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transport infrastructure

David Scrimgeour MBE DS Consulting, Munich

David Scrimgeour MBE
DS Consulting, Munich

As Scotland heads towards next year’s referendum, there’s a lot of interest in what is happening here across Europe. The EU is one of Scotland’s main trading partners – but how much do we know about our near neighbours? How much to we know about Germany in particular, the powerhouse economy that’s keeping much of the EU afloat? Should the Scottish Government be investing as much effort on Berlin as it does on ‘Tartan Day’ in New York?

David Scrimgeour MBE of DS Consulting is a Scots lawyer and inward investment specialist who’s lived in Munich for many years. From today, he’ll be giving us regular insights into developments in Germany. After all, there could be a German Chancellor with the very Scottish name of David McAllister. We’ll need a ‘special relationship’ with him. (ed.)

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Not so very long ago Germany had been effectively written off by Superwoman fund manager Nicola Horlicks who said “I’d rather be the UK than Germany right now with its manufacturing legacy.” Apparently companies that made things were by their nature unable to generate sufficient value for investors.

BMW in  Munich

BMW in Munich

The Economist had numerous covers and leaders over the years depicting Germany as a failing, stumbling, sclerotic basket-case. Private equity pundits also mercilessly derided the miserable single-digit returns which were all that could be squeezed out of a hopeless economy. However, all this economic failure strangely did not deter the Anglo-Saxon investors from invading the property market in droves to gather up the low-hanging fruit which local German investors had spectacularly failed to notice.

How things have changed – or so it seems. In fact everything here is pretty much the same as it was 20 years ago. Cars are still being built by German-owned companies, houses are for living in, machinery is being exported, the saving rate is still 11% and your public utility recycles your electricity payments to invest in community infrastructure. Life was and is good for the vast majority and there has always been enough money around for long foreign holidays, including to Scotland.

Germany has an excellent and integrated  transport infrasturture

Germany has an excellent and integrated
transport infrasturture

What has changed, though, is the European and global context. Suddenly, Germany looks like a winner because other economies are falling behind and is therefore expected to bail out the losers. Unsurprisingly, this expectation has created resentment among Germans. The positive result is that many people from outside, for the first time, are looking more closely at this fascinating country and actually trying to understand how it works.

The answer to this question is necessarily complex for a big diverse country with a population of over 80 million and 16 states or “Länder”. Some aspects are easier to understand. Anyone who came to the World Cup in 2006 experienced fantastic weather, great stadia, impressive transport infrastructure and, crucially, peaceful people and wonderful beer. For many it was like discovering a new continent where fantasies turned out to be true, at least for a few weeks.

The average German rarely moves house

The average German rarely moves house

In a similar way anyone who has been living here for long enough or doing business with Germans over the years will have an appreciation of these and other positive qualities. For others though, with no contacts or experience, this nation is a complete mystery which, plainly, can no longer be explained away as inferior or moribund by ill-informed fund managers.

So what are the key cultural characteristics, government policies, economic factors and life philosophies that have created this giant? Everything starts with the individual and what is most striking is their natural homogeny in terms of a collective understanding of the basics. People think the same way and this cuts down the amount of time and effort needed to agree about what to do. Political and industrial disputes tend to be about emphasis and fairness in application rather than endlessly raising questions about ground rules.

There is a common understanding too that it will take time to do things properly so a long term approach is obvious. The average German lives in a house for 17 years compared with the typical Brit who moves house on average 8 times in his/her lifetime. So while the British are spending their time and energy packing and unpacking the Germans are busy building cars or enjoying well-earned holidays.

The main characteristic which drives nearly everything here is an extreme aversion to uncertainty. This explains the excessive use of insurance, the very conservative approach to finance (recently a positive), the massive legal superstructure and predominance of lawyers in society and also the striking lack of entrepreneurial activity. In a rapidly changing and evolving world this need for certainty and predictability may be the German Achilles heel. Although looking rather invulnerable at the moment is Germany heading for the sickbed in the not-too-distant future?

Princes St tramworks – more to come <em>Picture: Richard Webb</em>

Princes St tramworks – more to come Picture: Richard Webb

By John Knox

The baffled contractors for the Edinburgh trams are now working out how they will complete the line to St Andrew Square for a mere £776 million.

The white-collared executives at Bilfinger Berger headquarters back in Germany must be ruing the day they ever took on this contract. It has been plagued by problems from the start – vagaries in the initial agreement, disputes, delays, technical difficulties, unforeseen extra work, simple bungling, incompetent middlemen, a divided and confused council, a hostile government and an angry public.

But has there ever been a large public works project that has gone smoothly? When the original railway lines were built in the 19th century there were constant delays and disputes. The tram projects across England in the 1980s and 1990s – in Manchester, Nottingham, Birmingham, Newcastle, Sheffield – took 10 to 15 years to build and were subject to alterations, disputes and financial crises before they finally proved a success. The much vaunted system in Dublin was three times over budget. And yet all of these transport systems are now the boast of their citizens and have been extended or are being extended.

It was all a question of keeping one’s nerve. And this Edinburgh council has finally managed to do, though the councillors have behaved badly along the way. How, for instance, did they ever manage to vote for the madcap option of halting the line at Haymarket? The Labour and Conservative councillors who pushed this through must have been attending a tea party in Wonderland.

The economists were telling them that very few people would want to use a line from the airport that stopped short of the city centre. It would make a loss of £4m a year. And where would the terminus and turnaround area be? And how much extra would that cost?

The Conservatives went further at the final vote and wanted the whole project abandoned. This is after £440m has already been spent. Mind you, the ruling Liberal Democrats had been drinking something peculiar too when they claimed that the cost of cancellation would be £750m – give or take the odd £100m. This must have included not just the money spent already but also the cost of buying out the construction contracts and putting the underground pipes back where they were – a little too much tidying up and somewhat disingenuous.

As for the SNP, their opposition to the trams has always been a little suspicious. It does not easily square with their ambition for Scotland as a modern, well public-serviced nation. Did they really want to leave the capital city without a vibrant city centre and without the transport capacity to expand? Edinburgh would be left as the only major city in Britain without either an underground or overground rail system.

I suspect the SNP’s opposition was all a populist ploy to take advantage of the temporary frustration with the trams in Edinburgh itself and to appeal to people in other parts of Scotland who felt that “posh Edinburgh” was getting too much of the national cake. In the end, though, the SNP saw sense and realised the only thing to do was finish the line to St Andrew Square, whatever the cost.

John Swinney, the finance secretary, finally brought people to their senses by threatening to withhold the £72m the government still had to pay as its share of the cost. That allowed the council – in the SNP’s favourite phrase – to think again.

Now it’s up to Bilfinger Berger and the other contractors to get on with the job and finish the line by, say, 2016. They have three major embankments to build. Then they need to lay most of the track, re-lay the botched section along Princes Street, build a terminus at York Place, install signalling and CCTV and arrange for the Lord Provost to cut the tape.

The council for its part needs to take out a loan for £231m – paying roughly £15m a year for the next 30 years. It needs to stop arguing with the contractors. And it needs to hold on to the vision that the line between the airport and St Andrew Square is only the beginning of a network of trams that will stretch to Newhaven and Granton on the north side of the city and to the new hospital at Little France and Musselburgh in the south and east. Then Edinburgh will be able to grow gracefully, with quick and easy access to the city centre from prosperous villages on its outskirts where property prices – and council tax revenues – will be rising nicely in the years ahead.

And as the works begin again, the investigations and the lesson-learning can begin, too. Lesson one: do not employ TIE, Transport Initiatives Edinburgh, and their expensive executives. They have very nearly ruined this project. Lesson two: for big transport projects use the experts at Transport Scotland, and here the Scottish government was at fault for not offering this assistance.

Lesson three: make sure the original contracts are clear about who bears the risk of unforeseen difficulties – it should, of course, be the council. Lesson four: do not have lengthy disputes with your contractors – disagreements should be settled while work continues because delays just cause costs to rise.

Lesson five: do not enter into confidentiality agreements, but let your disputes take place in the open air. Lesson six: be patient and understanding. These public works projects are difficult, take time and are expensive. Lesson seven: try to be responsible democrats. Political parties should not give in to every passing frustration in the press or from the public.

And finally, lesson eight: try to take pride in the project. It is creating jobs at a time of recession and it is building something for the long-term benefit of the city.

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John Swinney

John Swinney

After weeks of speculation, we now have the detail of the Scottish Government’s financial plans. It was a question of facing up to the inevitable. Finance Secretary, John Swinney, told the Parliament that he had to cope with a cut imposed by the UK government of more than £1bn. So he’s planning to cut spending and introduce a public sector pay freeze, at least for some.

Civil servants earning less than £21,000 will get a minimum annual increase of £250. Those earning more will receive no increase next year at all. And this won’t just apply to Scottish government staff. Those working in government agencies and non-departmental public bodies will have affected as well. This should also set a “framework” for other public sector workers, such as those in the NHS, teachers, police and firefighters.

Mr Swinney explained his decision by pointing out that public sector pay accounted for more than 50% of his budget. Restricting it and stopping the payment of large bonuses would save jobs, telling MSPs that “Our pay restraint policy will support thousands of jobs in local economies across Scotland.”

The Government’s spending plans and draft budget will set a 3% “efficiency savings” target across public services. But the finance secretary offered a carrot to Scotland’s local authorities, agreeing to limit the cuts on local authority spending to 2.6% if they agreed to continue the council tax freeze for a fourth year. The Councils’ umbrella body, CoSLA, has already accepted this.

As part of the deal, the councils will have to keep the current number of police officer – boosted by 1,000 since the SNP came into power in 2007. This commitment has been welcomed by the Scottish Police Federation, although it said the 2.6% cut in police budgets would “create challenges”.

On the NHS, Mr Swinney told the Parliament that spending would be protected. However, he said the Service had to cut the number of senior managers by 25% over the next four years. The plan to abolish prescription charges completely next year will still go ahead.

There will be losers. Housing, education and tourism budgets will all be cut. Housing will see a cut of 19.3% in the next year. Scotland’s colleges and universities will also see their funding drop by 12%. But Mr Swinney insisted that university places would be maintained, without the introduction of tuition fees in Scotland.

Mr Swinney promised to maintain spending on capital projects by moving £100m from this year’s budget. He added that the plans for constructing a replacement for the Forth Road Bridge were “still on track”.

In reaction to this announcement, Scottish Labour’s finance spokesman, Andy Kerr, accused the finance secretary of putting party political interest before that of the country by bringing forward a one-year rather than a three-year budget, adding “He is not running a country – he is running an election campaign.

“It is outrageous that our local authorities, health service, our universities, further education colleges, police and fire services are being denied the ability to plan effectively. They are all demanding clarity so that they too can set budgets, deliver services and reassure staff, but they cannot because of the SNP.”

For the Scottish Conservatives, finance spokesman, Derek Brownlee, agreed that Scotland needed a “longer-term budget” while welcoming the freeze in public sector pay and council tax. The Tories also thought it “”entirely fair that the roads budget should shoulder its share of savings, not least because of the costs involved in the new Forth crossing.”

However, transport spokesman, Jackson Carlaw, warned that “It would however be regrettable if the reduction in the budget for the maintenance and improvement of our motorways and trunk roads led to greater long-term costs as a result of the roads infrastructure being allowed to deteriorate below an acceptable standard.”

Jeremy Purvis, for the Scottish Lib Dems, also said that the draft budget was “too short term. On the day when unemployment is going up in Scotland but down in the rest of the UK, the SNP are wrong to cut support for enterprise, colleges and tourism, but not to cut high pay, bonuses and waste. This is a dangerous way for every school, hospital and college to try and plan ahead,” he added. “They can’t take sensible decisions if they don’t have the future plans.”

Reaction outside the Parliament was swift. Jonathan Fair, Chief Executive of home building industry body Homes for Scotland, described the budget settlement as “difficult” but added: “we are encouraged at the continuing importance the Scottish Government is placing on housing investment.

“In particular, we welcome the intent to expand the National Housing Trust initiative to maximise the delivery of new affordable homes and build on the successful developer New Supply Shared Equity pilot scheme. However, we remain keen to see the detail and understand the precise implications.”

There was more concern from those involved in the creation of affordable housing. The Scottish Federation of Housing Associations said that housing investment is still taking an undue share of cuts. It pointed out that the number of new affordable homes built in Scotland next year was set to drop when the country needed 10,000 a year to meet demand.

Its Chief Executive Mary Taylor acknowledged that “This was a difficult budget for the Scottish Government. We are pleased it has not demolished the funds for new housing by 63% as the UK Government has done in England. However the 30%-plus cut in the affordable housing budget means the supply of much-needed new housing in Scotland can only fall.”

At the Scottish Council Development and Industry (SCDI), there was a mixed response. In the view of Chief Executive, Dr Lesley Sawers, “The Scottish Government has had to make tough choices and SCDI welcomes the priority which it has given to infrastructure investment, which is vital for the future growth and sustainability of Scotland’s economy.

“However, given that the Scottish Government’s priority is increasing sustainable economic growth, SCDI is disappointed that the cuts affecting Scotland’s enterprise, education and tourism sectors are, once again, significantly larger than other departments. Investment in skills is an essential element of a successful economy and the substantial reductions in funding reinforce the need for a new approach which sustains the competitiveness of Scotland’s universities and colleges and offers opportunities for young people.”

At the CBI, assistant director, David Lonsdale thought it “very encouraging” that Ministers had “sought to protect investment in transport infrastructure as much as possible, with welcome announcements on completing the M8 and Aberdeen bypass.” He also welcomed plans on broadband investment, the freezing of council tax, and the decision not to use the “tartan tax”.

“However we are deeply concerned about the plans to levy higher business rates on larger retailer.  Supermarkets have been one of the few bright spots in the economy over recent years and levying extra rates will hit their investment plans, at a time when they have already been clobbered by the refusal to reintroduce transitional relieve.”

The Federation of Small Business added its voice to those agreeing that the Finance Secretary had faced some “difficult choices”. Policy Convenor, Andy Willox, noted that “On the day that the number of Scots unemployed increases once again, our collective priority needs to be job creation and sustainability. Small businesses have a track record of creating jobs – we need more emphasis and support placed on these businesses – no matter their sector or location.”

He also had this warning. “Many of the most difficult decisions will be made in our town halls and city chambers across Scotland. These local debates need to focus on what can be done to grow and sustain employment – private and public. Hammering soft targets such as economic development, planning, local infrastructure and waste charges would be the easy but wrong thing to do in these circumstances.”