91Èȱ¬

If you were an investment banker, wouldn't you take your bonus?

Of course you would. You're in it for the wonga, aren't you? You're not there to provide some kind of social service, for goodness sake. For the hours you work, the tedium of what you do, and the ease with which a bad quarter can see you sacked, you deserve it.

It wasn't you who personally brought the financial system crashing down, so why should you pay the price now?

And there are no bragging rights in Soho wine bars to be had from handing your pay packet back to the group finance director to park in the bank's Basel-friendly capital reserves.

Inflated fees

This may not be the orthodox view of investment bankers, but it seems worth saying that looking after Number One comes naturally for them - as, indeed, it does for quite a lot of us. They are only behaving rationally, within the internal logic of their super-charged world.

Perhaps we need to change the question - not why are they awarding themselves such huge bonuses, but why are they making such large profits from which to draw those bonuses?

One reason is pretty clear this morning in a report from the Office of Fair Trading. Investment banks are basically over-charging their corporate clients with inflated fees.

This is in the business of under-writing equity. It's one of the roles of investment banking - marketing new share equity in a client company and, in the rare event that there aren't enough takers, you promise to pick up the shortfall.

The OFT has found that the market isn't working effectively. Between 2003 and 2007 - before the crunch - fees rose from 2% or 2.5%, up to 3%. That's not much of an increase, you'd have thought.

But it's a lot of wonga when you consider that, in 2009, share issues in Britain raised about £50bn, and the fees charged amounted to £1.4bn.

It could be explained by increased market volatility, but the OFT observes that subsequent reduced volatility doesn't seem to have been matched by reduced fees.

Excess profits

Why is this allowed to happen? The OFT says it's because the client companies don't pay enough attention to fees, preferring to focus on making the share equity work smoothly. They don't do many share issues, so they lack the expertise and adequate knowledge to negotiate a good deal with banks. And institutional investors are not sufficiently active in questioning why such high fees are paid.

But surely there's more than that. Couldn't it also be because there's not enough competition in investment banking. The excessive profits being made by these banks, and reflected in ludicrously high bonuses, are because the market isn't functioning properly.

In any other market with excess profits, newcomers would be attracted into the business, and prices would be driven down. But not investment banks, where the barriers to market entry are formidable.

The OFT is recommending the answer to this market failure is for clients to become more active in negotiating better deals. It's not recommending a reference to the Competition Commission.

But is that sufficient? Isn't the answer to these excess profits to tackle the cause rather than the symptom, and to challenge the dominance of so few global players in investment banking?

Corporate hubris

It's something that might be usefully considered by the Independent Commission on Banking, chaired by Sir John Vickers, which has just released the submissions it's been sent.

There's an eye-catching proposal from Sir George Mathewson that Royal Bank of Scotland should be split from NatWest. This is a strange one, given that Sir George and his protege, one Fred Goodwin, made the takeover of NatWest the deal from which they extracted immense value, catapulting Edinburgh-based RBS into the international big league.

The Royal's become a by-word for corporate hubris since then, but if it hadn't been for the subsequent ABN Amro deal, it might still be the proud flag-carrier for Scotland's ambition to build global businesses.

Eleven years on from his buccaneering takeover, having been chairman of the Scottish government's Council of Economic Advisers and now scunnered by the lending practices of the big banks to the smaller companies with which he's now involved, Sir George is persuaded of the case for making RBS back into a Scottish bank for Scottish customers. What does that say about national economic ambitions?

Likewise, he doesn't only want to de-merge Lloyds TSB from Halifax Bank of Scotland - which merged in a rush in late 2009, building a 30% share of the British retail market - but to split Halifax from Bank of Scotland. Again, it's to create a Scottish headquartered bank.

Break-up or open up

Sir Peter Burt, former chief executive of the Bank of Scotland, who did the deal that merged it with Halifax, is less clear what should happen to his former charge. He's strongly against creditors being forced to take the pain of a bank's collapse, while observing that it would make more sense to split up mega-banks vertically than horizontally - thus keeping investment and retail elements together, but having more of them in competition, instead of splitting investment from retail operations.

Lloyds Banking Group, which took over HBOS and its colossal lending problems, is (predictably) opposed to break-up, even though its 30% share of the retail market is seen as bad for British banking.

But it offers some concessions to the Independent Commission, such as a much easier system for switching current accounts, instant switches of ISA accounts and printing the prevailing interest rate on all statements. That way, customers would quickly see when introductory interest rate offers have been cut back, close to zero.

It could start the latter without delay, without waiting for the Commission's recommendations - so why not?

I've also read, several times, the submission to Sir John Vickers by John Swinney, Scotland's finance secretary. And I'm none the wiser as to whether the Scottish Government wants to see Royal Bank of Scotland broken up or not.

It wants better lending to small businesses, and more competition, but it isn't saying if that should mean a break-up of the giant, with consequent impact on its Edinburgh headquarters.

It's a big question on which to be silent.

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• - What's this?

Are you for or against more tax powers for the Scottish Parliament?
For many businesses, the answer is: er, we dunno, but be sure that we'll complain like hell if it turns out that it hurts us.

For those businesses that have taken a look, one key to answering the question is whether or not the Scottish Parliament will use enhanced income tax varying to raise or lower taxes.

That takes guesswork about the future direction of Scottish political decision-making. They like the sound of falling taxes, as you might expect. Rising taxes: rather less so.

The question ties into the proposed tax on large retailers. The plan, in John Swinney's draft budget, is justified on the basis that times are exceptionally tight, the supermarkets can pony up £30m while hardly noticing, and it "levels the playing field" with hard-pressed smaller retailers.

Whether that's true, fair or even legal, there's a bigger point of interest to all businesses - that in the absence of other significant tax-varying powers, the Scottish government is using the limited powers it has to increase the tax rate and take on large corporations.

What signal does that send? What does that tell you about the claims that corporation tax would be slashed, Irish-style, if only Holyrood were given the opportunity?

Then again, the other way of answering the question is the SNP's one, raising concerns about the general level of spending in Scotland, and that the proposed changes may merely be cover for the Treasury slashing the block grant for funding of public services in Scotland.

Accounting allies

Try digging deeper into the tax powers proposed by the UK government. Today sees a hearing of the Scotland Bill Committee at Holyrood, trying to do just that.

There's some thoughtful evidence before it from accountancy organisations. The most striking written evidence comes from the Institute of Chartered Accountants in England and Wales (ICAEW).

It's interested in the proposals because separate taxation of Scottish income will have to be considered by companies that employ on both sides of the border.

But it goes further than that, to argue that the powers being proposed don't go far enough. English and Welsh accountants are unlikely allies for those fighting to get fuller fiscal autonomy, but their institute offers one of the more colourful illustrations of the case against the currently proposed new powers

With no powers to vary the tax base, allowances, tax bands, corporation tax or national insurance: "This could be likened to Scotland being given its own car, receiving a brake and accelerator but no steering wheel".

The Institute of Chartered Accountants in Scotland (ICAS) has a more detailed approach, and it ought to give businesses food for accounting thought.

Cross-border confusion

One question is how much this is going to cost businesses. It is claimed most have software that could be adjusted to take account of a different tax rate for Scottish employees. But that claim has not been tested, least of all with the complications of tax relief on pension contributions or gift aid, which could be offered at different rates under different tax regimes.

The Federation of Small Businesses skirts a long way round anything as political as an opinion of the wisdom of what's proposed, requesting only that the new tax system should have "no or minimal time costs for Scotland's small businesses". It could be accused of wishful thinking.

The cost of all this partly depends on how easy it would be to set up a separate register of Scottish taxpayers. ICAS says that, if the system is not simplified, the upper estimate of a £150m cost can be expected. The optimistic price is £45m. And then it needs kept up to date.

Simplifying the register requires a clear definition. So how do you qualify as a Scottish taxpayer? What if you live in England but work in Scotland, or vice versa? What if you work part of the week or year in one country, and the rest elsewhere.

An example offered by ICAS is of someone who spends 101 days in Scotland, 99 in Scotland and 165 overseas. That wouldn't be surprising in the oil and gas sector, for instance. Under current plans, that person would pay the Scottish tax rate, despite spending most time elsewhere.

How do you check up on where people are working? And who is responsible? Employer or employee, or both? And ICAS asks: why won't HM Revenue and Customs consider the possibility of splitting the fiscal year so that people can pay different rates for different periods of work?

Scottish sleepovers

The way things look now, someone living in England but working day shifts in Scotland would pay English tax because they sleep in England. But someone living in England (say, Berwick-upon-Tweed) and working nightshifts in Scotland (Torness power station?) would be spending the nights in Scotland, so would therefore be liable to Scottish tax.

If elements of this seem unfair or arbitrary, then ICAS warns the acceptability of a tax is "a very fragile principle".

What then of employers who want to locate workers in higher tax regimes? How do you persuade your employee to re-locate? Experience in other jurisdictions, such as the US, suggests that employers take the hit by adjusting pay so that employees are no worse off if they move across boundaries.

And what of those on low income? Students for instance, whose residency and earnings can be very complex but not all that substantial.

ICAS points out that low income does not mean simple tax affairs. It also means less ability to pay tax or to buy advice.

And with the UK government introducing systems that will tie earnings to welfare payments, in order to "make work pay" by tapering off the poverty trap, the complexity of working through a UK-wide welfare system, with differential tax rates, will make things more complex still.

Puzzled As You Earn

It should not be beyond the wit of Her Majesty's tax man and revenue woman to figure this out. Britain is not the first country to have different tax systems in one fiscal jurisdiction.

But it does start from a position that makes it particularly difficult, with income tax deductions overwhelmingly sourced from employers' payrolls.

That makes it all the more important that employers get involved in the discussion before the legislation sets the changes in statutory stone.

If that's you, I'm told the Scotland Bill Committee is eagerly listening.

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• - What's this?

With downloads down, illegal online piracy still rife, and Britain's leading high street music retailer in a serious load of bother, it's clear the music industry still hasn't figured out how to handle the challenge of the internet.

But at least one niche may be benefiting from it.

Scottish traditional music is able to get out of the dingy aficionados' record stores in the Scottish cities and a few towns, and reach a global audience.

And as it's about more than just music sales, but about a community of interest in the broader culture that goes with it, the net offers discussion forums that can link people globally.

Donald Shaw, of Capercaillie and director of Celtic Connections - the music and cultural shindig now under way in Glasgow - says the problem remains the middle ground of music.

Capercaillie made that breakthrough because the record labels used to offer that conveyor belt to airplay and success in the commercial mainstream.

That's harder to do now. But others are able to focus their music marketing on the web, avoiding the need for CD printing and distribution costs, and replacing fly-posting required to get people to your gigs with the rather better targeted Facebook.

Find out more in a report by my colleague Gillian Sharpe, on Business Scotland, Sunday 23 January at 1000 GMT, and available after that by podcast.

It comes after a major interview with Vijay Mallya, flamboyant chairman of United Breweries, talking about his Whyte and Mackay distilling company, about the Scotch whisky trade, his cricket team, his Formula 1 team, and about tapping into the extraordinary potential of India's burgeoning middle class.

He spoke to me after flying into Glasgow from New Zealand a few days back. His private jet was making the journey (and is making the return
journey) to carry three priceless bottles of Mackinlay whisky found under Ernest Shackleton's Antarctic hut, having been frozen there for more than a century.

It was, he said with breezy candour, a wonderful marketing opportunity.

I'd bet on the production of an Edwardian-style 'Shackleton' whisky on the market, just as soon as it can be distilled and matured.

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• - What's this?

There are echoes of Franklin Roosevelt from the depths of the 1930s Depression, when he said American had nothing to fear but fear itself.

Even though this week's growth figures showed Scotland - in the third quarter of last year, at least - comfortably into growth territory, at 0.5% for the quarter, confidence levels are in the same gloomy position as the depths of recession. And recovery depends on confidence.

Looking at the week past, you could cheer some renewable energy developments and a second month of Scotland's unemployment figures closing the gap with the UK as a whole.

But there's lots more that fits with the foggy weather clamped down on the Clyde as I write.

That growth rate is lagging the UK figure for the same quarter, which was 0.7%.

The positive spin put on a second quarter growth at 1.3%, ahead of the UK's 1.1%, has been silenced.

These are backward-looking figures, and coming out of recession, we shouldn't be surprised that the official registrar, Accountant in Bankruptcy, this week released figures that show company insolvencies were up 46% last year, to 1098.

Nor should we be surprised that both the Scottish Retail Consortium and the Office of National Statistics (covering the UK as whole) this week reported December's shopping figures were dire. The weather explains a lot of that.

Remember that December is the month when retailers need to make their profits, yet only food sales were on the rise, helped by inflation.

So we shouldn't be surprised to see the retail figures feeding through to the bankruptcy figures during 2011.

Property barometer

It's that forward view that looks most concerning.

Chartered surveyors were this week telling us about depressed house prices.

One newspaper quoted one of Scotland's larger estate agents talking about "a lost decade" in the housing market.

You could argue that prices haven't fallen as far as they should, or as some would like, to help them get on the bottom rung of the property ladder.

But the impact of stagnant prices feeds through to confidence generally, as house prices have, for decades, been the barometer by which many Britons measure their sense of wealth and financial wellbeing.

Scottish Chambers of Commerce issued its quarterly survey of members this week, saying prospects for the start of this year look "very weak", particularly for those companies that look to the public sector for contracts.

Exports offer some hope, but business optimism "continued to decline in all sectors" towards the end of last year.

Even though construction was the brightest side of the third quarter growth figures, its optimism about this year - as with manufacturing and tourism - is at its lowest ebb since the start of 2009. That was the worst part of the recession.

CBI Scotland was next to offer its survey evidence, and it was more of the same.

Domestic orders fell unexpectedly last quarter, with only exports holding out much .

Similarly, input prices were on the way up, but with little flexibility to pass them on in output prices.

That's a contrast with the rest of the UK, where the CBI's industrial trends survey reported on the same day that it hadn't seen such an upswing in manufacturing prospects for more than 20 years.

In its regular measure of consumer confidence across the UK, Nationwide Building Society reported a December uptick after a very downbeat autumn.

It wasn't so much that respondents were appearing more positive, but that they were a bit less negative about the coming six months.

That's a sort of progress for the UK as a whole, but it's hard to see much in Scotland that matches it.

It's not such a great start to the year.

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It's not a big name in Britain's renewable sector, not yet anyway. But Gamesa is blowing into Britain with a lot of money to invest, and you can expect to hear more about it.

That's because the UK's ambitious plans offer huge potential for companies wanting to get into offshore wind farming, and partly because subsidies in its home market are being cut as part of the Iberian austerity drive.

Madrid-based Gamesa has chosen London as its operational headquarters for offshore power - because that's where the money is, and deals get done - and today announced Glasgow as its engineering and design centre, bringing 130 jobs.

That's significant for Glasgow, because it makes it the third major company - also Iberdrola/ScottishPower and Scottish and Southern Energy/Mitsubishi - to put such a centre of expertise into the city.

It's when an industry cluster offers different employers in one location that people are more likely to move to it. And Glasgow is becoming a centre of expertise in the engineering, design and managing of offshore renewables.

Silvery Tay turbines

The memorandum of understanding just signed between Gamesa and Scottish Enterprise, Dundee Council and Forth Ports, owner of Dundee docks, is a long way from creating the 170 jobs being highlighted with the announcement.

That's the starting position for Gamesa to see if it can get a deal it likes to set up its logistics, maintenance and possibly a manufacturing facility on Tayside.

The Spanish managers are waiting to see what money they can expect from the Scottish government. The Glasgow deal is still awaiting sign-off of some grant funding, and the Dundee plans revolve around the release of at least some of £70m, spread over four years, which ministers have put aside for developing port facilities for the offshore boom.

Meanwhile, there are conflicting signs around the renewables industry. If you head down the North Sea coast to Humberside, there's good reason to celebrate a huge investment by German turbine-maker Siemens. Up to 10,000 jobs could be created there.

But in Aberdeen, Subocean, which lays offshore cables for the renewables industry, has gone from very rapid growth to the brink of collapse.

Skykon, the Danish company that took over the Machrihanish turbine plant on Kintyre, ran into financial problems, and while work continues, its long-term prospects are unclear. Sea Energy has been trying to sell its renewables division for months, having been successful in winning the right to develop offshore, but not the funding.

The lessons: one is that, while the offshore boom could bring many billions in spending, the pipeline for contracts is not looking good for the next two or so years. Companies need to have patience, and very patient lenders, if they are to be around for the returns on vast up-front investment.

Another is that Aberdeen, established for 40 years as energy capital of Europe, risks losing out on the offshore renewables boom, because it's in the wrong place, and perhaps also because it's relatively expensive. The biggest of the offshore windfarms are in the shallow water off the coast of England, and much closer to Humberside than they are to Pittodrie beach.

It may blow lots off the coast of Scotland, but it doesn't necessarily mean the jobs will blow in that direction.

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It's not just journalists who are suffering from the decline of their paper's circulations, with that shedding of staff continuing.

A new threshold passed on Friday, as the Daily Record reported average daily sales below 300,000 for the first time in decades. That's well under half of its strength only 25 years ago, before The Sun took it on, and won.

And it's the end of an era with the retirement of Derek Tucker as editor of the Press and Journal in Aberdeen, expected to spark changes there, with more integration into the DC Thompson publisher in Dundee that bought it nearly five years ago.

But newsagents are also suffering. That's one of the points raised in a discussion for this Sunday's Business Scotland programme, by Colin McLatchie, former head of the Murdoch empire's News International operation in Scotland.

It's partly that the small shop has lost out through falling tobacco sales, and will soon have to put the ciggies under the counter. Also, supermarkets are taking an ever-bigger share of the newspaper sales market.

But one factor still operating in favour of the smaller shops is that cover prices are not being discounted. Will that hold? It used to be the case with books as well, but when the Net Book Agreement was eroded from 1991 onwards, it revolutionised the retail market, leading to cheaper books but damaging consequences for the range of reader choice.

According to Colin McLatchie, it's looking bad, even without discounting: "At the minute, we can choose - you can walk into a newsagent and choose from 14 national dailies each day. That will disappear. There will be no choice. I suspect the print version will be much more expensive than it is now, and it will probably be on a subscription basis. The prospect for newsagents on that basis - very grim."

He left News International in 2004, and this weekend, he's joined in a rather gloomy studio discussion of where the newspaper industry is now heading.

The positive strength is that newspapers have skills in handling, understanding and analysing information, but making money out of its dissemination is a whole lot more difficult.

That's particularly the case in handling the threat of Google. It's everyone's best friend in finding out information, but no friend to newspapers. DC Thompson and News International have stood out against its impact in undermining their business model, by denying information to these big aggregators of information and search engines.

Then again, it's not all gloom for newspapers, as former Herald editor Charles McGhee pointed out. In the developing world and emerging economies, the press has never looked stronger.

Since leaving the Herald more than two years ago, one of the role's he's taken on is in training Chinese reporters in how to handle stories with Britain's English-language news values.

You can hear the discussion, along with a rare insight behind the enigmatic bastion of DC Thompson, plus reflections on Derek Tucker's role at the P&J - on:

Business Scotland, 91Èȱ¬ Radio Scotland at 1003 GMT on Sunday 16 January, and available soon after then on 91Èȱ¬ iPlayer and by podcast.

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Scottish Enterprise has never wanted for critics, and people thinking it should be killed off.

One of the more memorable suggestions was to scatter its budget across Scotland from a helicopter, with similar chances of success in growing the Scottish economy.

But when one of those critics is a respected former chief executive, who went on to lead an English development agency, it's obviously not an ideological objection to government intervention in the economy, nor someone with a grievance because his company hasn't been supported.

Robert Crawford's not saying the enterprise agency is failing in its job. He's saying that the job is the wrong one, and, anyway, its funding is insufficient for the challenge it faces.

This morning at Holyrood, where he's talking to MSPs considering the future of SE and Highlands and Islands Enterprise, he'll be saying it in pretty blunt terms.

"If we continue on the same path we will slip further and further behind the best performing regions and nations, and these days we are talking about Shanghai, Mumbai and Montreal, not simply London and the south-east," he's written in a submission to Holyrood's enterprise, energy and tourism committee.

"The truth is that we are not narrowing the growth gap with the best in the UK and are following further and further behind internationally. If we don't address this problem, we will lose even more of our best and brightest, and the cycle of decline will deepen."

Irrelevant targets

Having been chief operating officer of the south-east English development agency since 2008, he says one reason the whole system in England's being scrapped by the coalition UK government is because it's failed to close the growth rate gap between north and south. And he doesn't seem to have a problem with that.

In Scotland, where he headed SE from 2000 to 2004 - leaving because he was fed up with the intrusion of a high public and media profile into his family life - is there any evidence we're getting better at competing globally? No. And are the enterprise agencies likely to transform growth rates and competitiveness? No, to that too.

Grants and advisory services won't effect major economic change, he says, and nor do businesses need intensive support of the sort now on offer to about 2,000 of those judged to have the best growth potential.

For a man who stood for the SNP at last year's election, it's no surprise that he's persuaded of the case for fiscal autonomy. But he's not on-message for his party either.

He argues that the main SNP government targets for growing the economy - matching growth rates in the UK and by comparison with other small nations - were either so far off over the time horizon as to by "pretty irrelevant" or only achievable through the failure of others rather than the success of Scotland.

Picking winners

His argument concedes the unionist majority of the MSPs he'll be facing today. And a solution that could appeal to any of them - and is quite close to an idea already floated by Lib Dems - is that the enterprise agency budget of about £300m should be put into a public investment bank.

Its job would be to turn a profit for the taxpayer, and Crawford - whose career took him through the World Bank's private business development unit - believes it should plug gaps in the more conventional lending market by being more long-term and more engaged with company management.

The life science sector is one where short-term investment is a particular problem - though some pharmaceuticals investment is also of a higher risk profile than the taxpayer may be happy to take on.

Three pages summarising Crawford's thinking doesn't address that problem.

Scottish Enterprise already does some of this investment, with £32m in 106 businesses, bringing in £68m in private venture capital.

"That's good, but with the best will in the world, it will have virtually no impact on national economic growth," he suggests.

Would the whole of the enterprise budget, at roughly ten times that, do any better? And what is the track record of government picking winners, lending and taking stakes where commercial lenders fear to tread?

Having personally reassessed the role of government in the economy - and having done so radically - this a significant contribution to a very important debate, shifting it from Holyrood's familiar concerns with structures, and forcing MSPs, while in manifesto-writing mode, to start thinking differently.

Update: 20 January

One of my online chums has pointed out that Robert Crawford did not, after all, stand as an SNP candidate. My mistake, duly corrected, with apologies to those who feel affronted. It doesn't change any of the point being made, however.

Meanwhile, those now in charge at Scottish Enterprise have had a chance to defend themselves before the MSP committee.

Their take on Robert Crawford? Well, he's been out the country for a while, hasn't he, while Scotland's moved on?

And current chief executive Lena Wilson strongly refuted the idea that government grants don't work, but that SE is in the business of sharing risk.

"There's no single bullet to this," she said. "Would we like more investment finance in Scotland? Yes. Would this act in itself as an economic development model for Scotland? Absolutely not."

She went on: "Free-for-all grants don't work. Targeted grants absolutely do work. The Amazon project we saw creating 950 jobs wuold not have happened without an innovative form of grants, which came to no moer than 10 per cent of the overall cost of that building. Forty per cent of investors would not have considered Scotland if grants had not been available."

Grants also seem to be a key part of the continuing negotiations to seal a couple of deals for investment in Glasgow and Dundee with Gamesa, the Spanish wind turbine manufacturer.

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Panda diplomacy is worth more than just the cuddly toy sales at Edinburgh Zoo's gift shop.

When Adelaide Zoo gained a panda, visitor numbers went up 70%. The business model on the capital's Corstorphine Hill is conservatively estimating a 40% leap in revenue at the turnstiles.

Even when you've paid for the import of a lot of bamboo shoots to give Tian Tian and Yanguang something to chew on, that's quite a money-spinner. So when the ten-year loan of two pandas was today described as a gift, it's the kind of gift that carries the condition of a sizeable, but so far unspecified, donation to conservation projects on the pandas' home turf.

Panda diplomacy is also a sign that Scotland's and Britain's relationships with China are going pretty well, as vice-premier Li Keqiang brings 100 business leaders from Madrid, to reassure with Chinese support for Europe's economic recovery plans, and Berlin, where he sought common ground with a fellow exporting powerhouse.

Whisky imitators

Coming to Scotland, this was to build on cultural exchanges - setting up a Confucius Institute at Edinburgh University, and licensing Scotland for outbound tour operators, as the newly-rich business class take enthusiastically to golf.

That's been followed more recently by an agreement to protect Scotch whisky against imitators, signed off in November.

On Sunday, the vice-premier was checking out Pelamis's wave power technology with a keen eye. His visit was accompanied by a modest £6m deal for the W2E plant in Annan, Dumfriesshire, for work with a Chinese partner on sourcing energy from household waste.

But today, at the same time as the Chinese delegation signed off on the panda deal in London, the agreement with Ineos took the Scottish-Chinese relationship onto a wholly different level.

Until that, the most significant inward investment from China was to take over Todd and Duncan, a failing cashmere yarn company in Kinross.

There's no figure yet attached to the Ineos deal, but if it follows through by the target date in June, it will involve very significant numbers.

Debt challenge

Ineos is a private company created by entrepreneur Jim Ratcliffe in 1998, buying undervalued assets with leveraged debt, and lots of it. Taking on Grangemouth and Lavera, its sibling plant in France, was part of a $9bn purchase from BP in 2005.

Hitting the credit crunch, that debt financing became a lot trickier. With 7bn euros of debt, it's been under pressure to reduce it, particularly when the declining petro-chemicals market took it to seven times earnings. With refining and petrochemicals' recovery, it's since moved out the danger zone by reducing that to a four-fold gearing.

But finding the funding to keep investing in Grangemouth has remained a challenge, and that's where PetroChina has stepped in with a lot of money, and with ambitions to grow into one of the world's oil majors. Buying Grangemouth and Lavera refineries (not including Ineos' petrochemicals plant in the Forth Valley complex, or 40 others around the world) gives it a big footprint in Europe, processing 210,000 barrels a day in each.

A parallel strategic agreement between Ineos and PetroChina's parent company, to collaborate on petrochemicals technology, opens up other possibilities for Ineos to play a bigger role in China. In exchange, the English-based (soon to be Swiss?) firm has know-how in making acryolonitrile, used in carbon fibre production, at which China has been lagging its rivals.

Powerful symbol

And what's in it for Grangemouth? You can overplay the rhetoric about thousands of jobs being saved. The plant is a strong going concern, whether or not its owners are financial trouble.

But now it gets access to a significant source of investment, which Ineos hopes will extend its advantage over other refineries in cracking crude oil more efficiently, and with more output of valuable diesel.

As Scotland's biggest and most conspicuous industrial plant, its half-Chinese ownership will also be a powerful symbol of the new world economic order - its gas flares just about visible from the panda enclosure at Edinburgh Zoo.

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The stiffening breeze of inflation along the idyllic beaches of the Indian ocean means good news, at least for Scottish dentists.

Lees' Foods' iconic Macaroon bar and Snowball are going up in price, because the cost of the Coatbridge baker's coconut coating has more than doubled in only a few months.

Closer to home for those of us in the 91Èȱ¬, Paul Lewis, the voice of 91Èȱ¬ Radio 4's Money Box, has run his slide rule over the increase in canteen prices at the corporation's Television Centre.

While the increase in VAT would suggest a 2.1% increase, and food price inflation last year ran to 5.5%, the average New Year price increase at the check-out is 12.3%.

Tea's up 25%, and at the bottom end, a café latte or chips cost 7% more.

Contrary pressures

No, please - don't worry about me. Not yet, anyway.

The surge in catering inflation hasn't reached 91Èȱ¬ Scotland, though I'm told it's only a matter of time. And no, this is not to get your sympathy. I'm not that fond of Lees' Snowballs anyway.

These are examples to illustrate one theme running through a lot of the economic news as we entered the New Year - the upward pressure on prices.

Though the VAT increase is obviously inflationary, and some will use it as cover for other cost pressures, the trends are more global than in the sterling-zone.

There's still a threat of deflation as a result of UK government spending cuts. But the contrary pressures are adding up and pushing strongly in the direction of inflation.

The most obvious sources are in commodity prices.

Brent crude oil reached $96 a barrel earlier this week. Added to the VAT increase and further fuel duty hikes in the pipeline, that affects anything in the economy that relies on transport.

That's pretty much anything that's not digital.

Onionless curries

Cotton prices have been rising steeply, up more than 90% last year, with clothes retailers warning that will be passed on in prices.

Copper rose 33% last year. Floods in Queensland have pushed up the cost of coking coal for steel-making.

Unseasonal weather there and elsewhere, including drought in Argentina, alongside a renewed surge in biofuel demand, is pushing up the price of cereals.

Corn prices rose 52% last year on the Chicago market, and wheat was up 47%.

In the second half of last year, the price of Argentinian soya rose by 55%, driven by a poor harvest and by rising demand in fast-growing economies.

In India, that translates into 18% rise in food prices, which is raising fears it could stall an economy that's seen as a key driver of global recovery.

It may hold off permission for further sugar exports until this season's harvest has become clearer.

For much of the Indian population, this means more than merely an expensive visit to the shops - many spend more than half their household income on food, so this inflation gets them in the stomach, where it hurts.

The lack of onions, a staple for curries, has become a hot political issue, and so serious that India has had to import them from its Pakistani rival.

Even the cost of spices has soared by 30 to 50%. Indian pepper is up 80%. In Indonesia, chilli prices have risen four-fold.

Likewise, in Sri Lanka, the government tried to intervene in the coconut market to keep prices down. It's found that years of low prices have encouraged farmers to shift into rubber production, so last month, it banned the felling of coconut trees without permission.

In Algeria today, there's a police crackdown on riots over the rising cost of sugar, cooking oil and wheat.

In Florida, cold weather has hit the orange crop, so OJ is at its highest price for nearly four years.

Dampening the dragon

On Wednesday, the UN's Food and Agriculture Organisation said its food price index had reached the highest point ever, even beyond the spike in mid 2008.

That was in the months leading up to the financial collapse, when food inflation - driven by bio-fuels and speculation - was perhaps too much of a policy-makers' pre-occupation to see very different pressures building up on Wall Street.

And concern about speculation is back.

The World Development Movement, a political lobby group, warned today about a investors' bubble, claiming $200bn of hot money poured into food-backed assets in the past two and a half years.

And that's just commodity inflation. Growth figures in China risk boosting inflation, unless the Beijing government is successful in dampening the dragon.

And for those watching the US, there's got to be concern about the potential inflationary effect of more quantitative easing, or creating new money, while continuing the splurge of government spending.

That risks undermining other countries' economies by distorting exchange rates and monetary policy.

And there's a risk that the USA succumbs to the temptation to use inflation to get out of its debt and deficit problems. That could easily export it round the world.

Buying Power

The focus for many British people, for now, is on watching, worried, as inflation outstrips earnings.

This week, Income Data Services forecast a second year of pay increases trailing inflation.

Across much of the public sector, a pay freeze means the buying power of salaries is falling faster than the private sector, where increases will average between 2 and 3%. And that's before pension contributions rise.

It's not the most reassuring outlook with which to wish you, belatedly, a good new year.

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