The Scottish Government will be forced to find a further £250 million of savings as a result of Chancellor George Osborne’s pledge yesterday to cut another £2.5 billion from UK public spending.
Mr Osborne told his coalition Cabinet colleagues that the further savings from current spending in government departments would be used to bolster spending on capital projects and pay for new measures to help working mothers.
The Chancellor’s move ahead of what is expected to be a costneutral Budget today – with any new spending promises paid for by savings elsewhere – will mean a cut in Scotland’s block grant for daily spending under the Barnett formula.
However, the Scottish Government is likely to receive a share of the extra funds specifically allocated for one-off capital schemes, which it can spend on “shovel-ready” projects.
Whitehall sources last night insisted that Scotland will be “mostly shielded” from the latest cuts because of a decision to continue to protect NHS and schools spending south of the Border.
That means that while Mr Osborne is seeking another 1 per cent off departmental budgets, the block grant for public spending going to the Scottish Government under the Barnett formula for allocating money to devolved regions and nations of the UK will only be reduced by a further 0.2 per cent to 0.4 per cent.
The announcement, which is expected to form part of today’s Budget announcement, is on top of the 1 per cent unveiled in the Autumn Statement in December.
When that cut was announced, the Scottish Government was expected to lose £150m from its budget by 2015, but that figure has now increased by £100m to £250m.
The savings will be spent on capital projects in a bid to stimulate growth in the economy, which is currently flatlining with the threat of a triple-dip recession.
They will also fund a new £1bn childcare scheme where families will receive up to £1,200 to help pay care bills. The scheme is set to help 2.5 million families in the UK, including 210,000 families in Scotland.
It is understood that Mr Osborne will reveal that Whitehall departments have underspent their budgets by some £6bn which he will redistribute in the Budget, although the Ministry of Defence will be allowed to keep its £1.6bn underspend.
Prime Minister David Cameron’s official spokesman said the underspends recorded this year “reflect the success that secretaries of state across the board have had, working with the Treasury, on bringing departmental resource spending down”.
Cabinet ministers including defence secretary Philip Hammond have recently gone public with concerns at the level of cuts their departments are likely to face in June’s spending review.
Lib Dem energy secretary Ed Davey, whose department will have to find extra savings, denied that ministers had been taken by surprise by the Chancellor’s announcement, saying they had been given “more notice” of it than expected. He said: “What was really noticeable around the Cabinet table was people supporting the overall approach not only of the Chancellor but the chief secretary to the Treasury Danny Alexander.
“We have to get to grips with this [the deficit]. In countries where they don’t, they’re paying a very heavy price.”
But opposition parties said further cuts will create more problems for the UK’s recovery.
Labour shadow Treasury minister Chris Leslie said: “If this is the only additional investment in infrastructure in the Budget, it will be a huge disappointment.”
SNP finance secretary John Swinney said: “There is now an overwhelming consensus that the UK government’s plans are doing more harm than good to the economy.”
“The loss of the triple-A status for UK government debt, the possibility of a triple-dip recession for the UK and borrowing forecasts that are higher than the Chancellor originally expected, all confirm the need for the coalition government to adopt an economic strategy focused on growth and not continue with yet more austerity.
“The Chancellor needs to reverse the cuts to Scotland’s capital budget to boost our prosperity. He also needs to reconsider his policies on welfare reform that are taking money out of the pockets of Scots across the country. I also urge him to scrap the bedroom tax proposals.”