Leading economist warns Scotland to prepare for £35bn in budget cuts

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PUBLIC services in Scotland face a spending squeeze of up to £35 billion over the next 15 years, a report by Scotland's most senior economist in the civil service has warned.

Andrew Goudie, chief economic adviser to the Scottish Government, predicted five consecutive years of real-term cuts and a further two years before growth returns as a result of UK finance plans.

Average cuts to expenditure will be 3 per cent a year until 2014-15 and it could take between 12 and 15 years before spending returns to levels in the last financial year 2009-10. During that period, Scottish expenditure could lose between 25bn and 35bn in real terms, the report stated.

First Minister Alex Salmond accused Labour, the Conservatives and the Liberal Democrats of ignoring the scale of the problem, adding: "I know that when I've talked about figures of this scale before, there's been an atmosphere of denial in terms of the other parties, that this is something that's made up."

Mr Salmond criticised the other political parties for focusing purely on economic measures that would have a limited impact. The SNP's response to Dr Goudie's report will be published next week.

The First Minister said: "I think this gap could be closed but it will require major policy, financial and constitutional changes."

A number of "big ticket" items will have to be looked at, including scrapping the Trident missile system, he said.

Mr Salmond revealed the full report shortly after the weekly First Minister's Questions session at Holyrood, when he was quizzed on government preparations to deal with looming cuts. The Scottish Parliament has already warned of a 15 per cent cut to its budget by 2013-14.

Yesterday's report said it "passes no judgment on the wisdom or otherwise" of the UK plans. It added: "While exact details of the size and composition of tightening in the UK are not yet known, it is clear public spending will be subject to a period of significant constraint in the years ahead.

"Scottish Government expenditure will not be immune from these pressures."

The report has been produced by Dr Goudie for the Independent Budget Review, which was commissioned after the most recent Scottish budget at the behest of the Conservatives.

The review is looking at where savings can be made in Scotland as the UK government tries to claw back Britain's estimated 167bn deficit.

Mr Salmond's analysis was disputed by Labour finance spokesman David Whitton

Mr Whitton said: "Dr Goudie's views are based on forecasts which are subject to change, not least because we do not yet know who will form the next government.

"The Independent Review Team is taking advice from a wide range of opinion and it would be wise to wait for their report before jumping to conclusions."