126,000 Scottish jobs 'to go' as cuts kick in

• Many Scots may face an uncertain job future. Picture: PA

The grim prognosis includes up to 90,000 public sector jobs being shed by 2014/15, with total unemployment in Scotland peaking at 228,000 this year before there is any sign of improvement.

The "tax and axe" budget announced by the Chancellor just over a week ago has resulted in economists at Strathclyde University's Fraser of Allander Institute downgrading their already modest GDP forecasts with one worst-case scenario even suggesting that Scottish growth could be stalled at zero this year.

Predictions of yet more economic gloom in Scotland came as a leaked Treasury document revealed that the budget will result in the loss of 1.3 million UK jobs over the next five years. In Scotland, Fraser of Allander economists analysed the austerity measures introduced in Mr Osborne's budget, which will see 113 billion of spending cuts and tax rises over the next five years, and the effect that would have on the Scottish economy.

Although they reckoned Scotland would narrowly escape a double-dip recession, the Fraser of Allander's "Economic Commentary" warned that the tough measures announced by the Chancellor to claw back the UK's 156 billion deficit would result in "unprecedented" cuts and a decline in public services.

According to the report, Scotland's economy will fall behind the rest of the UK in terms of growth, threatening to slow the recovery from recession north of the Border.

"The consequential real cuts to the budget of the Scottish Parliament and government of around 14 per cent may result, other things equal, in between 64,000 to 126,000 economy-wide job losses and between 78,000 and 90,000 jobs losses in the public sector by 2014/15," the report said.

The author of the report, Professor Brian Ashcroft, urged Scottish ministers and Holyrood to explore ways of dulling the pain, including the use of the "Tartan Tax" to help the economy or raising funds through the privatisation of Scottish Water.

The so-called Tartan Tax is the as-yet-unused power that the Scottish Parliament possesses to raise or lower income tax by 3p in the pound.

"We have some fiscal levers such as the Tartan Tax," Professor Ashcroft said. "I'm not advocating we use it but it is an option we should look at. There are also the charges that could be levied for free care for the elderly, toll bridge charges and prescription charges that could be raised. There are also our assets like Scottish Water. These are things that have to be looked at, but at the moment I don't see us having that debate."

Professor Ashcroft added cuts in Scotland's 30 billion budget, which will really only start to take effect in 2011, would "lead to a significant decline" in public services. When it came to Scotland's GDP, the experts examined several economic models including a pessimistic "low-growth" scenario that predicted GDP would be zero this year, only rising to 0.1 per cent in 2011.

A more likely scenario was a "central" model that also revised the institute's February forecast downwards in the long term. The fact that the Conservative/Liberal coalition has agreed to protect Scotland's 2010/11 budget from the cuts contributed to February's forecast of 0.6 per cent GDP being upgraded slightly to 0.7 per cent this financial year.

But delaying the cuts north of the Border will lead to pain being stored up and inflicted in 2011, said the economists, when the growth forecast was lowered from 1.6 per cent to 1.1 per cent GDP - a figure that also factored-in the effect of the UK Government's plan to increase VAT to 20 per cent next year.

Professor Ashcroft pointed out that 1.1 per cent GDP in 2011 compares unfavourably with the 2.3 per cent forecast for the UK as a whole. Consumer confidence was found to be lower in Scotland than in the rest of the UK and bank lending remained slow.

He said: "The speed of Scotland's slow recovery from recession is threatened by the massive fiscal consolidation package introduced by the new Conservative/Liberal Democrat coalition government in the emergency budget."

In 2012, the report predicts that there will be a slight increase to 2.1 per cent GDP - still less than the 2.2 per cent that was forecast in February. Job losses of 33,000 were predicted for this year, taking unemployment to a peak of 227,820 (or 8.9 per cent).

A slight improvement is forecast for 2011 with the figure falling to 223,646 (8.7 per cent). A similar trend is expected for 2012 with unemployment falling to 210,749 (8.1 per cent), but the predicted fall will fail to return the jobless level back to the 2009 figure of 202,021 (7.8 per cent).

Paul Brewer, senior partner of PricewaterhouseCoopers, which supports the institute's economic commentaries, said: "Scotland simply cannot continue to meet the current level of public expenditure and must take decisive action to determine where and to what extent the cuts will fall, implement effective planning and deliver more with less."

Labour finance spokesman Andy Kerr accused the Tory-Lib Dem coalition of being "economic wreckers". Mr Kerr said: "This report is absolutely damning. It confirms the Thatcherite cuts agenda being pursued by the Tory-Liberal Democrat coalition is dangerous, unnecessary and unfair.

The appalling truth is the Tories are turning the clock back to the 1980s and the Liberal Democrats are helping them.

"In Scotland, these cuts will hit us harder because the SNP have spent the last three years acting like 'Tartan Tory outriders' pursuing the same cuts agenda in our schools and hospitals and cancelling essential infrastructure projects like the Glasgow Airport Rail Link."

But Derek Brownlee, the Conservative finance spokesman, said: "If we had carried on with Labour's plans, we would be running up more debt and risking higher interest rates which would hit businesses and families, and kill the recovery."

The Lib Dem finance spokesman Jeremy Purvis said: "The price of Labour's catastrophic debt is huge for Scotland."

Finance secretary John Swinney claimed that the Fraser of Allander report backed up the SNP's fears that the emergency budget was too Draconian.

He said: "This supports our central point about the risks of the emergency UK budget – that the Westminster Government is cutting spending too early and too deeply, and is consequently putting Scotland's recovery in jeopardy. It also reinforces the case for Scotland to have powers of financial responsibility."

Finance minister John Swinney commented: "The benefits of fiscal responsibility are clear with a current budget surplus in Scotland of 1.3 billion for 2008/09, compared to a UK current budget deficit of 48.9billion.

"That is a strong illustration of the issue which increases the urgency for Scotland to have financial responsibility as an alternative to a dismal decade of Westminster spending cuts."

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