Budget analysis: Little room for manoeuvre and little hope of an upturn any time soon

JOHN Swinney’s announcement on public sector pay yesterday only
 impacts directly on about 8 per cent of public sector workers, such as civil servants, quango staff and NHS senior managers, whose pay he sets.

JOHN Swinney’s announcement on public sector pay yesterday only impacts directly on about 8 per cent of public sector workers, such as civil servants, quango staff and NHS senior managers, whose pay he sets.

However, it is a good guide to how the pay of the other 92 per cent, such as teachers, police, nurses and council staff, will also be settled.

The limited room for manoeuvre that both the Scottish Government and local government has on pay rates has been well documented. Paying the salaries of the 600,000 or so people who work for the government in Scotland eats easily the biggest chunk out of the £28 billion departmental budget available for ministers to spend.

An independent report two years ago estimated it at 59 per cent of the entire budget, or some £15.1bn.

Therefore, any change has huge consequences; the same report estimated that a miserly 2 per cent increase this year would leave the government without much change from £300 million.

The pressure has been eased slightly by the fact that the number of people working in the public sector in Scotland is falling: down to 580,100 earlier this year, a decease of 2.8 per cent compared with 12 months earlier.

But as costs rise elsewhere, and with Mr Swinney’s budget shrinking in real terms, it would appear he has concluded that he has to abide by the same arithmetic as Chancellor George Osborne.

That came as no surprise to trade unions yesterday. Primarily, they blame the Conservative-Liberal Democrat coalition for putting the brakes on public spending.

Most are sympathetic towards Mr Swinney, given the hand he has been dealt. However, the finger is also being pointed at the SNP government, with some union figures asking why ministers could still find the cash to fund a Small Business Bonus. It illustrates the growing tensions that is the consequence of an era of no money.

Unions are now running out of patience.

Two years of pay freezes followed by a 1 per cent rise equates to a real-terms pay cut for staff who have seen their purchasing power falling rapidly as a result.

Unions were quick to point out yesterday that, for all the SNP government’s support for a fiscal stimulus, removing spending power from people is a good way to further depress demand.

Mr Swinney will also know that the longer the pay restraint goes on, the less tolerant people will be, as they feel their pay packet getting lighter every year.

He aimed to mitigate that yesterday by implementing a pay freeze for the highest-paid staff, and with the guarantee of an uplift for those at the bottom, which, for some, may equate to a rise of more like 3 per cent.

However, such actions only affect matters at the margins.

As the Independent Budget Review report noted two years ago, he could increase pay more rapidly, but the trade-off from a higher pay rise would be the enforcement of a bigger cut in the workforce. No easy options appear open.

And for those hoping that next year might be the last, there is little sign of hope on the horizon.

Earlier this week, one think tank, the Institute of Public Policy Research, suggested that the Chancellor may have to find £14bn more departmental cuts in 2015 thanks to the weakness of the economy and the fragility of the public finances.

In other words, without a marked upturn in the economy, hopes for hard-pressed workers that a bumper pay deal is round the corner look thin indeed.