Scotland anticipating £4bn handout

The Chancellor is expected to use his forthcoming spending review to lift government spending in Scotland to 10,000 for every man, woman and child.

However, the First Minister has told Scottish Executive ministers they have no automatic claim to the money and has asked each one to produce plans for budget cuts from 2 to 10 per cent

Mr Brown will, in the next few weeks lay out government spending for the next three years, dividing up the spoils of recent tax rises between health and education. Pressure will be applied to central government administration, where he hopes to save 20 billion by 2008.

Mr McConnell, who has almost no powers to generate the money he spends, has been under pressure from the Treasury to follow suit and produce his plans to cut back the Executive’s bureaucracy, which has ballooned since devolution.

In response, the First Minister has said he will save 1 billion by 2010 - a proportionally lower target, with a deadline which presumes more than a decade of devolved power for Scottish Labour.

However, Mr McConnell is spared negotiations with Mr Brown by the Barnett Formula, which sets aside a gently shrinking proportion of UK spending for Scotland. This has already delivered results.

The Scotsman understands that the Treasury’s figures envisage the Scottish Executive’s budget rising from 24 billion this year to 28 billion by the time the next Holyrood election is due in 2007.

This will give Mr McConnell a budget enjoyed by no other comparable leader in the EU. Scotland’s health spending, as a share of the economy, will be the highest not just in the 25-member European Union, but in the developed world.

This will, however, translate into political trouble for Mr McConnell if he fails to combat Scotland’s poor NHS performance and dire health record, which currently puts Glasgow’s life expectancy lowest of any European city.

However, Scottish ministers have used devolutionary powers to reject NHS reform introduced in England and to be expanded in a speech by John Reid, the Health Secretary, on Thursday.

Jim Mather, enterprise and economy spokesman for the Scottish National Party, said yesterday that Mr McConnell’s half-way target of 500 million savings by 2007 was laughably modest as it represented less than 2 per cent of the budget.

"The half a billion pounds savings is modest compared, for example, with what’s been achieved by Scottish Water," he said. "I’m very keen on efficiencies, but I'm worried that the efficiencies in the context of a Scottish government which only manages spending, is simply going to mean cuts."

Mr McConnell’s advisers made clear that he will target local authorities, whose workforce has soared to over 305,000 - or one in eight of every employed Scot. But COSLA, the Scottish local government association, launched a pre-emptive strike yesterday saying that councils were models of efficiency the Executive would do well to emulate.

"We are confident in our procedures and structures," said Pat Watters, the COSLA president. "We have been subject to best value from day one. Having said that, COSLA would be happy to work with the Executive to allow them to get others - including themselves - to the same stage we are at."

An Executive source said there was ample scope for cost-saving by merging the payroll and administration departments of various councils, for example those in the area covered by the former Strathclyde Regional Council.

"If the local authorities resist change, the result may be some form of forced restructuring," said the source. "We have ample powers in this area, and we are prepared to use them."

He added that civil servants in Scottish Executive departments - who had expanded their number by more than 6,000 since devolution - should not assume that Mr Brown’s money would protect them.

"We’ve asked departments to report on efficiency savings of 2 per cent, 5 per cent and 10 per cent. These are just scenarios, but there are other places we can put money such as higher education and transport infrastructure projects," he said.

The Executive is responsible for half of government spending north of the Border. The rest is mainly social security and defence.