John McTernan: Time for grown-up honesty on spending

THE worst-kept secret in Scotland is out: the public sector is too big, and it's going to have to shrink. The Independent Budget Review (IBR) has delivered a report that is that rare thing for a government document: a must read.

The "three wise men" have done an exemplary job (though roll on the day when we never again have all-male panels looking at problems - were all the wise women otherwise occupied?) Their work pulls together a wide range of material and sets out clearly and reasonably the constraints and the types of choices that have to be made.

What is to be done? Well, as Ronald Reagan used to say, it's not easy, but it is simple. The first overarching proposal is not to ring-fence any specific services. That makes utter sense. The NHS is the obvious candidate for pious platitudes about how vital it is to protect its budget. Since health consumes a third of the Scottish Government's budget, protection for it would mean a savage increase in cuts for all other departments.

This would be an error for two reasons. First, other services, particularly housing and education, themselves make a dramatic impact on health and well-being. Second, the totally unreformed and highly inefficient Scottish NHS protected from competition or reorganisation is a black hole for cash.

The IBR goes on to recommend that it is time to look at eligibility criteria for everything that's currently free. They suggest halting the abolition of prescription charges, though a return to English levels makes more sense - they can provide 1 per cent of the total health budget, handy at any time but essential now.

These should be the simplest choices for the Scottish Government: reintroducing universal charges like bridge tolls; getting users to pay for services that benefit them economically - student tuition fees, for example; targeting free services in a far more focused way as in means-testing travel passes, or raising the age of entitlement; and ripping up the middle class welfare state by ending free personal care.

There's a good case for disposing of government assets. Scottish Water is the prime example. It would give a massive capital receipt - potentially billions - and there would be hundreds of millions of pounds saved by eliminating the annual subsidy from taxpayers.

That's the most obvious and high-profile, but councils, health boards, police and fire services all have surplus assets. The time is ripe for rationalisation.

And what about the Forestry Commission - an essential arm of government when we realised there was a shortage of timber for pit props in coal mines. But I guess that nearly a century on we don't need publicly owned woods to provide that type of "energy security".There is, of course, nothing particularly new in this list. As I said at the outset, it's no surprise that there needs to be retrenchment in Scottish public services. The first decade of devolution was defined by a political discourse in which government action was the solution to any problem and increased public spending was always right because money was no object.

When Jack McConnell did the deal on the McCrone package he was committing just about all the foreseeable growth in education spending to teachers' pay. Taken with Henry McLeish's off-the-cuff announcement to Newsnight Scotland that free personal care would be introduced immediately, by the turn of the millennium Scotland's budget was - in the medium term - unsustainably over-committed.

But no voice in Scottish politics was arguing for less rather than more spending. This was a failure of leadership and vision.

Early in the life of the first Labour-led administration, a young David Miliband - then head of policy at No 10 - came to speak to Donald Dewar's cabinet and his message was powerful - and still talked about by the senior civil servants who were there. He said: "In politics you can gain more definition by what you say no to than by what you agree to."

The Cabinet listened politely, then ignored him. And that has been the pattern to this day.

John Swinney has been a remarkably imprudent finance secretary. He knew from the outset of his term in office that spending would have to be constrained. Instead of prudently managing down services, he used nearly 1 billion of underspends to turbocharge spending, creating a greater cliff-edge when cuts came.

And he did it again this summer when he put off the cuts that were consequential on Osborne and Alexander's early reductions in public spending. This has the effect of doubling the impact of the cut.

What is desperately needed is some leadership from opposition parties. Already, the Scottish Government is on manoeuvres, advancing an invitation to all parties in the parliament to discuss how to take forward the findings of the IBR. This is a cul-de-sac.

First, it takes the conversation inwards again, away from the public and back to the smoke-free rooms of politicians.

Second, it leads straight to framing this as "Westminster cuts". Not only is that tired leftist rhetoric, it is infantile. This should be about growing up, taking responsibility, making hard decisions.

Politics is distrusted as a profession because leading politicians promise a hundred impossible things before breakfast. The SNP were elected on a manifesto that would have cost billions to implement and they have delivered on the smallest and least costly promises.

There is a huge space now for Iain Gray, as Labour leader in Holyrood, to define himself in the voters' mind. The other parties seem intent on ganging up against Scottish Labour - so be it, he should say, I will talk plainly and honestly to people. I won't fudge, I won't mislead, I will not make promises I know I cannot keep.

There is no route round service cuts, but there is a possibility of renewing politics with a tone of honesty and an open engagement with the public.

The polls show that Mr Gray is on track to be first minister next year. Speak for Scotland, Iain.

John McTernan is a former Labour special adviser