£1 billion: Scotland pays the price for cuts delay

In calculations for The Scotsman, two senior economists have concluded that delaying the pain of yesterday's cuts will see Scotland's budget absorb a massive spending reduction from April 2011 that will put pressure on key services, including free care for the elderly, free prescriptions and schools meals.

In his first round of cuts yesterday, Chancellor George Osborne revealed that Scotland's budget would reduce by 332m, through measures introduced in the promised UK emergency Budget on 22 June.

The cuts for 2011-2 have yet to be revealed but economists have told The Scotsman that the figure will be at least twice the level announced yesterday. Added together, the SNP administration will be forced to find savings and efficiencies of more than 1bn in a single year – about 3 per cent of the Scottish Government's 30bn budget.

Revealing the details of 6bn of UK cuts, Chief Treasury Secretary David Laws said the announcement was meant to send "a shockwave through Whitehall".

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However, the announcement – although expected – has delivered a shock to the Scottish budget, which has enjoyed above-inflation increases throughout the short history of devolution.

With other savings due to be announced in a further UK Budget early next year, economist Professor David Bell of Stirling University, writing in today's Scotsman, has warned that finance secretary John Swinney will be left having to take out at least 900m from his budget, but he believes it is likely to be 25 per cent higher than that.

According to John McLaren, of the Centre for Public Policy for the Regions, the picture is even gloomier.

He calculated that the "real terms" cut, factoring increases in the cost of services, will amount to about 1.5bn – 5 per cent of the Scottish budget.

Their estimates are partly based on calculations by the Institute for Fiscal Studies and a report by First Minister Alex Salmond's chief economic adviser Andrew Goudie, who believes there will be 3.7bn of cuts in the next three years on top of the cuts announced yesterday.

The situation will become much clearer after the UK government's comprehensive spending review takes place in October.

Mr McLaren has also argued that those cuts are likely to be front-loaded, with the most pain coming next year. He also points out that the cuts announced yesterday, totalling 374m but offset by an extra 42m of Barnett consequentials from extra education spending, will be repeated each year.

But the pain of the cuts announced yesterday will be wider than the 332m reduction in Scotland's block grant.

Thousands of families will lose out with the decision to pull the plug on the Child Trust Fund and the SNP has claimed that the decision to reduce investment in housing by 150m could also hit Scotland, where the number of households is set to increase by 2.8 million in the next 25 years. Civil servants working in Scotland will also be hit by the pay and recruitment freeze. It is not known how many jobs the cuts will cost, though the respected Fraser of Allander Institute has already warned of 60,000 jobs going in Scotland.

But after an election where it campaigned with the message "More Nats Less Cuts", the SNP has been accused of failing to prepare properly for cuts and accused of "sticking its head in the sand".

The cuts have reopened a debate on mutualising Scottish Water and ending free prescriptions and schools meals for those who can pay.

The Tories have also made it clear they intend to push for an independent review of higher education spending and student support including the payment of tuition fees.

There were also calls for Mr Swinney to start finding savings this financial year instead of stocking up major cuts for the future.

Scottish Conservative finance spokesman Derek Brownlee said: "The UK government has managed to come up with efficiencies worth more than 6bn.

"The Scottish Government has been asked to make savings worth 332m. That is 1p in every pound it spends. If the UK government can make savings, the Scottish Government needs to do the same or explain why it can't.

"These savings will not 'choke off the recovery' as some have claimed. Delaying the inevitable will only put more pressure on the economy and front-line services in the future".

However, Mr Swinney defended the Scottish Government's record on making savings despite insisting that he could not make the cuts because it would undermine "Scotland's fragile economic recovery".

He pointed out that the 2 per cent annual efficiency savings had been put in place by him across the public sector in 2008.

He added that a 25 per cent reduction in the number of national devolved public bodies from 199 to 120 by April 2011 would save 123m.

He also highlighted cutting central administration costs by 5 per cent and the costs of central marketing by more than 50 per cent in this year's Scottish Budget, as well as reducing Scottish Government travel costs from more than 5.9m in 2008-9 to just over 4.9m in 2009-10.

"At a time when economic recovery is extremely fragile, the spending cuts outlined by the Treasury risk undermining recovery and damaging our comprehensive work to support the Scottish economy," he said.

"These further spending cuts are on top of a 500m reduction imposed on this year's Scottish finances in the then Chancellor's 2009 budget."

He went on: "We are under no illusions about the scale of challenges that lie in the years ahead, and indeed have already published figures which quantify this."

If the SNP ministers were hoping for constructive support in finding savings from Labour, the main opposition party in Holyrood, it quickly became clear that they were set to be disappointed.

Labour finance spokesman Andy Kerr said: "John Swinney's efforts to pretend that Scotland can somehow remain immune from the effects of a Tory government have no credibility when he is doing their job for them."

But he added: "The Scottish Labour Party will oppose Tory cuts and SNP cuts. It angers me that while the Tories are reducing support for young people and cutting back on support for business, the SNP are forcing job losses on the NHS."

SNP SAVINGS

FINANCE secretary John Swinney yesterday tried to deflect criticism that he and the SNP have failed to plan for the massive cuts ahead by publishing a list of savings already made or in the pipeline.

A 25 per cent reduction in the number of national devolved public bodies from 199 to 120 by April 2011. This will save 123 million over the period to 2013.

The publication of targets that aim to achieve in-year savings across the public sector of 534 million in 2008-09, 1,069 million in 2009-10 and 1,603 million in 2010-11.

Cutting central administration costs by 5 per cent and the costs of central marketing by over 50 per cent in this year's Scottish Budget.

Reducing Scottish Government travel costs from over 5.9 million in 2008-09 to just over 4.9 million in 2009-10 – a reduction of almost 1 million – while in the six months to December 2009, the cost of air and rail travel fell by 24 per cent and 28 per cent respectively.

Audit Scotland's July 2009 report, "Improving Public Sector Purchasing", identified savings of 327 million from the first two years of the procurement reform programme.

New national procurement contracts for the bulk-buying of gas and electricitydelivering annual savings of around 10 million for electricity and 5 million for gas.

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