Scottish Government has to prove it can cope with adversity

DEVOLVED government in Scotland has entered the most critical period of its existence.

Not only is it facing for the first time a real terms cut in its budget but also, on the analysis last week of its chief economic adviser Dr Andrew Goudie, a substantial budget cut of three per cent each year for five years - a cumulative real terms reduction of 16 per cent.

In calling for a "comprehensive, wide ranging programme of public engagement" on the coming budget, Finance Minister John Swinney is toning down, if not completely eschewing, the blame-game rhetoric of "London-based cuts" and focusing on the tough decisions ahead. The truth is that the era of ever rising expenditure financed by debt left for future generations to pick up, has come to an end.

But in this, there should be no illusions either within the government that this engagement has to be about more than one-off cuts or budget trimming. It has to tackle reform of the planning, procurement and delivery of public services to achieve significant and lasting efficiencies in how government goes about its business.

Given that the writing has been on the wall for 18 months about the need to tackle the UK's billowing public debt, Mr Swinney has left this engagement perilously late. Two developments are now catalysing matters. The first is Dr Goudie's analysis. It leaves in little doubt the extent of the budget reduction ahead. The second is the publication in a few weeks of the Independent Budget Review at the end of the month. It has been tasked with setting out options for spending reduction - compatible with protecting the most vulnerable and doing the least damage to economic growth.

Such a brief, by its very nature, cannot please everyone. But there are three outstanding points for which the administration and the country must be prepared. First we must take a long, hard look at universal benefits such as tuition fees, "free" eye tests and "free" personal care - for which the policy's instigator, Henry McLeish, is making a passionate plea. If these are maintained, cuts in other areas will need to be correspondingly more severe. That stark fact must inform our choices. It cannot be avoided.

Second, the government must look at ways to radically reform and streamline capital spending and infrastructure projects rather than cutting them altogether at a cost to longer term growth. Selling off Scottish Water would be a useful start. Greater flexibility in processing capital projects within and between local councils and government bodies must be pursued.

And third, that part of the Scottish budget devoted to enterprise and sustainable growth must be focused on these outcomes, boosting private sector business formation, investment and employment growth. Any government can ride an incoming tide of rising public expenditure. The real test is coping with adversity, and serving the whole of Scotland, not just the public sector.

That is the test now upon it.z