After years of public spending, the harsh truth is now laid bare

IF THE assessment by Andrew Goudie, the Scottish Government’s chief economic adviser, is anywhere near accurate, Scotland is heading for a dismal decade and a half of fiscal austerity.

The report, with its projections of cuts of up to 35 billion will sharply focus attention on what has been until now nebulous debate about possible spending reductions and spats over trivial amounts. The scale envisaged – equivalent to a full’s government spending in Scotland – leaves little doubt that virtually all departments in government face a hit.

It suggests public spending here now faces five consecutive years of real-terms cuts and that it may take a further two years before growth returns to trend. It foresees reductions averaging 3 per cent a year in real terms between 2011-12 and 2014-15 within the UK plans. By 2014-15, the part of the Scottish Budget which the Scottish Government controls (DEL) could be between 3.5bn and 4bn lower in real terms than in 2009-10. It says it will take a period of “sustained adjustment” lasting up to 12 to 15 years before 2009-10 levels of expenditure are reached once again. Scottish expenditure could thus cumulatively forego between 25bn and 35bn in real terms. The upper end of this scale would be more likely if the UK recovery were to be slower than forecast in last month’s Budget.

Even allowing for the cushioning Barnett consequentials of health and education being ring-fenced, this is a monumentally bitter pill for Scotland to swallow. And it should concentrate minds sharply in the closing days of the election campaign. For Scotland’s political class it is a rude awakening out of the trance of ever-rising public spending: ten unbroken years of ever-rising budgets that enabled the public sector payroll to expand in almost reckless fashion. The ranks of civil servants, quangos and bureaucrats have boomed. But did we really need them all? Huge spending commitments like free personal care were entered into with an almost cavalier disregard of long-term cost implications. There have been giveaways and concessions, charge-waivers and boosts: the popular things politicians like to do.

Now comes the reverse – and that is altogether more difficult to handle. As with all model projections, these forecasts by their nature are unable to allow for change. It may well be that some of the worst projections can be modified by measures that would have been embarked upon in any event. And the stark reality of what we face should compel greater attention on measures to promote economic growth and, through that, higher tax revenues.

But cuts of considerable magnitude there will have to be, and it would be quite unrealistic for Scotland to imagine it can somehow be exempt from an austerity regime set to cover all the UK. Government is about handling bad times as well as booms, adversity as well as success. Publication should at least now focus public debate on where it really matters.