Fears grow over second recession when civil service and council cuts are made next year

Published on Saturday 13 March 2010 14:19

SCOTLAND'S public sector faces being plunged into its own economic crisis next year which will threaten the wider economic recovery, according to Ernst & Young.

• Glasgow council workers on strike over pay in 2008

Paula Speirs, a director in E&Y's government services team, warns that the major cuts in spending set to hit the public sector north of the Border from 2011 will drag councils and government departments into their own recession.

The public sector, which works on a three-year funding cycle, has been largely sheltered from the wider economic slowdown. However, with a new, heavily restricted three-year cycle commencing next year, Speirs believes councils and the rest of the civil service in Scotland should brace themselves for a downturn.

Most government departments will be hit with a 15-20 per cent cost-cutting target from next year, compared with a previous aim of 3 per cent.

Although spending restrictions will apply to government departments and councils across the whole of the UK, Speirs warned that a public sector recession in Scotland could prove particularly hazardous, given that it accounts for more than 50 per cent of jobs north of the Border.

Speirs told Scotland on Sunday: "The impact for Scotland is particularly striking. Next year is going to be tough and so will the next two years after. It (public sector growth] is never going to go back to where it was. That will have an impact on us coming out of recession as a country."

Jobs cuts are going to be an "inevitable" part of any such recession, Speirs said.

She urged the civil service to think about how to reduce its headcount early in order to avoid compulsory redundancies. "If people are retiring, let's not replace them like-for-like," she said.

The warning from Ernst & Young reinforces a recent forecast from the Fraser of Allander Institute, which said that Scotland's traditional bias towards public sector employment would put it at risk of a double-dip recession.

The Institute warned that even if Scottish GDP figures published on 21 April showed the country has finally emerged from recession, the threats posed by public spending cuts could tip the economy north of the Border back into negative growth later this year.

The latest data on public finances due to be published on Thursday will highlight the challenges facing Chancellor Alistair Darling as he prepares for what could be the Labour government's last Budget on 25 March.

The figures are expected to reveal a public sector net borrowing requirement of 13.5 billion in February, up from 9bn during the same period last year.