Lord Younger puzzled by Treasury rules

arcane.

His remarks were made in the context of water privatisation during a

conference in Glasgow organised by the Institute of Chartered

Accountants of Scotland and the Chartered Institute of Public Finance

and Accountancy.

Lord Younger, a former Cabinet Minister and now chairman of the Royal

Bank of Scotland, had addressed the conference on the question of

whether the recession had ended.

His verdict was cautious but essentially negative. He said that the

Scottish economy had resisted recession for a considerable period but

was now affected by it.

He warned that the recovery, when it came, might be retarded because

of the Scottish economy's relatively high dependence on the public

sector and defence expenditure. Both of these are under severe

constraint.

He believed that the sums required for investment in Scottish water

and sewerage services would simply not be forthcoming from the Treasury

and that some means of raising them from the private sector would have

to be found.

Mr Ian Lang, the Scottish Secretary, has announced that the Government

is considering various options for future investment in water and

sewerage.

He believes borrowing consent for the sums required -- #5000m over the

next 10 to 15 years -- will not be given by the Treasury.

Such sums, if borrowed by public authorities, would be added to the

public sector total because, although raised on the private money

market, they would be guaranteed by the Government.

Lord Younger's comments about the curious nature of the Treasury rules

came in response to an intervention from Mr Bill English, director of

finance in Glasgow district.

Mr English pointed out that the sums required for water and sewerage

could be raised by the public sector if consent were given. They would

be raised from the same markets as would subscribe to any private-sector

intitiative.

In his response Lord Younger confided that the Treasury rules had been

something of a puzzle for him during his years in Government.

But he did point out that the Chancellor's proposal in the Autumn

Statement -- that the Government would actively encourage joint ventures

with the private sector -- represented a significant, if little noticed,

break with Treasury orthodoxy.

Another theme that occupied the conference was the development of an

underclass. In an intervention from the floor, Sir James Mellon,

chairman of Scottish Homes, told of his private fears about some of

Scotland's housing schemes deteriorating to the levels of the Bronx in

New York.

Through his agency, he is striving for a greater housing mix to avoid

large schemes where almost everyone is on State benefit.

This concern was reflected by other speakers, including Mr Arnold

Kemp, editor of The Herald, and Mr Lex Gold, of Scottish Enterprise.

Both attempted to answer the question of whether the recession had

ended. Mr Kemp said that there was still a lack of confidence in the key

areas of housing and jobs. Mr Gold pointed to continued difficulties in

the international economy.