£2.7bn of cuts needed, says CPPR report

DAY-TO-DAY public spending will have to be slashed by around £2.7 billion over the next five years, with some of the deepest cuts to come in the final two years, a report has claimed.

£1bn budget drop will hit after referendum, says CPPR. Picture: Getty

The Centre for Public Policy for Regions (CPPR) has looked at the impact on Scotland’s Budget of the UK Government’s latest spending review, using data to predict how the country’s finances will look up until 2017-18.

Two-fifths of the total cuts (40 per cent) “needed” to the resource budget - used for funding day-to-day public services - have been undertaken by 2013-14, with the other three-fifths (60 per cent) “required” to be completed by 2017-18, the report says.

These cuts will fall heaviest in the final two years of this period, according to the CPPR.

The next UK spending review, likely to happen in 2015, will have “big decisions” on which Budget areas accommodate “deeper than average” future cuts, the report says. This will have a knock-on effect on the Scottish Budget due to the method used to calculate its share of funding.

“The day-to-day cuts implied by the current UK Government plans for both 2016-17 and 2017-18 are bigger than we will see in any of the years up to then,” the report says.

“Thus far, the Scottish Government has also avoided outlining where it would seek to make the implied cuts post-2015-16. This may be explained by the potential change of circumstances brought about by a Yes vote on the referendum, although even then, greater clarity will be needed on a medium-term budgeting strategy for an independent Scotland, including the role played by any oil fund.”

Real-terms cuts may even continue beyond 2017-18, the period set out by the UK Government for fiscal consolidation, particularly if economic growth remains at current low levels, according to the CPPR.

Report author John McLaren said: “The 2013 UK spending review has confirmed two important Budget issues. First, the fiscal consolidation is set to be at least eight years in duration (compared to six in the coalition’s original Budget of 2010). Secondly, the day-to-day budget cuts still to come include some of the harshest annual reductions seen over this period.

Co-author Jo Armstrong said: “The £2.7 billion real-terms projected cut in day-to-day spending still to come will be increasingly hard to accommodate, especially given the £1.8 billion already experienced since 2009-10. Unfortunately we are unlikely to know where these cuts will appear until after both the independence referendum and the next UK general election.”

Commenting on the report, Finance Secretary John Swinney said: “As a result of Westminster holding responsibility for setting Scotland’s overall Budget, Scotland is now facing eight years of real-terms spending cuts, extending well beyond the referendum to 2018 or even longer.

“And the CPPR warn that more than 50 per cent of Westminster’s cuts to frontline spending are still to come.

“If decision-making powers remain at Westminster, CPPR suggest Scotland will continue to face a future of public sector cuts or UK tax rises and increasing restrictions on our ability to spend Scotland’s Budget in the best way for Scotland.”

A UK Government spokesman said: “The UK economy is moving from rescue to recovery: the economy is growing, over one-and-a-quarter million private sector jobs have been created and the deficit has fallen by a third over three years.

“Scotland will have additional capital spending in 2015-16, which the Scottish Government can use to fund shovel-ready projects as it wishes.

“Scotland has also received over £1.6 billion in extra funding through the Barnett formula since the beginning of the Parliament, and continues to benefit from substantially higher public spending per head than the UK average.”