SNP: on brink of a financial 'black hole'?

Published on 17/08/2007 00:09

THE SNP government is facing a financial crisis, with a potential spending shortfall of up to £2 billion in its budget plans, according to one of Scotland's leading experts in public expenditure.

Professor Arthur Midwinter yesterday warned that the new Nationalist Executive had underestimated their spending commitments and overestimated the savings that they can make from making the Scottish government more efficient.

In a damning critique of the new administration, Midwinter concluded that SNP's plans were "slowly unravelling" because of their "lack of financial rigour" in their pre-election plans.

Midwinter's conclusions, which are hotly disputed by the Executive, were delivered in a paper to a summer school held yesterday at Stirling University management school.

In his paper he predicted that Scotland's budget from Westminster would rise by only around 2 per cent a year over the next three years, compared to 5.5 per cent in real terms since devolution was established.

That means that there will be only around 500 million in new resources coming to Scotland, as opposed to the 1,250 million of recent years, said Midwinter, who is based at the Institute of Public Sector Accounting Research at the University of Edinburgh.

The SNP had said that it would cancel the proposed Edinburgh tram and airport rail link saving 1.1 billion, and make 3.2 billion in budget savings, investing the extra money Scotland gets through the Barnett formula in frontline services.

Midwinter said: "The efficiency assumptions are, in my view, wholly unrealistic. They are presented as maintaining the current targets, but these cover both cash and time-releasing savings. Only cash savings create budgetary headroom."

With the current savings targets not being met, Midwinter predicted that the administration would fail to balance the nation's books.

He said: "I expect much lower savings to be delivered. Moreover, the SNP's plans underestimate the cost of their tax cuts by around 540 million over three years. I predict a shortfall of between 1.5 and 2 billion, on past practice."

According to the Midwinter's analysis, the new administration's spending commitment to abolish the graduate endowment at a cost of 25 million, the 15m on increasing free school meals and the 600m they were forced to concede by parliament for the Edinburgh tram scheme all increase the pressure on their budget.

He said: "In short, the SNP's Budget plans are slowly unravelling, as the lack of financial rigour in its manifesto becomes problematic in practice, and the reality of hard choices approaches."

Midwinter also points out that the SNP much-heralded five key priorities - to make Scotland wealthier and fairer, healthier, safer and stronger, smarter, and greener - do not differ greatly from the objectives set by the previous coalition government.

Labour and the Liberal Democrats focused on health, education, crime, transport and jobs, and cross-cutting issues of equality and sustainability

Midwinter was also fiercely critical of the SNP for making matching the UK growth rate as its top priority, arguing that the Executive has "no responsibility for managing the Scottish economy" and only has microeconomic powers.

He disputed claims by the government that all its spending ministers are focused on ensuring their budgets contribute to this target, claiming that Executive economists had "already made it clear that it cannot directly link its expenditure to growth in GDP".

Midwinter said that the new Scottish government had "adopted the New Labour rhetoric of delivering outcomes with no clear understanding of the major conceptual and measurement constraints on actually delivering this model".

He added: "During the election, I described Labour's approach to budget management as 'muddling through'.

"To date, the SNP minority administration has not advanced to that stage, for until it revises its bogus financial arithmetic, it will have difficulty balancing the books, let alone effectively managing the resources under its control."

Last night the opposition parties seized on Midwinter's analysis to step up their attacks on the SNP. Tavish Scott, the Liberal Democrat spokesman on finance said Midwinter's judgment was "damning".

He said: "If the SNP can't find the money to keep those promises, the people of Scotland will judge them more harshly than Midwinter."

A Labour spokeswoman said: "We have said all along that the SNP's sums don't add up and Arthur Midwinter's report shows that we were right. Now they are in power the administration has fallen strangely silent on how they are going to pay for their promises. The Scottish Labour group will keep a close eye on the SNP's impossible tax and spending commitments."

But a Scottish Executive spokeswoman refuted Midwinter's argument.

She said: "The Scottish government is ambitious about our country and will work to raise Scotland's growth rate to the UK level by 2011.

"We will ensure prudent management of public finances in the forthcoming tight fiscal climate - tackling unnecessary bureaucracy, decluttering government and focusing resources on better delivery of front-line services. We have already taken a number of steps in this direction."

She added: "All spending plans will be announced later this autumn in a clear and orderly manner as part of the spending review.

"The government will ensure that the spending review focuses resources on achieving the government's purpose and strategic objectives."