Budget cuts: Uncomfortable options for nation fond of spending

Published on Thursday 29 July 2010 19:34

"WHAT sort of Scotland do we wish to have?" With that one explosive question Crawford Beveridge, chairman of the Independent Budget Review, has delivered by far the biggest challenge to the government and the country since the onset of devolution.

This 166-page review released yesterday is as massive in implication as it is painful in its gruelling detail of where budget spending cuts might come.

Uncomfortable? It makes about as cheerful reading as a X-ray of overgrown teeth - delivered by a hovering dentist explaining the need for root canal treatment straight away.

It sets out detailed options on spending reduction that could fundamentally change Scottish public finance and politics as an auction of competing "free" benefits and no need to pay that has brought us to this pass.

So what happens now that the detailed options document is out? Would Beveridge, I asked, stay on to lead a 'son of Beveridge' independent grouping charged with seeing the reductions through?

"Not me!", he said, shrinking back. "But if I were the First Minister I would appoint someone who would tell me regularly how it was going.

"We cannot treat this casually or assume that it will happen on its own. It needs careful attention and the skills for doing this are difficult to learn."

But who dares take up the options it lays out on spending reductions — from cuts in universal benefits through public sector job cuts to structural reform of government institutions?

"The most worrying chapter", says Beveridge, "is that on remuneration and the size of the pay bill. We are heading for some very uncomfortable discussions.

"This is a new world and people are not going to find jobs easy to find elsewhere in the economy. It needs to be approached with great sensitivity."

How did we get to a public sector and government that now needs this painful slim-down? The problem, he said, "is that people didn't believe we were on an unsustainable path".

Was it all the result of profligate politicians over the years? "When you have a system where Scotland is handed a cheque and told 'you must spend it or we take it back', politicians acted rationally in spending it. We didn't have the option of putting 10 per cent aside for a rainy day. There was no need to worry.

"But there was bound to be a consequence."

Now there is consequence a-plenty with a list of the most unpalatable political options. "When we first set out, there didn't seem to be much public recognition of the need for public spending cuts at all.

"But there was also a general consensus around the size of the problem. All [forecasts] were roughly in the same direction - a 12.5 per cent drop in the budget in real terms over the next four years.

"It is going to be a long time before spending gets back to previous levels. It is our view that there is an opportunity here if we are not going to have unchanged resources or Swedish tax levels to determine what sort of Scotland we wish to have."

The review sets out options for cuts in universal benefits, from limits on concessionary travel allowances to charges for eye tests and prescriptions. It proposes an end to the council tax freeze. And most controversially of all, it sets out drastic action on the 15.2 billion public sector pay bill.

Proposals include a two-year pay freeze, an immediate halt to public sector recruitment and a cut in public sector jobs of between 2.3 per cent and 3.5 per cent - 11,500 to 17,500 in headcount terms, achieved as far as possible through that chilling term "natural wastage".

Even under a UK-style pay freeze with low-paid workers exempted, the overall bill would still go up unless jobs are cut. The alternative option is a less severe front loaded payroll cut, but a reduction of between 5.7 per cent and 10 per cent by 2014-15.

No hotter political potato has ever landed at St Andrews House. It will provide scope for opportunism by the SNP's opponents. But, as Beveridge points out, "whoever is running Scotland next May will be faced with exactly the same numbers".

The real challenge will be on structural reform of government and the public sector. Here the report recommends talks with the UK government on restructuring Scottish Water that would yield annual savings of 140 million plus a capital sum to be negotiated with the Treasury. It also recommends an expanded role for Scottish Futures Trust, which has called for a more organised and concerted approach to capital spending. This spend is driven by a mentality that seeks to spend up to the available budget limit rather than squeezing the maximum benefit out of budgets and cutting costs.

Elsewhere in this section, however, the review is light on specific suggestions. "We thought", said Beveridge, "that there were such big differences across public bodies and we did not have the time to look in detail at each one."

But the report leaves in no doubt the direction in which the compass points: "Scotland is a small nation which has", it concludes, "arguably, a public service infrastructure which is over-complicated, unduly fragmented and in need of fundamental redesign to address the future needs of a rapidly changing society. Unchanged, this could be a barrier to progress.

"We should not lose sight of the more fundamental objective of ensuring that Scotland comes out of this transitional phase better equipped to grow and develop and with a sustainable public services model."

The report's one saving grace for the First Minister, as Sir Angus Grossart, chairman of SFT explained yesterday, is that it provides unarguable, independent proof that the approach to public finance has to change because our circumstances have changed. As such, it is a catalyst for reform that only comes round once a generation and provides Scotland's First Minister with the rationale to change the game dramatically.

So the review is not the end of the process, or the beginning of the end, but the end of the beginning. Finance minister John Swinney spoke of ring-fencing health and personal care. But that only steepens the gradient of cuts needed elsewhere.

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