Care and benefits at risk as Scotland warned 'finances in worrying state'

Published on Monday 17 November 2008 21:40

A LEADING think-tank has questioned whether the Scottish budget is in good enough shape to withstand the economic downturn.

In a damning briefing paper for Holyrood's finance committee, the Centre for Public Policy for Regions (CPPR) warned that the Scottish Government will have to make tough decisions in the next two budgets.

It warned that the budget had little flexibility and there was a danger of over-spending. And it concluded: "This is a worrying position to be in at this stage of an economic downturn."

The result was that universal current or planned benefits such as free elderly care, bus passes and prescription charges may have to be targeted, the paper said.

John Swinney, the finance secretary, is due to appear before Holyrood's finance committee today and will be challenged on the paper's findings.

The CPPR has claimed that expected incomes of more than 200 million a year may not be met. CPPR member Professor John McLaren suggested that the SNP's decision to abolish hospital car-parking charges had contributed to this problem.

The paper added that a reduction in "underspends" meant the Scottish Government had less money available.

It said that in the 2008 draft budget, the Scottish Government proposed spending more than was allocated to it by the Treasury.

This was to be done partly by drawing on reserves it had built up at the Treasury – 300 million this financial year, 400 million next year, and 174 million the following year – by which time more than 90 per cent of the reserves would have been used.

And speeding up the spending of 100 million on affordable housing had only been made possible by delaying spending elsewhere. There was doubt too over where councils would find the 40 million to put into the housebuilding programmes.

There was also "uncertainty" over local government's ability to meet its own commitments through "income uncertainty" in the case of Glasgow and a lack of contingency savings in the case of Aberdeen.

Prof McLaren said: "We were all surprised at what we saw and surprised that it had not been raised before. There is cause for deep concern here.

"I don't know what emergency measures would be needed if the Scottish Government overspends, but ministers are going to have to look very carefully at their budgets and spending commitments."

He added that it showed the good times for Scotland, with large budget increases, had passed, and that there may be more problems with tighter budgets after 2011.

Labour said the report showed that the 100 million housebuilding programme, which was touted as a reflationary measure to stimulate the economy, "is deeply flawed".

But ministers have insisted their budget strategy is working for Scotland and allowing them to invest more, and that the real problem is Scottish money being withheld by the UK Treasury.

A spokesman for Mr Swinney said: "The Scottish Government's budget strategy to release Scotland's unspent balance held by Treasury – the End Year Flexibility resources referred to – has enabled us to maintain public services and investment in Scotland, despite the worst funding settlement since devolution.

"And we have identified a further 1 billion of Scottish resources withheld by the Treasury – including Scotland's underspend in 2007/08 – which we are currently not able to access, and Scotland's Fossil Fuel Levy of 120 million.

"It seems as if the report's authors are arguing for cutting services in Scotland so that more of Scotland's money can be left with the Treasury this year and for the next two years," the spokesman added.

Future of Holyrood's flagship measures hang in balance

THE Scottish Government may be forced to follow the example set in Ireland of abandoning "universal" benefits, according to the paper by the Centre for Public Policy for Regions.

This could hit flagship measures including free care for the elderly as well as free bus passes. It would also affect more recent developments under the SNP administration, of moving towards free prescriptions and university education.

The CPPR has said policies by both the Labour/Lib Dem Scottish Executive and SNP Scottish Government have shown a drift towards universal provision of services, which may not now be affordable. "The Irish government has taken the view that it needs to reduce the burden on its budget to stimulate the economy and aim benefits at only the most needy," said CPPR research fellow John McLaren. "It may be now that the Scottish Government needs to consider a similar path. Many of these policies were introduced when times were good and there was a lot of money available, that is no longer the case."

Greater Scottish autonomy might mean 'poorer services'

A PANEL of experts looking at tax-raising powers for the Scottish Government has warned that the price of greater self-rule might be worse services.

In its report for the Calman Commission on the future of devolution, the panel, chaired by Professor Anton Muscatelli, also concluded that the Barnett Formula, which governs Scotland's financial allocation, has serious deficiencies.

It called for another investigation into what to do with oil revenues, pointing out that if Holyrood received a share of the revenues, it would have to pay a part of the decommissioning costs, expected to be 19 billion by 2040.

The report looked at different means of devolved finance in countries such as Spain, Germany, Canada and Australia.

However, Prof Muscatelli and his colleagues, having "laid out the landscape" the Calman Commission needs to look at, refused to make any recommendations. They concluded there was "no ideal solution". Prof Muscatelli said the advantage of the Barnett Formula was its stability and predictability. And he added that there "might be a trade-off" on services and revenue with greater autonomy.

"For example, there is a shared, common social security system throughout the UK," he said. "And a broad parity of public service provision north and south of the Border.

"If it was considered important to maintain some degree of equality, then there would need to be some connection maintained between the Scottish Parliament's budget and spending by the UK."

Iain Gray, the leader of the Scottish Labour Party, said the document undermined the case for independence. "Certain points are immediately evident that undermine the SNP economic argument for independence such as volatile oil and gas prices. Labour has always pointed out how irresponsible and high risk it would be to rely on one revenue source."

The SNP attacked the report. Alasdair Allan, an SNP MSP, said the report and the UK government's lack of support for change showed that the Calman Commission was redundant.