The £1bn savings highlighted in 'hidden report'

The Howat report, which was commissioned by the previous Executive and whose contents were kept secret until yesterday, accused the Executive of basic failures in financial accountability and organisation.

It said Executive programmes concentrated on spending budgets rather than meeting needs. The number and cost of public sector bodies should be looked at "as soon as possible".

Last night John Swinney, the cabinet secretary for finance, promised to study the findings before taking future decisions on spending.

The 181-page report looked at spending on everything from hospitals and schools to transport and housing. Led by Bill Howat, former chief executive of Western Isles Council, budget experts identified 818 million that could be freed up by moving money from programmes not performing well or meeting ministers' objectives.

The experts made a "best guess" that a further 432 million of cuts could be found in the Executive's budget of more than 30 billion.

They found ministers and civil servants sometimes spent money for the sake of it.

The report says: "Programme management is too much about spending the available budget, rather than defining clearly what needs to be provided."

It adds there is "insufficient understanding of the purposes and principles of government accounting across the Scottish Executive".

It states: "Scotland's public services are delivered through a complex and costly web of public bodies and agencies.

"This 'crowded landscape' should be reviewed as soon as possible to determine whether fewer organisational entities could be more effective at delivering outcomes and could do so at a reduced cost."

The report calls for a "systematic reassessment" of the relationships between the Executive, its agencies and quangos.

In health it proposes saving 50 million on drugs, 26 million by cutting the drop-out rate of student nurses and 28 million by freezing GPs' pay.

In transport, it proposes saving 67 million by cutting motorway and road maintenance to a minimum and taking 57 million off grants to bus firms, raising fares by 17 per cent.

There could be 16.8 million cut in legal aid and 1.7 million would be saved from merging the Scottish police and fire colleges, it recommends.

Publishing the report, and fulfilling an SNP manifesto pledge in the process, Mr Swinney yesterday refused to say which of the proposals the new Scottish government would accept.

He said the report questioned the need for a "more strategic" government focus because it revealed that the last administration's "complex and dynamic" priority had hampered the Executive's ability to set clear outcomes and meaningful targets.

He said: "In recent years, an organisational spaghetti of partnership and networks has grown, alongside a hugely complex system of performance monitoring and funding."

Mr Swinney said the report vindicated what the SNP had long argued. He added: "We will now take action. A critical element of our approach to simpler, smaller government is to declutter this landscape.

"I want to create a broad consensus within this parliament and across public services that the government of Scotland has become too complicated and we need to sort this out."

Derek Brownlee, the Tories' finance spokesman, said: "Now we know why the last government didn't want it published before the election.

"Howat suggests that the last government simply didn't have a grip on spending in Scotland. No wonder that, as public spending doubled, our public services did not improve to match that."

Mr Swinney refused a challenge from Tavish Scott, a Lib Dem former minister, to accept the report in full.

Mr Scott said: "The government had hit the ground prevaricating."

He demanded whether the recommended cuts, including 60 million on health and 67 million on road maintenance, would be implemented.

He added the Howat report argued that there was "no reason" for general grants to be paid to individuals, saying this contradicted the SNP's proposals to pay grants of 2,000 to all first-time house-buyers.

Mr Scott also said the report recommended that the minister for finance should not have any other responsibilities.

Mr Swinney said that the Executive planned to make year-on-year efficiency savings of 1.5 per cent of the budget, but there would be no compulsory redundancies.

Wendy Alexander, Labour's spokeswoman on finance, told MSPs that one of the "delicious ironies" of Mr Swinney's statement about the need for slimmer government was that his own finance department had itself taken on so many responsibilities.

She added: "Its delivery is now entrusted to a department itself so supersized that it has already devoured most of the statements announced for this place and three of the four debates scheduled so far."

Swinney won't mutualise Scottish Water

JOHN Swinney yesterday ruled out turning state-owned Scottish Water into a mutual company at arm's length from the government.

The Cabinet secretary for finance refused to accept the Howat report recommendation to change the utility's status, a move what would free up more than 180 million.

Mr Swinney, who is understood to have looked at the idea when the SNP were in opposition, told The Scotsman last night that Scottish Water was part of the new administration's plans to strengthen Scotland's infrastructure.

The new government's move to keep the utility under public ownership was the only firm decision which it made yesterday in response to the Howat report.

Mr Swinney said: "We think that Scottish Water should be a public asset. Mutualising it leads you almost inevitably into the position of privatisation and we are against that."

He said that he had been given responsibility for the company because he was responsible for economic growth in Scotland.

The new minister added: "Scottish Water will be part of the infrastructure that gives us the support we need for economic development."

Earlier he told MSPs: "We will not be taking forward the recommendation to turn Scottish Water into a mutual company."

Despite the fact that the idea was the policy of the Conservatives and the Liberal Democrats, the new government was "not persuaded by the arguments". Mr Swinney added: "Scottish Water will retain its current status - that is our clear policy position."

Alex Johnstone, a Tory MSP, criticised Mr Swinney over the Nationalists' refusal to consider the plan. He claimed such a move would free the organisation from the "dead hand of government" and would bring significant savings to the public purse.

Mr Johnstone claimed Mr Swinney did not support the move because "he is committed dogmatically to the principle of public ownership in water supply".

A Green Party spokesperson said: "We welcome this clear decision to keep Scottish Water under public ownership - and control - where it belongs. Mutualisation would have been a backdoor step towards privatisation and we're glad that this is being resisted."

Plans emerge to strip Scottish Enterprise of staff and duties

DRAFT plans to strip Scottish Enterprise of many of its functions and hundreds of staff have been discussed by Scottish Executive ministers, The Scotsman has learned.

A discussion document, calling for the virtual break-up of Scotland's enterprise quango, has been drawn up by SNP officials and circulated to ministers.

A copy has been passed to The Scotsman and, if carried through, the plan would see many of Scottish Enterprise's functions taken on by the Scottish Executive and others given to local authorities.

The plans have not been accepted as government policy. However, it is understood that John Swinney, the finance secretary. and Jim Mather, the enterprise minister, have looked at them with interest.

The plans include:

• Subsuming much of Scottish Enterprise into the Scottish Executive.

• Leaving much of the 500 million annual budget for development intact, but stripping Scottish Enterprise of much of its administrative and monitoring role. This would save about 100 million from the administration budget.

• A major cutback in the number of staff at Scottish Enterprise. The quango employs about 1,300 staff and this could be cut back to a few hundred if many of the body's functions are handed over to other branches of government.

• Taking Scottish Development International from the enterprise quango and making it a government department with its own minister.

• Having services offered by the Small Business Gateway, Gateway International, Sustainable Development of Rural Communities and Property Services delivered by local councils instead of Scottish Enterprise.

• The abolition of the 12 local enterprise companies (LECs) and their functions transferred to local authorities.

• Abolition of the Scottish Enterprise Board.

Alex Neil, SNP MSP and former convener of the parliament's enterprise committee, acknowledged the document existed and that it had been circulated to ministers.

He said: "What we are going for is a far greater bang for our buck. We do not believe we are getting 500 million worth from Scottish Enterprise. We don't want to abolish it, we want to re-engineer it to make it leaner and more effective and to enable more people from the private sector and from academia to do more for the people of Scotland."

Mr Neil said the money handed out by Scottish Enterprise to grow business should not be subsidies, it should be "leverage", generating more private sector investment.

A spokeswoman from Scottish Enterprise declined to comment on the paper, but said: "We are in the process of a positive dialogue with the new Scottish government and are optimistic about the way forward."

A Scottish Executive spokesman said that Mr Swinney met senior executives at Scottish Enterprise yesterday for a "productive" discussion.

HAMISH MACDONELL