Bill Jamieson: Let's heed Adam Smith's warning

Really? This for a 1.3 billion cut in spending next year and a real-terms cut of 6.8 per cent in current spending over four years? It is a measure of how twisted Scotland's political culture has become that the need for a change of rhetoric should occasion not an outbreak of honesty but something akin to a national hysteria. Long forgotten is the wisdom of Adam Smith in The Wealth of Nations on governments, that they "are themselves always and without any exception, the greatest spendthrifts in the society. Let them look well after their own expense, and they may safely trust private people with theirs. If their own extravagance does not ruin the state, that of their subjects never will."

Today, as individuals and households cut back on debt and save more, government in Scotland in all its forms and extensions rails against the necessity of deficit reduction. Last month saw the highest borrowing ever for September, the debt interest charge soaring 155 per cent on a year ago and total public sector net debt hitting a record 64.6 per cent of GDP, the highest since records began in 1993. But that is not seen as our problem. For the bigger picture, we are treated not to the enduring wisdom of Adam Smith but to the fulminations of Professor David Blanchflower, for whom the Everest of debt is but a molehill and the coalition's deficit reduction programme is "mad".

How disappointing then for the doomsayers that the revisitation of austerity, the Great Depression and the 1920 Geddes Axe was somewhat less than their forebodings, and for Scotland translates into a reduction in current spending in real terms of 10 per cent by 2014-15 compared with last year. Indeed, current spending in cash terms will be higher from 2012-13 than it is now. A downsizing of the state? Hardly.

It is capital spending that takes the big hit. Even then I do not doubt that this will be painful for non-protected spending departments, that it will involve many redundancies and that it will impact on the private sector. It follows, after all, a decade in which public spending in real terms doubled in Scotland, a period of government expansion without precedent in our peacetime history.

The political class came to believe such a rate of increase was not only an entitlement but a naturally recurring phenomenon, a world in which the economic cycle had not simply been abolished but replaced by a wheel of permanent increment. Deficit and debt were not of its concern. These were matters for other people, who could usefully be blamed for cruelty and heartlessness. The function of government in Scotland, after all, is not to exercise restraint, still less to save for a rainy day, but to spend to the last penny of the Departmental Expenditure Limit. So what is "mad" really? The reality check we face now? Or the system of public finance that brought us to this?It is certainly true that the banking crisis and severe recession contributed greatly to this state. But we are not entirely innocent victims. In Scotland the business of government has grown out of a culture in which the word "free" is used to hide the opposite and where political virility is measured by the size of cash inputs rather than service outputs. Together with a system that compels the administration to spend up to the limit of its budget, we have come to that unintended consequence of devolution: far from weaning Scotland off a dependency culture, it only seems to have deepened it.

The result, as Crawford Beveridge noted in the Independent Budget Review, is that Scotland "has a public service infrastructure which is over-complicated, unduly fragmented and in need of fundamental redesign". Its multiple institutions include 32 local authorities, 23 NHS bodies, eight police forces, 20 universities, 48 colleges and more than 100 other bodies and quangos. Austria-Hungary fell with less.

Those who say this cannot be reformed, or that the expense of reform would be too great, fail to grasp the debt dynamics now at work. The bigger the government estate has grown, the greater the cost of maintenance and upkeep. We are indebted to Auditor General Robert Black for pointing out the 3.2bn of debt from PFI and PPP obligations; unfunded police and fire pensions of 8bn and outstanding maintenance and repair needs of 4bn. In piling up such debt and future obligations Scotland has put herself on a financial treadmill, needing ever more revenues for the feat of just standing still. Is the cure really more borrowing powers? Isn't a record level of debt high enough?

Debt and deficit reduction brings a compelling opportunity for nation-saving reform, starting at the top. Beveridge offered the administration a range of measures to avoid a loss of up to 50,000 jobs, such as turning Scottish Water into a public interest company, placing limits on universal benefits or avoiding ring-fencing. The administration has set its face against all of these. By reform-dodging, cuts will thus be harsher than they need be. What is now urgent is a restructuring and reform of public service delivery. But all this is being left too late.

The administration needs also to change. John Swinney may be finance minister, but he is also in charge of a spending department - finance, enterprise and sustainable growth - with a budget this year of 5.8bn. He needs to be above the fray and keeping spending departments in check. Yet this week he was railing at the coalition government for cutting too fast and too far. Any politician can howl like a wolf at the moon for ever more public spending. A finance minister has wider and greater responsibilities.

There needs to be a separate and independent finance department to hold the ring between spending departments while a separate department concentrates on enterprise, tourism and growth. At present enterprise is lost in this tumble dryer of functions, with almost half the "enterprise" budget accounted for by the Scottish Public Pensions Agency (2.5bn), while concessionary fares, bus services, the General Register Office for Scotland and back office admin account for another 313 million. Growth should be the priority, but it is lost in this hotchpotch. If we do not reform we face a suffocation by government - and the axe will move from capital to current.

As it is, the political culture that blindly promotes ever greater spending, so-called "free" benefits and treats voters like idiots needs to change radically. The money has run out and the cupboard is bare. Government unbound has this propensity, just as Adam Smith warned us. It is time politicians caught up.