Budget cuts: Ministers pledge to protect the vulnerable

SNP ministers also promised to maintain spending increases for the NHS - which swallows up 1 in every 3 of their budget - in a further rejection of the Independent Budget Review group's recommendations.

Ministers will also continue with the costly pledge to freeze Council Tax next year even though the group yesterday warned that the policy did "not appear sustainable in the projected economic environment".

However, the door was left open by SNP sources to calls by the group to turn the publicly owned Scottish Water into a not-for-profit "public interest" company, in a move which the report says will save taxpayers 140 million a year.

Yesterday's independent report, five months in the making, will now form the basis for cross-party talks later this year on the forthcoming budget cuts.

After writing to parties asking for a meeting yesterday, Finance Secretary John Swinney said the findings of the report would be studied in full.

But he insisted that not all of its recommendations needed to be undertaken, arguing that taken together they would save far more money that was actually required.

The report said that ministers should undertake "immediate work" to review whether Scotland's 900m a year list of universal benefits could continue to be afforded. However, Mr Swinney said: "The government has made clear our determination to protect the vulnerable - which is why for example we will preserve existing eligibility for free personal care and concessionary travel."

The report also warns against protecting any sector of government from cuts, arguing the NHS should not be ring-fenced. However, with UK ministers pledging to increase spending on the NHS despite cuts in England, Mr Swinney said he would follow suit.

He added: "Our task now is to encourage the widest possible debate about the range of options that are contained in this review. That is why I have written inviting opposition parties in Scotland to take part in discussions on the review, and to seek their response to the options that are set out."

The Scottish Conservatives, at whose behest the report was commissioned by the Scottish Government, said that the findings were a "wake up call".

Derek Brownlee, finance spokesman for the Scottish Tories said: "This is a new era in public spending and public services and nobody should underestimate the scale of the challenges ahead. It is time for all parties to get a grip and work together to take the difficult decisions."

But with an election looming in Scotland next May, Labour launched into an attack on the SNP. Labour's Finance spokesman Andy Kerr said: "Scotland now faces a perfect storm with Tory cuts coming on top of three years of SNP cuts. Fairness should be the principle that guides this debate and the priority must be to protect jobs. The best way of restoring the public finances is to grow the economy and the SNP must not help the Tories put us back into recession."

Hitting back, SNP MSP Kenny Gibson said: "Labour, the Tories and the Lib Dems have put Scotland's public sector and our valued public services in real danger. Labour in particular must lift their heads out of the sand, face up to the situation they created, and join a real discussion to minimise the impact on jobs and public services of Labour, Liberal and Tory cuts."

Lib Dem finance spokesman Jeremy Purvis highlighted the report's recommendation to turn Scottish Water into a not-for-profit company. He said: "I welcome the panel's report, and its clear call that the Scottish Government now needs to take seriously the task of shaping the choices it will make to reduce the Scottish Budget."

He added: "The report vindicates entirely our argument that 150 million is being locked away because of the Scottish Government's refusal to change the way Scottish Water is funded. We argued in the 2010 budget discussions that Scottish Water, while remaining in the public's hands, can be funded differently but John Swinney refused to listen. I hope he does now."

The plans for cuts were given short shrift by union chiefs last night. Glyn Hawker, Scottish organiser for Unison said: "These proposals are unwise, will cause great pain and we think the people of Scotland will reject this approach. We can afford quality services. We should not be hitting ordinary people with cuts to services they rely on, with cuts to pay and jobs and family income when bankers still pick up huge bonuses and don't pay their fair share towards services we all rely on."

Drew Morrice, assistant secretary of the Educational Institute of Scotland, said: "It is wrong that public services and public servants should pay the price of political and financial failure."

But others said the report's findings needed to be heeded.

Councillor Pat Watters, president of the Confederation of Scottish Local Authorities, said: "We are very pleased to see that the panel has grasped the scale of the financial challenge and acknowledged head-on some of the difficult choices that will have to be made."

Mr Watters said that Mr Swinney's decision to ring-fence the NHS from cuts was misguided. He said: "Our projections suggest that if the government protects the NHS the cuts to other sectors could more than double. This could be devastating to local communities."

Garry Clark, Head of Policy and Public Affairs at Scottish Chambers of Commerce, added: "We are particularly pleased that this report highlights the need for government to recognise that there must be no sacred cows when it comes to implementing the budget cuts which must be borne over the next few years."

Mike Greig, partner and head of UK regional consulting, PricewaterhouseCoopers, Edinburgh, said: "This report needed to be the catalyst for a fundamental shift in both the delivery of services and the role of Scottish Government. Whilst some useful recommendations were put forward, more detail on the proposals is needed. By standardising and simplifying much can be done without compromising front line services."

Profiles: Review group members share a wealth of public-sector experience on economy

The Independent Budget Review Group is chaired by Crawford Beveridge CBE, an SNP donor who studied social science at Edinburgh University.

He is a senior executive at Sun Microsystems and a member of the Scottish Government's Council of Economic Advisers. His business is IT, and he was an executive at Hewlett Packard and Sun, before leaving in 1991 to become chief executive of Scottish Enterprise, a role he held for six years.

During his time there he oversaw an aggressive campaign to up the number of companies headquartered in Scotland, but his tenure was subject to political and media criticism and he returned to Sun while retaining an advisory role with the development agency.

After returning to the public sector, he publicly backed independence arguing it would "focus the minds" of politicians to promote economic growth. He was awarded a CBE in 2005 and presently divides his time between the United States and Edinburgh.

Alongside him on the panel is Sir Neil McIntosh, former chief executive of Dumfries and Galloway Regional Council and Strathclyde Regional Council. He served as an Electoral Commissioner and as the Chief Counting Officer for the Scottish Parliamentary Referendum in 1997 as well as chairing the Commission on Local Government and the Scottish Parliament in 1998-9 and acting as an adviser to the Northern Ireland Review of Public Administration.

He was the convener of the Scottish Council for Voluntary Organisations and the chair of the Judicial Appointments Board for Scotland. He is a trustee of National Museums Scotland and a Civil Service Commissioner. Last year, he carried out an examination of the Scottish Parliament's expenses system.

The third panellist is Robert Wilson, a former partner with Deloitte Consulting, based in Edinburgh, who retired from the firm in March after more than 20 years consultancy work. He has an MA and an MBA, began his career in public sector management, worked in marketing and IT and later became a management consultant.

THE BALANCE SHEET

DEBITS

4.3bn: Predicted fall in the Scottish 30bn budget of 2014-15 compared to this year's figure.

20% cut in department budgets required by 2014-15 if the NHS is to be protected, as ministers plan.

900m: Current cost of universal services: free personal care, prescriptions, eye tests and concessionary bus travel.

914m: Cost of providing concessionary travel between 2011 and 2015.

25m: Cost of abolishing prescription charges altogether.

50,000: Job cuts required if the most lenient pay freeze/restraint measures are introduced.

CREDITS

839m:: Savings realised by the Scottish Government in 2008-09 against a 2 per cent target of 534 million. Ministers currently aim to achieve savings of 2 per cent amounting to 1.6bn over the three years from 2008-11. An increased annual target of 3 per cent could theoretically generate savings of 900m in 2014-15

140m: Annual savings if Scottish Water sold.

20: Possible fee for eye tests would save 46m by 2014. A fee of 30 would save 70m while 40 would save 93m.

8m: In savings could be generated by increasing prescription charges to 4. An increase to 5 would save 15m while a further rise to the level of English charges of 7.20 would save 32m.

• Eddie Barnes: No vote worries for the Three Wise Men are not chasing votes