Executive faces major spending cuts

• Cabinet expected to approve review of Scottish public spending

• Effects of cutbacks may be felt in three years time

• Less cash available to Scotland via Barnett Formula funding mechanism

Key quote

I do not think that the Efficient Government Programme is the be all and end all. There should always be ongoing assessment of the priorities to see if those priorities are still relevant. Programmes are easier to create then they are to dismantle." - TOM MCCABE, FINANCE MINISTER

Story in full A ROOT and branch review of Scottish public spending which will result in hundreds of millions of pounds being cut from the Executive's budget is expected to be approved by the Cabinet today.

Tom McCabe, the finance minister, will tell his colleagues around the table at Bute House that they must plan to make substantial cuts in their spending for the first time since the Executive was established under devolution.

Mr McCabe will tell the coalition government that the impending Whitehall spending review planned by Gordon Brown, the Chancellor, will force them into making "tough" choices.

With the backing of Jack McConnell, the First Minister, the finance minister will seek Cabinet agreement to introduce a new a "zero baseline budget" scheme for each of the 15 Executive spending areas, ranging from health, through education, transport and justice.

Mr McCabe will tell his colleagues that outside experts will be brought in to look at their budgets, identifying spending priorities and suggesting cuts in areas no longer considered important.

The finance minister's move comes the day after Holyrood's finance committee told ministers that despite Mr Brown's decision to postpone the UK government comprehensive spending review by a year to 2007, there would be far less cash available to Scotland through the Barnett Formula funding mechanism.

Based on analysis from Professor Arthur Midwinter, a public finance expert, the committee warned the Executive - which is planning to spend 27.1 billion this financial year rising to 30.4 billion in 2007-8 - that savings made were not enough to cope with the Whitehall-led public spending slowdown which will bite in three years.

Prof Midwinter's paper warned the Executive that it faced "fundamental choices on public spending, between continuing to rely on more modest levels of incremental growth to advance the budgetary strategy, or to undertake a rigorous and systematic review exercise with a view to releasing resources to fund priorities".

According to Prof Midwinter's analysis, the 731 million in savings in an Efficient Government Programme amounted to less then one per cent of the total budget over the spending review period.

Prof Midwinter added: "If the Executive and parliament is to seriously pursue releasing resources to fund further investment in priorities, then the efficiency savings will not suffice and a more systematic review of the need for and effectiveness of current programmes is necessary, which recognises that this will entail hard choices over cutting programmes, rather than the soft target of bureaucracy, which accounts for less than 4 per cent of the Scottish budget.

"The next spending review seems likely to bring the first experience of budgetary restraint since devolution and the first test of parliament's capacity to make hard choices. The interim period should be used to prepare for that process."

Mr McCabe was last night reluctant to speak in advance of the Cabinet meeting today but The Scotsman understands that Prof Midwinter's thinking is in line with work being done in private by senior Executive civil servants.

Pressed to comment by The Scotsman, Mr McCabe said only: "I do not think that the Efficient Government Programme is the be all and end all. There should always be ongoing assessment of the priorities to see if those priorities are still relevant." He added: "Programmes are easier to create then they are to dismantle."

The finance minister's words were a clear hint that ministers, aided by the experts - who are likely to come from both the public and private sector - would have to make difficult decisions on their budgets.

Prof Midwinter's work for the finance committee has identified the task ahead in that only one item within the Executive's basic spending blocks, known as level three programmes, had been cut since 1999, thanks to the early redemption of debt from Scottish Homes.

Only three programmes - water services, Scottish Enterprise and legal aid - have been reduced. There have been increases in most other programmes.