Scots facing tax hike and £1.5bn cuts

Published on Saturday 5 September 2009 19:54

SENIOR civil servants are making plans for the SNP to introduce a 5 per cent cut in public sector spending – as well as tax increases – to bring the country's spiralling finances under control, according to leaked Scottish Government documents.

The high level of concern is revealed in a minute of a meeting of the SNP administration's top-level officials. It shows they believe even blanket cuts – which would equate to 1.5billion – across every area of government this coming year "will only be part of the solution."

The top finance chief in the Scottish Government is then recorded as saying that ministers may have to "consider ways to maintain our income" if it is to stay in the black.

One former adviser said last night that the comment amounted to a clear warning that taxes directly or indirectly levied by Holyrood, including business rates and council tax, would have to rise.

Those in attendance at the meeting, which took place in late April at Edinburgh's City Chambers, included the permanent secretary Sir John Elvidge and the Scottish Government's director of finance Stella Manzie.

The leaked minute shows the group discussing how best to persuade First Minister Alex Salmond and his fellow ministers of the necessity of the coming cutbacks. "Part of our task is to close the gap between officials' thinking and analysis and ministers' thinking. This is difficult ground for ministers – (they] need help to see the way through this," the note says.

The group are also shown debating whether "tough decisions" on spending will be politically more acceptable after a new Conservative government is elected at Westminster. "There may be opportunities in the political timeline that allow us to take tough/bold decisions: eg – new administration at UK level. Think about when these moments might be," the minute records.

The comments will raise questions over whether cutbacks in the Scottish budget this year are being put off because SNP ministers do not want to take difficult decisions in the run-up to next year's Westminster elections.

As for the long-term health of the Scottish budget – now running at 30bn a year – the minute shows that the group has little confidence in the long-term sustainability of the Scottish Government's spending plans. Since devolution, pledges on free personal care, free prescription charges, free concessionary bus travel, a generous teachers' wage package and the freeze on the council tax have all made holes in ministers' pockets.

In a key passage, the Scottish Government's director of strategy, Angiolina Foster, is recorded saying: "The exercise to identify 5 per cent cuts across portfolios will only be part of the solution. Further work needs to be done to identify headroom, provide options and consider future sustainability of spend."

She adds: "Some work was carried out a few years ago which modelled the spend of Scotland's public sector. It was identified then that the current pattern of spend was not sustainable – it will be worth reviewing that work now."

Manzie concludes: "To achieve a balanced budget we should aim to: realise efficiency savings, re-prioritise and focus our spend on achieving The Purpose; consider ways to maintain our income; continue to pursue borrowing powers; and develop a budget which will be sustainable in the medium-longer term. There is likely to be a long-term squeeze on public finances."

Public finance experts have spelled out that radical action will be required if key front-line services are not to be hit by the coming belt-tightening.

Last week, the Centre for Public Policy for Regions said that ministers should consider savings in education budgets and selling off Scottish Water to find extra cash. But Finance Secretary John Swinney, who is currently preparing a draft budget for 2010-11, repeated last week that he would be keeping Scottish Water in the public sector and has not indicated where any cuts will fall.

Of the reference in the minute to the need to "maintain our income", economist John McLaren, a former government adviser, said: "It shows they are looking at non-domestic (business] rates which is the main tax the Scottish Government levies, and also council tax."

Andy Kerr, shadow finance secretary, said: "This is an extraordinary revelation and blows open the SNP secret plan to cut and tax. Their budget is going up by 700m next year, but they are planning to cut 2,000m from Scotland's public services."

A spokesman for Swinney said last night: "It has been abundantly clear since last November that the UK Labour Government are planning swingeing cuts in Scotland's budget, and we now know that our calculation of a 500 million cut next year is correct."