on the liability of a mortgage. People should have a choice.

Seven: End tax breaks for buy-to-let landlords. Why should people who buy houses as investments be allowed to set their mortgages against tax, while people who buy to live can’t? This is what has fuelled the buy-to-let boom, and priced ordinary families out of available homes. Scrap it. Buy to let is anyway doomed as prices slide.

Introduce these measures, and within five years, house prices would be stable and affordable. People would no longer have to live in fear of their debts, and would be able to turn their attention to more productive activities than house price speculation. These are measures which any alert regulatory agency like the FSA should be enforcing as a matter of course. It is the only way of preventing the American crisis being imported here.

Of course, the mortgage industry would squeal. But the silver lining in the recent sub-prime crisis is that it has made the banks question their own practices. Lending had got completely out of control, and they realise this now. The government has the moral and economic leverage to get change. There will never be a better time to get the mortgage industry to put its house in order.

Be afraid. Be very afraid.

Be afraid; be very afraid. The credit crisis is now spreading like financial Black Death. As the property market tanks, companies like Edinburgh-based Scottish Equitable have rushed to help their investors by refusing to let them take out their money - it’s in their best interests after all - while Equitable continue to charge fees.

Fear is stalking the stock markets again as new hideous creature emerge from the sub-prime slime. Latest addition to the banking bestiary are the monolines, curious financial organisms that normally hide from the light of day.

Monolines are insurance companies that insure bonds held by banks and governments against default. But the problem is that they have too little money to meet the defaults of the sub-prime based bonds they insure. They are haemorrhaging cash and some of the biggest ones may not survive.

Which means even more trouble for stricken banks like Northern Rock. The government has been unable to get anyone to insure Rock bonds and no one seems to wants to take on the bank’s debts. Except the public - which is why nationalisation has emerged as the most favoured outcome, advocated by the Economist and the Financial Times. But it would be the biggest nationalisation since Rolls Royce in 1971, and Gordon Brown is desperate to avoid it.

Nationalisation of the Rock could make Gordon the proud owner of the one of the biggest portfolios of sub-prime loans in Britain. What would the government do if the property market continues to fall, and lots of Northern Rock mortgage holders default like in America? Would he foreclose? Throw thousands out of their homes?

To avoid this nightmare, the government is now proposing to nationalise Northern Rock’s debts, but not its assets. Under plans which will be unveiled next week, the government is reportedly offering to sell Northern Rock to anyone who'll take it, without asking for the public’s money back - at least not for many years. This is what Sir Humphrey would call a “courageous move”. It would effectively mean the government was underwriting a private company - probably Richard Branson's Virgin - and that the new owners would have a gun to its head.

If the EU allows it the ploy would at least keep some of Northern Rock’s liabilities off the government balance sheet. The British public have already put £25bn into Northern Rock, and guaranteed another £27bn of Rock assets. Under nationalisation, these would all become part of government borrowing. This financial black hole could make British Leyland and the old coal in dustry look like great business opportunities.

And the economy is clearly going downhill fast. Debt-ridden consumers can’t spend, no one wants to buy property any more and the banks are losing billions every day. Even the company that owns Postman Pat is in trouble. Hang on to your cats; it’s every man for himself.

I've been Wendied.

I’d like to give you the inside story of last week’s historic summit meeting in London of new Scottish constitutional commission. Unfortunately, the leading light, Wendy Alexander, isn’t speaking to me any more. Something I said, apparently. Now I know what it is to be ‘Wendied’.

As it happens, all participants are pretty tight lipped about the commission and its future. Which is a pity because it is potentially a highly significant development in Scottish politics. For the first time in my lifetime, there is now no major political party in Scotland arguing for the constitutional status quo.

The meeting in London of the “Scottish Six” - the leaders of the Scottish Tories, Libdems and Labour and their Westminster equivalents - has finally entrenched the principle that devolution is a process not an event. As of January 15th 2008, we are in the era of permanent devolution, a rolling process of constitutional change.

Not that all Labour MPs would quite call it that. Some of them say they expect the constitutional commission to strengthen the Union and possibly to take back to Westminster some of the Scottish parliament’s powers. In their dreams. Powers are draining away, day by day, like water down a stank. One of the great untold stories of the early months of the SNP government is the extent to which transfer of powers is being accelerated even with Brown in charge of Number Ten.

There is now defacto recognition, for example, that nuclear power is a responsibility of the Scottish parliament. The Scottish Office minister, David Cairns has, I am told, accepted that Scotland has now a veto on any new nuclear developments north of the border, despite the fact that nuclear power is one of the key powers reserved to Westminster. The next to go will be firearms, as the Scottish government demands and gets powers to ban air-weapons.

There is also going to have to be a deal struck very soon over elections. The Scottish parliament has voted to transfer not only the administration of Scottish elections - following the May debacle - but also legislative responsibility for them. That’s a pretty big step. It might mean that the Scottish parliament could authorise a referendum without Westminster’s agreement. But there seems little prospect of Holyrood being denied this new responsibility. There is now almost a constitutional precedent that votes of the Scottish parliament automatically change the constitution.

Of course, Westminster still legislates on the all big issues like defence, economy, foreign affairs, and passes a lot of legislation on Scotland’s behalf through things like Sewel motions. But the drift is clear: towards a kind of federalism. The Scottish constitutional commission - assuming it becomes a reality - may find it has to struggle to catch up with a trend that is already well established. The idea that it could act as a brake on the process of Scottish autonomy, is fanciful.

Having placed themselves in the centre of the constitutional mainstream, by endorsing the need for more powers, the opposition parties who make up the commission will now have to deliver something concrete, or else face ridicule or irrelevance. Above all, they will have to address the root of all constitutional evil: money. The Liberal Democrats have long supported the repatriation of an array of financial powers to the Scottish parliament, and Wendy Alexander has herself ruminated in the past about new taxes for Holyrood, saying she favours greater financial responsibility.

The Scottish Conservatives are also now talking about the need to make the Scottish parliament more accountable for its actions through raising at least some of the money it spends. A sound Conservative principle after all. This is the key area of consensus, and the commission must deliver on this if nothing else. Perhaps by proposing that the parliament is given a share of VAT, stamp duty, excise duty or something similar.

The SNP leader, Alex Salmond, is sounding remarkably relaxed about the commission. He told me last week that he welcomes the initiative as a contribution to the debate, even though the opposition parties explicitly reject independence and have ruled out any referendum. The constitutional commission is explicitly a unionist project; an attempt to marginalise the SNP, and there are serious questions about whether the Scottish Parliament could actually provide funding for a party political exercise. But these are questions Salmond is not asking - at least not yet.

By rights the nationalist leader should be in despair that, after nine months in power, only 27% of Scots support independence, according to their own polling organisation YouGov last week. . ‘Devolution plus’ seems still to be the default choice of the Scottish electorate. But Salmond argues that any progress on constitutional change will further the cause of nationalism, on the grounds that more responsibility builds the confidence of the Scottish people in their capacity to govern themselves. Salmond also thinks that the constitutional commission will have to put its proposals to the people in a referendum, at some time in the future.

And he’s probably right. I can see no way that a new constitutional commission could propose significant changes to the constitutional relationship between Holyrood and Westminster without putting it to the people of Scotland for their approval. This is what is happening in Wales, as it seeks to alter its status. Referendums are the accepted way of resolving constitutional issues in Britain, at regional and European level, and if a referendum is ruled out, so is any significant change. In which case the commission will be condemned to irrelevant obscurity.

Now, of course, it may be that some Labour and Conservative politicians would be happy for the constitutional commission to be just a talking shop. Labour’s game plan for the next Scottish election is to have the commission up and running, but without too many specific proposals, so that they can promise the Scottish voters that there will be significant change if they return a Labour government in 2011. Somehow I don’t think that will wash. People in Scotland have long memories and recall the Tory Lord Home promising that if people voted against the 1979 devolution proposals, the Tories would give Scotland something better. They got Margaret Thatcher.

This time they would get Wendy Alexander. Or her successor. She hopes to paint the SNP as “tartan Tories” who, when they aren’t trying to break up Britain, are only interested in Donald Trump, cutting business rates and handing tax breaks for the well off, such as the inheritance tax cut we report today. Mind you, if Labour are so concerned about the poor and dispossessed, the obvious question is why they didn’t do more for them in the decade they were in office.

Labour certainly hope constitutional commission will will neutralise the “Scottish Question” for them. But as I say, this is not going to fly unless they come up with something specific, something concrete - and in good time for the 2011 election. It may well be that they hold the future of Scotland in their hands since a majority of Scots seem to prefer permanent devolution to outright independence. But if the constitutional commission doesn’t deliver, it will be dismissed as a waste of space.

Why take money from businessmen and then try to hid it?

What have they got to hide? Why do Labour politicians create complex and often illegal conduits to disguise the obvious fact that they get a lot of their money from businessmen? This is the question at the heart of the recent spate of donations scandals involving Wendy Alexander, Peter Hain and others. Invariably, the trouble began, not with the donations themselves, but with the way Labour politicians tried to divert attention from them.

It must surely be only a matter of time before the work and pensions secretary, Peter Hain, stands down. He has had a truly dreadful weekend press, with editorials in almost every paper calling for him to go. We have learned that even members of his own campaign team had urged him to resign after they discovered the existence of the Progressive Policy Forum. This “think tank” has no website or publications to its name and seems to think about very little except how to attract large, covert donations from diamond dealers and other colourful business interests.

If Hain’s own people think he is toast, it seems hardly likely that a Prime Minister who is tumbling in the opinion polls is going to stick by him through thick and thin. Brown has no great affection for “Hain the pain” and only kept him in the tent because he feared he might become a focus for left wing dissent. But Labour backbenchers are no great enthusiasts for the former Young Liberal either, as his poor showing in the deputy leadership election demonstrated.

Brown is going to have to draw a line under this donations row eventually, and Hain seems to have drawn it for him. Tony Blair was utterly ruthless with even his closest political friends when they got into money trouble - as evidenced by the twice-sacked Peter Mandelson. If Brown doesn’t do something now, people will start saying that he is so weak that he can’t dispense with an expendable minister. Some are already saying it.

The difference between Hain’s situation and that of Wendy Alexander is that Hain hadn’t actually broken the law by setting up the PPF to channel business funds. Indeed, most of his donations would have been legal had he actually got round to declaring them. Somehow a hundred thousand pounds worth just slipped through the net. Well, its easily done.

These sums dwarf Bendy Wendy’s fund-raising endeavours. But as we all know, Ms Alexander broke the law by accepting money from a tax exile, thanking him for it, and then not returning it within 30 days. She has pleaded innocence on the grounds of ignorance, and the Electoral Commission seems to have accepted this - though whether the court of public opinion will as lenient is another matter.

This was supposed to be the week the Scottish Labour leader fought back. Fully expecting to be exonerated she was planning to seize the constitutional initiative and move on. But it was not to be. Suddenly, all the talk is of dodgy donations again and once again the press are testing for shoogles on Wendy’s coat peg. If Peter Hain goes, she may not be far behind.

In both cases, the trouble arose from their attempts to disguise or distance themselves from their financial relations with businessmen. Team Wendy used devices like “995s” - getting their property developer friends to donate funds of just under the £1,000 threshold for disclosure. And by misrepresenting the source of the cash as coming from third parties. The Electoral Commission was wrongly informed that the illegal donation from the Jersey businessman Paul Green had come from a UK company CPS. Hain’s PPF also served to ‘launder’ cash by recycling it through an independent “think tank”.

Last month the Times revealed how one of Labour’s largest donors, the Glasgow businessman, Imran Khand, was able to secretly channel more than £300,000 through an Islamic lobby group, Muslim Friends of Labour, run by the Labour MP Mohammad Sarwar. The Northern Property developer, David Abrahams, was invited to channel £650,000 anonymously to Labour through a series of proxies, or intermediaries, some of whom didn’t even know they were Labour donors. The police are still investigating.

Further back, the cash for honours affair was also rooted in Labour’s sensitivity about its new reliance on business cash. Millionaires like were urged by Labour fund-raisers not to donate at all, but to give loans to the party in order to get round the disclosure rules. But you have to ask: why not save the hassle and be frank about it?

Well, at least part of the answer is that Labour politicians like Wendy Alexander, Peter Hain, Harriet Harman present themselves as tribunes of the people, as guardians of the underdog. Yesterday, on her first interview since the donor scandal broke Wendy Alexander insisted that she had come into politics to help the disadvantaged, lone parents, battered wives. As socialists they are all profoundly uneasy about having to rely on the largesse of capitalists.

They are also morally uneasy because they know that businessmen aren’t stupid: they haven’t become rich by throwing money around. Donating to politicians is all about influence - about buying into the inner circles of decision-making. A measure of just how important this influence is to business is the huge sum being paid to Tony Blair - someone who knows little about investment banking - by the Wall St bank, JP Morgan. He is to receive £500,000 - £2,000,000 according to the Daily Telegraph - for a part time job which which will apparently be conducted largely by telephone.

Politics has become so debased that we no longer seem to be surprised when politicians sell themselves to the highest bidder. Remember, Tony Blair carries into JP Morgan a great deal of highly market-sensitive information about government financial policy, about PFI deals, future privatisations, arms deals. Also about relations with foreign countries like Iraq, in which JP Morgan has a direct interest as the bank of reconstruction. They are buying the inside track, and it is money well spent.

Now, of course, businessmen can’t hand cash directly to politicians while they are in office, but they can hand money to their campaigns, which amounts to the same thing. This cash can buy high office, and power, which holds its own rewards to ambitious politicians, but which can also ensure a comfortable retirement - as former Labour ministers like Brian Wilson and George Robertson have demonstrated by securing positions in in the private sector after leaving politics.

The individual sums involved in donations may sometimes appear to be trivial, as in Wendy Alexander’s case, but that actually isn’t really the point. By cultivating these links, and trying to hush them up, the damage is already done to their probity. Worse, they have broken the zero-tolerance laws and codes which were designed by their own party to stamp out sleaze. Which is why both Wendy Alexander and Peter Hain are now damaged goods - even if they cling onto their jobs.

Save the Hain

Look, I think the press and opposition parties need to take a long hard look at themselves over the way thay have harried and harrassed Labour ministers over their campaign donations. Harriet Harman, Wendy Alexander and now poor Peter Hain. You can’t expect a busy politicians to bother about every last hundred grand, or understand their own election laws.

As a left-winger, I’m sure Peter would have been the very first to insist that everyone was told that he was raising funds from diamond dealers and businessmen who've been investigated for price fixing of NHS drugs. But he just didn’t know. Or if he did he was too busy and forgot. And anyway was on holiday at the time. Surely it just shows that the author of the seminal “Ayes to the Left” is no blinkered ideologue and can win the support of wealth creators and captains of commerce.

As for the speculation about Mr Hain’s Progressive Policy Forum, which doesn’t have a website or any publications and whose registered address is a solicitor’s office in London. Well, what’s wrong with that? Think tanks perform many important functions. This one was thinking about how to raise lots of money for Mr Hain without naming anyone. And about how businesssmen could donate money to politicians without every Tom, Dick or Harry knowing about it.

Just because there was an unintentional and wholly honest administrative oversight this able minister has been dragged through the mire. It is said that he has broken the law by failing to register over a hundred thousand pounds in donations, and perhaps he has. But as his colleague Martin Linton put it on BBC Radio yesterday, it’s not the law that matters but how you break it. And we all know that unlike the rest of us, when politicians break the law there is generally a very good reason. Such as a gross negligence.

Ignorance may be no excuse if you fail to tell the Inland Revenue about a hundred thousand pounds - but politicians are not like you and me. The media storm over donations is really an aspect of the politics of envy. As are the snide comment about the former Prime Minister Tony Blair,for accepting a modest honorarium of £500,000 a year from JP Morgan investment bank for providing door-opening services. The moaning minnnies cry “moral hazard” and say it’s wrong for senior politicians to be hawking themselves around the City of London. That their future financial prospects might come to influence their decisions while in office.

But surely, it is better for them to take their remuneration after they have left office rather than before. That way they avoid the honest mistakes made by Peter Hain. You can’t expect our politicians to work for ordinary salaries and manage their accounts as if they were ordinary people. Politicians are special, and they need special treatment. They make the laws, after all, and so surely they have the right to break them.

Separate development is the wise option On nuclear energy at least

It’s a pity that Gordon Brown and Alex Salmond haven’t spoken since August, because if they had, they might have been able to avoid last week’s demeaning spat over the new generation of nuclear power stations. There is a perfectly rational and adult solution to this issue: While England reinvents the atom, why not let Scotland power ahead developing renewable energy? Let’s see which works out in the long run?

Yes, it is rocket science, and there are a lot of complex technical issues about whether renewables like wind and tidal can be developed fast enough to meet the so-called “energy gap”. But there is no doubt about Scotland’s potential. The government’s own figures show that we have 60 gigawatts of sustainable energy - 10 times peak demand and equivalent to three quarters of the UK’s entire electricity generating capacity. We have 25% of Europe’s wind and tidal energy reserves.

The obvious solution, surely, if England really is so keen on nuclear power is a duel fuel policy: England can be the world’s atomic hub, leading the field in new-age nukes, while Scotland becomes a world leader in the alternatives, like clean coal, carbon capture, micro-generation. Whatever happens, renewable energy is going to be one of the great global industries of the 21st Century. It would be irresponsible not to develop Scotland’s natural resources.

So, why is Westminster so resistant to separate development?
Why did the UK business minister, John Hutton, attack the Scottish government for being “irresponsible” and “playing politics” by opting out of the nuclear revival? Well, I suspect the reason is that, having bet the house on nuclear power, the Westminster government has to make sure that it doesn’t lose. It would look pretty stupid if, after covering England in nuclear dumps - sorry, above ground monitored storage repositories - Scotland shows that they weren’t really necessary. Alternative energy has to be marginalised so that it doesn’t prove ministers, and the nuclear lobby, wrong.

There’s a constitutional dimension too. The Prime Minister is a Scot, representing a Scottish seat, and doesn’t want to appear to be inflicting risk on England while leaving Scotland nuclear-free. Already, there are question about what happens to Scottish nuclear waste being sent to England - what you might call the “Waste Lothian Question”.

But the real problem, as always with nuclear power, is that the government has to get the nuclear numbers to fit, and that requires some quite heroic assumptions. The incredible thing about last week’s announcement new generation of up to ten nuclear power stations announced last week is that it is happened at all. Nowhere else in the world, not even Republican America, is there a programme as ambitious as this. Until recently, nuclear power has been regarded as a dead duck economically, of interest only to emerging nations like China and Iran with strategic ambitions.

No one has built a nuclear plant in Europe for over a decade and the highly-subsidised plant, Olkiluoto 3, in Finland is two years overdue and a billion over budget. Only four years ago, this Labour government’s own White Paper on energy ruled out nuclear power as uneconomic and irrelevant to tackling climate change. And the government’s Sustainable Development Commission has said that nuclear power would be an expensive and dangerous mistake.

The economics of nuclear power are perverse because of the risk - not just to the environment but to the financiers. The cost of decommissioning the reactors is so vast and imponderable that no commercial operator has ever been prepared to take it on without government subsidy. Which is why the government has had to step in, again, with public money, to make it worth their while.

Despite all its promises that the private sector would pay all the bills, the government has agreed to underwrite profits by effectively guaranteeing energy prices. In the long term is has agreed to cap the costs to private industry of decommissioning nuclear power stations and has said, in last week’s White Paper, that the state will shoulder the costs of “ensuring the protection of the public and the environment”. We know from the previous generation what that means, because the protection of the environment is hugely expensive. Look at Dounreay.

The Nuclear Decommissioning Agency is currently spending up to £100 bn on dismantling the last generation of nukes, and it still doesn’t have any long-term solution to the disposal of nuclear waste, except dumping it underground and hoping for the best. The new generation of nuclear power stations will be, we are assured, cheaper to run and will produce less waste. But that doesn’t help much, because the waste they do produce will be more concentrated and therefore more dangerous.

Moreover, there are new costs that the first generation didn’t have to worry about. Most nuclear stations are on low-lying coastal sites which are likely to become inundated as sea levels rise through climate change. This means an incalculable cost of building sea defences to keep the nukes dry. Needless to say, if any water gets in, then the plant goes boom.

And then there is the cost of the security operations that will be needed to guard the transport and storage of vastly increased quantities of nuclear wastes. And the cost of international proliferation, for countries like Iran can hardly be expected to end their nuclear programmes now. And the cost of the accidents, which will inevitably happen. You cannot eliminate human error, and one sure thing about radioactive material is that it always gets into the environment in the end. Just two years ago, a nuclear waste company, AEA Technology, was fined #250,000 for allowing highly toxic radiation to escape from a lorry-borne flask in the North of England.

Speaking personally, I would be happy to see a new generation of clean, carbon-free nuclear power stations producing electricity at low cost. But unfortunately, nuclear has never fulfilled its promise, on economics or safety, and there is no credible evidence that this new generation will be any different.

But who am I to dictate energy policy? If England wants to go nuclear that it its own affair, and the Scottish government has to accept it. However, what’s wrong with hedging our bets and putting some real effort into renewables in this small corner of Britain? Let’s see some real money going into sunrise technologies; into things like combined heat and power, and above all insulation. The vast majority of Co2 emissions result from transport and heating our homes.

This is not an easy option for the Scottish government. Alex Salmond has committed Scotland to cutting greenhouse gases by 80% in forty years, yet he is pressing ahead with transport policies based on fossil-fuel cars and airports. So why doesn’t Westminster call his bluff? If Gordon Brown is so confident that the lights will go out, without nuclear, why not demonstrate this in practice? Show that renewable energy is a nice idea but incompatible with economic growth.

Think of it as an epic technological experiment with Scotland acting as the control. That way England needn't that it is being handed the toxic option. I’m sure English public opinion could be persuaded of the advantages of a dual fuel policy if politicians showed a lead. So, come on guys. Lift the phone.

It's socialism for the banks

Gordon Brown is getting his excuses in early. In his new year address he warned Britain to prepare for "global financial turbulence" in 2008, declaring that: "the global credit problem that started in America is now the most immediate challenge for every economy". Funny how, when things are going well it is all down to the government, but when things aren't going well it is the fault of 'world market conditions'.

I think we can see how the PM is planning to handle the economic downturn that now seems inevitable. 'Nothing to do with us, mate, we just work here'. Well, the impact of the credit crisis has certainly been most marked in the US where millions face the loss of their homes. But this is as much a British-made problem as an American one. Remember Northern Rock? The first run on a British bank in over a century? The debt explosion, which is the root of the problem, is very much our own work.

As the former head of the US Fed., Alan Greenspan, reminded Brown last year, the inflation in house prices, fuelled by reckless lending, has been far greater in Britain than in America, and prices here have a longer way to fall before they become sensible again. Gordon's economic miracle was built on this shaky foundation, so he can hardly blame America for blowing it away.

He's right about the turbulence though. The world is becoming more unstable, as power and wealth shifts from West to East. America's loss of military prestige following the debacle in Iraq is being
paralleled by a decline of the dollar, which is no longer unchallenged as the
world’s reserve currency. Countries like China, now the world's second largest economy, are beginning to feel their strength and looking for a better deal. Their overflowing sovereign funds are now buying into western banks desperate for capital to meet their immense debts.

Why did the mighty Wall St banks suddenly discover they had no money to cover their loans? Well, as everyone now knows, dodgy US mortgage debts had
been “securitised” - packaged up and sold on to other
financial institutions as “collateralised debt obligations". This
was supposed to spread the risk, but it also spread the contagion,
and when the American housing market caught a cold, the rest of the
world caught pneumonia.

But British bankers were in the forefront of the "securitisation revolution". The City of London made a fortune out of trading CDOs. The Bank of England helped by slashing interest rates whenever the house of cards looked unsteady, or when British mortgage payers got into difficulties. Moral hazard begins at home.

It’s easy to blame nasty foreign bankers for these problems,
and they are certainly guilty of creating complex financial
instruments,
which they didn’t really understand. However, the root problem
was very simple: too much borrowing.
And we, the people, have to take at least some responsibility for this - for taking out the loans in the first place. The British housing market became infected by a gold-rush mentality, where everyone hoped to get rich by borrowing to buy. We all wanted something for nothing. Families used their houses as
if they were cash machines. The government played its part by allowing tax breaks to buy-to-let speculators.

So we are all implicated in this insidious self-delusion, and we clearly haven't learned. British consumers spent and spent over Christmas, adding more billions ta debt mountain that already stands at a record £1.4 trillion. Britain is the most debt-ridden country in the world and we have more on our credit cards than the rest of Europe combined.

The government has been as profligate as the rest of
us, despite Gordon's "golden rules" , and is currently spending around 9 billion a month more than it is
receiving in taxes. Britain’s balance of payments went
into the red by record £20bn in the last quarter,
equivalent to 5.7% of national income.
Britain is worryingly dependent on the financial services sector - largely as a result of the government's neglect of manufacturing - and now that the goose is cooked, government tax revenue is sinking as the City prepares to axe literally thousands of jobs. Expect tax rises in the coming months as the treasury tries to make up the taxation gap.

Economics is always a dismal science, but it’s hard not to be
alarmed by this situation. The world really did change in August
when the banks stopped lending to each other, suddenly realising that they'd created a financial Frankenstein.
The reaction of the Anglo-Saxon
countries - essentially Britain and America - has been to fight debt
With debt. Central banks have tried to resolve the credit crisis by
pouring public money into the cash-strapped banks and by cutting interest rates. The consequence of this last desperate financial fix of cheap money will almost certainly be the return of inflation as a major political issue in 2008.

Real
Inflation - the RPI which includes housing and energy costs - is
already over 4%, and the central banks should arguably be increasing interest
rates rather than cutting them. Inflationary pressures are hard to ignore, with oil over $90 dollars and world food prices
rocketing. But inflation is seen now as the lesser evil, and everything
is being thrown at a rescue of the corrupt financial system which got us into
this mess in the first place.

It's socialism for the banks. A cash rescue not just for Northern Rock, which has absorbed some 25bn of our money, but for the likes of Morgan Stanley, Citibank, Merrill Lynch. Central banks are handing out loans of such magnitude now as to beggar belief. Before Christmas the European Central Bankers handed out a credit line of 500 billion - half a trillion dollars!

In any other era, this might have been seen as an
irresponsible use of public funds, but we live in an era in which there is precious little questioning of the financial system. The political influence of the financial institutions
is so great in America and Britain that they can
largely dictate economic policy. It is
as if democracy has ceased to function, and the interests of the
banks have come to be seen as synonymous with the interests of the nation.

But we know they aren't synonymous. The banks have an imperative to lend, because their trade is in debt. The nation needs to save - now more than ever. Before we throw yet more money at the banks we need a thorough review of the economic policies that brought about the "global economic turbulence that the PM says is about to hit us. That should be Gordon Brown's New Year resolution, not passing the devalued buck.

Permanent Devolution

Who says history doesn’t have a sense of humour. 2007 was
supposed to be all about celebrating the 300th anniversary of the Act
of Union; in reality it was largely about dismantling it. For, who could have forecast twelve months ago that nationalists
would be in office in all three of the devolved legislatures of
the UK - with the SNP running Holyrood; Plaid Cymru in coalition with
Labour in Cardiff; and the nationalist Sinn Fein sharing power with
Ian Paisley’s DUP in Stormont? It is the unionist nightmare come
true; a separatist clean sweep.

The rise of provincial nationalism is by far the most
significant political development in Britain in the last twelve
months - far more important than the election-that-never-was, or even
the change of personnel in Number Ten. Gordon Brown is intending to
pursue largely the same political and social agenda as his
predecessor, but he will discover in the New Year that large parts of
the United Kingdom are now resistant to it.

Already, Scotland has a range of distinctive social policies -
free personal care, free higher education, free prescriptions- some
of which have aroused resentment in the south. But this is only the
start. In 2008, the nationalist First Minister, Alex Salmond
intends to scrap the council tax and replace it with a local income
tax - a move that will cause disquiet among English pensioners. Salmond has the powers and the votes to do
it and has already frozen council tax in Scotland.

The Scottish Government has also served notice that it intends to repatriate powers to Holyrood over firearms - primarily in
order to ban air weapons - and also over immigration and
broadcasting. The home secretary, Jacqui Smith has said 'no', but that is unlikely to stop the new Scottish government. Salmond also intends to challenge Brown’s cherished policy of public private partnerships, or
PFI. The First Minister plans to set up a "Scottish Futures Trust", which will issue
bonds to finance public procurement projects - like a new £4 bn
Forth Road Bridge - rather than using the PFI route. This is in
direct defiance of treasury rulings that such a move is incompatible
with devolution.

The Scottish government has refused to accept any of the new generation of nuclear power stations announced for England. And to top all that, Salmond also intends to step
up demands for a share of North Sea Oil revenues, now that oil stable at around $90
dollars a barrel, and will campaign for the Barnett Formula to be
scrapped. The First Minister is an inspired opportunist who has discovered that even a minority administration can achieve a great deal within and without the terms of the Scotland Act.

Westminster has yet to come to terms with it, but legislative
dissonance is likely to become one of the defining features of UK
politics. The pace of policy differentiation is
increasing dramatically as the subordinate legislatures begin to feel
their strength. They are now feeding off each other, and joining in
tactical alliances. In 2007, the Scottish government joined with
Stormont to call for powers to vary the rate of corporation tax.
Northern Ireland wants to cut business taxes in order to compete with
the Irish Republic, and Scotland is saying, ‘me too’.

The Scottish Parliament has borrowed the policy of free
prescription charges from the Welsh Assembly. Meanwhile, Cardiff has
used Holyrood as a template on which to model its own demands for primary legislative
powers. This is a relentless process which will lead inexorably to
power draining to the peripheral governments of he UK."Permanent devolution" as LeonTrotsky might have called it.

And it is now
largely independent of which party happens to be in power. In November, all the Scottish opposition parties united - Labour,
Liberal Democrat and Conservative - to form a constitutional
commission to demand more powers for the Scottish Parliament. Even
the ultra-unionist Scottish Conservative Party, which fought doggedly
against devolution for twenty years, has now joined the home
rule consensus, and is arguing for the Scottish parliament to have greatly enhanced economic and tax-raising powers. The unionist status
quo is now disowned by the entire Scottish political class.

. Whisper it, but Labour in Scotland is now closer to the SNP than
it is to Gordon Brown. Wendy Alexander, the new Scottish Labour
leader has defied her own Prime Minister by declaring that devolution is a
“process not an event” and that the Scottish Parliament needs to have
greater powers. Gordon Brown had told Scots at the launch of Labour's
Scottish election campaign that more powers were not on the cards for
Holyrood.

The PM told the Liaison Committee of the House of Commons
in December that people in Scotland had to recognise that devolution
was not the same as federalism. But the way things are going,
federalism looks like the least worst option for Westminster.
In another highly significant development in 2007, the
Conservative leader, David Cameron, finally endorsed the plan for an
English Grand Committee in Westminster, composed of all English MPs.
The idea is that this body should handle England only bills under the
rubric “English votes for English laws”. But it would rapidly evolve into a defacto
English parliament. Cameron is unlikely to back down on this in
2008 because, as Tory support rises in the polls and English disquiet
grows, he can already see the tantalising prospect of returning a
majority of MPs in England after the next election.

If such a body is set up in Westminster - perhaps as a result of
a coalition deal with the Liberal Democrats, who also support an
English Parliament - then federalism is inevitable. My own view is
that there is unstoppable momentum now behind the disaggregation of
the United Kingdom, and that time is running out for the political
establishment in Westminster to respond to it. This country is
changing before our eyes. And - it has to be said - largely for the better, as the old centralised apparatus disintegrates before regional democracy

Now that the unionist parties in Scotland have all but given up the ghost, the UK faces a
choice in 2008: adopt some form of orderly federal solution, or
prepare for political disintegration, on the lines of
Czechoslovakia’s “velvet divorce” in 1993. It is as serious as that. While Gordon Brown
launches fatuous “Britishness” campaigns, the very fabric of the
country he claims to love is being torn up and stitched anew.

I'm an Obamanite, I think.

I have a confession to make. Silently, by stealth, almost unconsciously, I seem to have become an Obamanite. I just can’t help wanting Barack Obama to win the American Presidential elections. This is all the more curious because I hadn’t really been taking a great interest in the US presidential primaries, which come to a dramatic climax this week in Texas and Ohio. And what I knew about the youthful Democratic contender didn’t inspire me.

His slogan “Change you can Believe in” struck me as one of the worst political mission statements since Labour’s “Forward not Backwards” at the 2005 UK elections. “Change you can Xerox” as Hillary Clinton put it in one of her more elegant put-downs, after Obama had been exposed for plagiarising speeches. His waffling about the “audacity of hope” seemed like the same old vacuous flim flam.

Much of what Obama has put on the table since Iowa at the start of January, is fairly predictable when it isn’t actually platitudinous - apart from his alarming penchant for economic protectionism, and his refusal to go all out for universal health care in a country where 40% of the population lack proper cover. He is opposed to the war in Iraq, which is good, but he once said he might bomb Pakistan, which isn’t. And he’s not entirely clear on when he would pull out of Baghdad.

Obama also has a rather messianic approach to politics. He speaks with the hypnotic cadences of Martin Luther King; remains a long-time member of a rather dodgy church - the Trinity United Church, with creationist and black nationalist tendencies; and tends to inspire a kind of wide eyed devotion from his followers that isn’t conducive to rational debate. Finally, I found it hard to warm to a politician who is being described as the Democrat’s answer to Ronald Reagan.

So, plenty of reasons not to fall under the spell of Obama - but I think I have, nevertheless. Perhaps it’s a function of advancing years, or just too much exposure to Obama’s speeches and interviews on Youtube. But after a week immersed in the warm bath of Obama’s personality, I can only say that I that if I were an American I would vote for him. I simply couldn’t see any reason not to.

Yes, I know it is personality politics, but that’s the only game in town, and he has a personality which is bigger than the state of Texas. He is a remarkable communicator. I can understand the comparison with Ronald Reagan now, and I no longer find it offensive, because Obama’s ability to convey solidity, humility and warmth is wedded to impeccably liberal principles. Yes, he may turn out to be a black Tony Blair - but I supported him as well.

And Obama is much more radical than Blair - something the American Right has only recently fully appreciated. On the climate, for Obama - if he goes the distance - will be the greenest president in American history. He has promised to cut greenhouse gas emissions by 80% by 2050 and wants to turn America into a powerhouse of renewable energy. Unlike his Republican predecessor, George W. Bush, Obama is not an oil man, and sees America’s reliance on foreign oil as economically, environmentally and strategically damaging.

Obama has fudged the timetable for the withdrawal from Iraq, largely because of the tactical success of the Bush ‘surge’ in Baghdad. But there is no doubt in my mind that he intends to pull out completely, and that he will not be invading any other countries. With Barack Obama American has an opportunity to atone, and to return to the internationalist principles of Woodrow Wilson. If America elects a black president, who was partly raised in a Muslim country and has the middle name of “Hussein” it will be a potent message to the world. There will be a clean out of the security services and the removal of the neo-conservative networks who have done so much to distort and debase US foreign policy. The project for a new American century will be a thing of the past.

Obama has also promised to halt the development of any new nuclear weapons and is committed to reviving international disarmament. He might be the man to shake Gordon Brown out of his nuclear torpor, and generate some serious momentum towards dismantling weapons of mass destruction. Obama may ultimately be captured, like his predecessor Bill Clinton, by the military industrial complex - but it’s a chance worth taking.

He may also be captured by the Wall St banks who have dominated American economic decision making for the last three decades. However, with America plunging into recession, repossession and bank failures imminent, there is a space here for a radical politician. If America is headed for depression who better to revisit the New Deal of Franklin D. Roosevelt?

Sadly, Hillary Clinton, Obama’s faltering Democratic adversary, is too compromised by her initial support for the invasion of Iraq, and also for her years in as a linchpin of the US political establishment. It is tragic for her that she has come so near to becoming the first woman president, just as the first black president hove into view. But in this contest of minorities colour wins.

This is partly down to Obama’s secret weapon - his wife Michelle. She is a campaign manager’s dream: a highly intelligent, highly attractive political. partner, with a real sense of style, but without any sense of social inferiority. She is a black Jackie Kennedy without a doubt. She would be a ideal post-feminist First Lady, who doesn’t need to make an issue of her sex because she is so manifestly her own woman.

The Republican blogs seized on her comment during the primaries that “For the first time in my adult life I feel really proud of my country”, but that is exactly what the white majority should want a prospective black president’s wife to say. There has been a lot of talk about how Mr Obama could unite America and finally put an end to the politics of racial difference. That is too much to expect. But Mrs Obama really could be the beginning of the end for the gnawing sense of racial grievance among American blacks. A role model who isn’t a gangster, singer or athlete.

Of course, as a hack, I am attracted to the Obama ticket because a black president would be such a good story. Imagine Obama walking to the podium at the United Nations and apologising for America’s belligerent behaviour in the Middle East. Imagine him with joining hands with Nelson Mandela and announcing a quadrupling of US aid to Africa. Standing among the Palestinian masses in Gaza, and looking just like them. Sitting down open necked with President Ahmdinejad in Iran, to talk about nuclear non-proliferation.

Yes, of course it’s a dream - a realisation of fantasy West Wing politics. But it’s a bloody good one. And there will be time enough for disillusion.

News blackout lifted on Liberal Democrats

Newspaper editors and their readers have reacted angrily this weekend to the lifting of the media blackout on Nicol Stephen. A voluntary understanding between the media and the voters had led to news outlets observing an almost complete silence on the Liberal Democrat leader since the party lost power in the Scottish elections last May.

It’s feared that following his ‘outing’, Mr Stephen could become a “bullet magnet” for his political enemies. Already opposition parties are saying that he is a total liability and that he shouldn’t be let out alone. An internet website, thought to be linked to the Scottish Liberal Democrats, broke the news that Mr Stephen was going to go into action on the front-line at his party’s conference in Aviemore this weekend.

In his first interview since the reporting ban was lifted, Mr Stephen said: “It’s very nice to be sort of a normal person for once. I think it’s about as normal as I’m going to get”. He went on: “Lucky there’s no civilians around here because it’s a no man’s land. If I go up north, I have to keep my face slightly covered on the off chance someone will recognise me”

Away from the public eye, the Liberal Democrat leader has in recent months seen front-line action on a number of fronts. Skirmishing at First Minister’s Question time, Mr Stephen has been hitting the nationalist forces of Mullah S’al-Omand where it hurts, using live ammunition. However, because of the blackout, these have received zero coverage in the press.

It is claimed that in the autumn Stephen led his troops into a major offensive in the hotly disputed Trumpland province in the badlands of the North East. However, after initial success, it appears that this offensive was beaten back by nationalist forces supported by local tribes who wanted to increase their income from the lucrative international trade in the illegal drug ‘golf”. Stephen’s forces are now thought to control less than 10% of the country.

Stephen has also attempted to reconstruct an alliance with forces loyal to the opposition leader Wendi al-Xandr. His supporters have agreed to participate in the setting up of a new power-sharing constitutional convention. However, this received a set back when al-Xandr’s foreign backers insisted that the convention was a means of taking powers away from Scotland. Wen-di al-Xandr’s militias have now targeted Stephen and hope to destroy him politically now he is out in the open.


A spokesman for the Society of Editors, said that he was “very disappointed” that a website had broken the voluntary agreement not to report anything about the Liberal Democrats. “This is in stark contrast to the highly responsible attitude of the UK print and broadcast media as a whole who have entered into an understanding over coverage of Stephen”. Normal disservice will be resumed at the earliest opportunity.

It's socialism for the banks

Gordon Brown is getting his excuses in early. In his new year address he warned Britain to prepare for "global financial turbulence" in 2008, declaring that: "the global credit problem that started in America is now the most immediate challenge for every economy". Funny how, when things are going well it is all down to the government, but when things aren't going well it is the fault of 'world market conditions'.

I think we can see how the PM is planning to handle the economic downturn that now seems inevitable. 'Nothing to do with us, mate, we just work here'. Well, the impact of the credit crisis has certainly been most marked in the US where millions face the loss of their homes. But this is as much a British-made problem as an American one. Remember Northern Rock? The first run on a British bank in over a century? The debt explosion, which is the root of the problem, is very much our own work.

As the former head of the US Fed., Alan Greenspan, reminded Brown last year, the inflation in house prices, fuelled by reckless lending, has been far greater in Britain than in America, and prices here have a longer way to fall before they become sensible again. Gordon's economic miracle was built on this shaky foundation, so he can hardly blame America for blowing it away.

He's right about the turbulence though. The world is becoming more unstable, as power and wealth shifts from West to East. America's loss of military prestige following the debacle in Iraq is being
paralleled by a decline of the dollar, which is no longer unchallenged as the
world’s reserve currency. Countries like China, now the world's second largest economy, are beginning to feel their strength and looking for a better deal. Their overflowing sovereign funds are now buying into western banks desperate for capital to meet their immense debts.

Why did the mighty Wall St banks suddenly discover they had no money to cover their loans? Well, as everyone now knows, dodgy US mortgage debts had
been “securitised” - packaged up and sold on to other
financial institutions as “collateralised debt obligations". This
was supposed to spread the risk, but it also spread the contagion,
and when the American housing market caught a cold, the rest of the
world caught pneumonia.

But British bankers were in the forefront of the "securitisation revolution". The City of London made a fortune out of trading CDOs. The Bank of England helped by slashing interest rates whenever the house of cards looked unsteady, or when British mortgage payers got into difficulties. Moral hazard begins at home.

It’s easy to blame nasty foreign bankers for these problems,
and they are certainly guilty of creating complex financial
instruments,
which they didn’t really understand. However, the root problem
was very simple: too much borrowing.
And we, the people, have to take at least some responsibility for this - for taking out the loans in the first place. The British housing market became infected by a gold-rush mentality, where everyone hoped to get rich by borrowing to buy. We all wanted something for nothing. Families used their houses as
if they were cash machines. The government played its part by allowing tax breaks to buy-to-let speculators.

So we are all implicated in this insidious self-delusion, and we clearly haven't learned. British consumers spent and spent over Christmas, adding more billions ta debt mountain that already stands at a record £1.4 trillion. Britain is the most debt-ridden country in the world and we have more on our credit cards than the rest of Europe combined.

The government has been as profligate as the rest of
us, despite Gordon's "golden rules" , and is currently spending around 9 billion a month more than it is
receiving in taxes. Britain’s balance of payments went
into the red by record £20bn in the last quarter,
equivalent to 5.7% of national income.
Britain is worryingly dependent on the financial services sector - largely as a result of the government's neglect of manufacturing - and now that the goose is cooked, government tax revenue is sinking as the City prepares to axe literally thousands of jobs. Expect tax rises in the coming months as the treasury tries to make up the taxation gap.

Economics is always a dismal science, but it’s hard not to be
alarmed by this situation. The world really did change in August
when the banks stopped lending to each other, suddenly realising that they'd created a financial Frankenstein.
The reaction of the Anglo-Saxon
countries - essentially Britain and America - has been to fight debt
With debt. Central banks have tried to resolve the credit crisis by
pouring public money into the cash-strapped banks and by cutting interest rates. The consequence of this last desperate financial fix of cheap money will almost certainly be the return of inflation as a major political issue in 2008.

Real
Inflation - the RPI which includes housing and energy costs - is
already over 4%, and the central banks should arguably be increasing interest
rates rather than cutting them. Inflationary pressures are hard to ignore, with oil over $90 dollars and world food prices
rocketing. But inflation is seen now as the lesser evil, and everything
is being thrown at a rescue of the corrupt financial system which got us into
this mess in the first place.

It's socialism for the banks. A cash rescue not just for Northern Rock, which has absorbed some 25bn of our money, but for the likes of Morgan Stanley, Citibank, Merrill Lynch. Central banks are handing out loans of such magnitude now as to beggar belief. Before Christmas the European Central Bankers handed out a credit line of 500 billion - half a trillion dollars!

In any other era, this might have been seen as an
irresponsible use of public funds, but we live in an era in which there is precious little questioning of the financial system. The political influence of the financial institutions
is so great in America and Britain that they can
largely dictate economic policy. It is
as if democracy has ceased to function, and the interests of the
banks have come to be seen as synonymous with the interests of the nation.

But we know they aren't synonymous. The banks have an imperative to lend, because their trade is in debt. The nation needs to save - now more than ever. Before we throw yet more money at the banks we need a thorough review of the economic policies that brought about the "global economic turbulence that the PM says is about to hit us. That should be Gordon Brown's New Year resolution, not passing the devalued buck.