Scots face five years of spending slaughter

• Picture: TSPL

The Independent Budget Review (IBR), commissioned by Scottish ministers, sets out a roadmap plotting a painful route through the economic crisis that involves cuts to expensive flagship policies of the SNP government such as free care for the elderly, concessionary travel and free prescription charges.

None of Scotland's public sector, including the NHS, is exempt from the savage axe-wielding proposed in the report, which also recommends stopping the SNP's council tax freeze, changing the status of publicly owned Scottish Water and freezing public sector pay and recruitment.

The report warns of a "long, hard financial winter" ahead and calls for rival parties to work together to find a way to deal with a bleak economic outlook, which it describes as "unmatched since the Second World War".

The report's authors, a three-man panel led by Crawford Beveridge, the former chief executive of Scottish Enterprise, admitted it made "uncomfortable reading" and warned that difficult choices would have to be made over where the axe should fall.

They said they were under no illusions about how unpopular the proposals would be and even admitted they were fully "cognisant" of the riots that had greeted harsh economic measures in Greece.

Launching the document in Edinburgh yesterday, Mr Beveridge called for "strong leadership" from politicians and appeared to seek a new era of political consensus when he urged rival politicians to work together to meet the challenges presented by a 42 billion squeeze in Scottish public spending over the next 16 years.

Finance secretary John Swinney said he would give "careful consideration" to the review that was included in the government's programme at the behest of the Conservatives, who called for it during budget negotiations earlier this year.

Mr Swinney invited opposition politicians for talks on its recommendations. But he also indicated his government's determination to protect some SNP sacred cows, saying that Scottish Water should remain in "public ownership".

The finance secretary also pledged to protect free personal and nursing care as well as concessionary travel for the elderly, even though the IBR said hundreds of millions of pounds could be saved taking a different approach. Previously, Mr Swinney has signalled his intention to carry on with the council tax freeze.

Last night Mr Beveridge's vision of a new era of blame-free political consensus seemed over-optimistic when Labour used the report to attack the SNP government, claiming it was responsible for a series of cuts in the past.

Andy Kerr, the Labour finance spokesman, said: "Even in those good times the SNP have been cutting teachers and nurses, so it is all the more vital for the SNP government come clean and bring forward their budget. Scotland now faces a perfect storm with Tory cuts coming on top of three years of SNP cuts."

Mr Swinney's instinct to protect free care and concessionary travel would suggest that much of the pain will be felt by the public sector workforce.

Mr Beveridge acknowledged that "the huge numbers" were contained in the public pay bill which accounts for 60 per cent of public spending in Scotland.

"There are very difficult decisions to be made over the next few months, requiring strong leadership not just in their making but also in their subsequent implementation," Mr Beveridge said.

"Clearly there are significant short-term challenges. Scotland needs to decide what form and shape of public services it desires and can afford."

Dealing with pay, the report stated that about 50,000 jobs in the public sector (10 per cent of Scotland's 500,000 public sector workforce) would have to go if pay grew in line with UK plans.

But it added that the job loss figure could drop to 29,000 (5.7 per cent) if a tougher approach to pay restraint was adopted.

It recommended an immediate recruitment freeze should be looked at across the public sector. A two-year pay freeze from 2011-12 was described "as the first essential step to constrain growth in the public sector pay bill".

The three-man panel, which also included Sir Neil McIntosh, a former chief executive of Strathclyde Regional Council, and retired Deloitte consulting partner Robert Wilson, said changes in public sector pensions were "essential and almost certainly unavoidable".

An immediate review was called for into all free universal services including personal and nursing care, which costs 350m annually, as well as concessionary travel and eye tests.

The panel also advocated postponing ministers' plans to abolish prescription charges.

Concessionary travel is predicted to cost 914m over the next five years, but this would fall by 279m if eligibility was raised from 60 to 65.The council tax freeze should be looked at being "discontinued" and does not appear "sustainable" in the long term, the report added.

A further cull of quangos was also recommended.

Even road charging should be looked at to meet the cost of new highways and improve the existing network.

Even though Mr Swinney has pledged to protect the NHS from cuts, the report said alternatives to ringfencing the Scottish health budget should be explored.

Mr Beveridge's panel examined transforming the publicly funded Scottish Water utility into a public interest company, a move that has been strongly supported by the Scottish Conservatives and one which the report said would "release significant capital to the Scottish Government for other projects".

The government was also urged to look at the possibility of reintroducing tuition fees or a graduate tax for students at universities and colleges.

Wages: Stark choice of pay freezes or lay-offs

THE BACKGROUND

The report makes clear that it would be pointless trying to make savings without looking at pay, since 6 out of every 10 in departmental budgets is swallowed up in wages and pensions.

If ministers continued to increase pay as they have done over recent years, it would cripple the Scottish Government's budget, the report makes clear. The pay bill would go up by 2 billion. At the same time, the pot of cash available to meet the pay bill will be nearly 300 million lower.

Looking back at the time since devolution, the report notes that public sector employment in Scotland has increased at double the rate of private sector employment between 1999 and 2009 – an increase of 49,200 people.

THE FUTURE

On pay, the report says two broad things need to be done. First, there needs to be a pay freeze for the next two years. This could be a blanket pay freeze for everyone or, as with the UK Government, it could exempt those earning less than 21,500. Secondly, there needs to be "pay restraint" for the two years after that – where rises are limited to between 2 and 3.1 per cent.

But neither of these will be enough to meet the shortfall. The report warns that while a total pay freeze "would do more to mitigate job losses", it will not prevent them from happening altogether. It uses new Scottish Government figures to lay this out: if ministers went with the UK partial pay freeze, as many as 12,200 jobs will have to go by 2012-13 so as not to break the bank.

Worse, if ministers then ended that partial freeze and reintroduced average pay increases for the following two years, they would need to sacrifice 50,000 jobs. It warns it will be "extremely difficult" to do this without ending the policy of no compulsory redundancies.

THE CHOICE

The report concludes ministers should work out the best balance between pay freezes and job cuts. From next year, it says ministers will need to make a start by cutting the workforce by between 2.3 per cent and 3.5 per cent. It suggests this can be achieved by natural wastage.

Big projects: They must go on, but calls to set Scottish Water adrift

THE BACKGROUND

The report examines the spending of ministers on capital projects – everything from the construction of the Forth Road Bridge, to schools, to upgrading motorways. It notes this budget has already fallen by 580 million, and is now projected to fall by 900m by 2015 – fully 25 per cent lower than this year.

It is the capital budget, says the report, which will be hit the hardest. The problem of finding new cash is made worse by the fact that about two-thirds of the money has already been allocated.

THE FUTURE

Having obtained new figures from the Scottish Government, the report reveals that officials believe there will be a cumulative 1 billion gap between funds and demand over the next three years, with the worst shortfall hitting immediately next year, when officials are predicting a 500m gap. The group say they "view this deficiency with some alarm given the role of public investment in supporting economic growth".

They warn the axe could be swung on crucial projects without co-ordination, with projects in the fields of energy, housing and transport likely to be badly hit.

The concern is that if, for example, money is allocated to the Forth Road Bridge, day-to-day work updating the road network in the rest of the country might fall behind.

THE CHOICE

The group wants the Scottish Futures Trust take a wider role in managing projects. It also urges ministers to use all methods – including private borrowing – to keep infrastructure work going.

The group also concludes that ministers should consider turning Scottish Water into a not-for-profit company. This stops short of full privatisation but would still take the public utility off the balance sheet, meaning ministers would no longer have to stump up 140m annually in support. It also claims that ministers would receive a windfall of around 1.2bn resulting from the sale.

This, it argues, "would provide a huge boost to economic development", giving ministers the funds to build schools, roads and hospitals. The group also suggest that ministers should consider "road user charging" to fund the capital budget. This could include a reversal of the decision to end tolls on the Forth and Tay bridges.

Savings: Council tax & quangos

THE BACKGROUND

The Scottish Government already has an efficiency target of 2 per cent in place. Last year it managed to exceed that – realising savings of 849 million in 2009-09 against the 2 per cent target of 534m.

The government's current target of 2 per cent would achieve 1.6 billion savings over three years from 2008-11.

THE FUTURE

The report calls for the SNP's council tax freeze to be abandoned. It also advocates ending the "recycling of efficiency" programme, which allows savings to be reinvested in the public sector. Instead, efficiency savings would be made in order to allow for a reduction in future budget allocations.

For example, in 2008-09, 839m of savings were reinvested in public services, going towards additional mental health services, health centres and bowel cancer screening in the NHS. Anti-crime projects and affordable housing have also benefited from this approach.

The panel recommended reducing the number of quangos through the Public Services Reform (Scotland) Act. This has already been achieved in some fields with the establishment of Creative Scotland, which brought together Scottish Screen and the Scottish Arts Council.

There should also be a regular review of public bodies to look at cost and value. Bodies should also have to explain why their work has to be done by the public sector rather than through the core Scottish Government, the private sector or the voluntary sector.

Without compromising independence and transparency, some of the bodies that scrutinise the public sector – by dealing with regulation, auditing, complaints-handling and inspection – should be merged.

The report also looks at merging the "virtually identical" back-office services of finance administration, HR, payroll, procurement, revenue and benefits of Scotland's 32 local authorities and advocates joint working between health boards and councils.

It also calls for the private and voluntary sectors to take more of role in delivering services.

THE CHOICE

The IBR says that efficiency savings of at least 2 per cent should be maintained. However, an increased annual target of 3 per cent could theoretically generate of 900m in 2014-15.

Freebie benefits: Left vulnerable

THE BACKGROUND

Scotland currently enjoys a number of popular universal policies that are free for people no matter their income, but are expensive to implement.

These include: concessionary travel that sees unrestricted national bus travel for the over-60s; free personal and nursing care; a move towards free prescription charges; free eye tests; free school meals and free higher education.

TRAVEL

The IBR pointed out that travel concessions would cost 914 million between 2011 and 2015.

The options are: raise the age of entitlement from 60 to 65, which would save the most cash – 279 million by 2015; reduce eligibility for those still in full-time employment, saving 42 million; or restricting concessionary travel to non-peak periods, saving 23 million.

FREE CARE

The panel looked at reducing the free personal care payment from 156 to 100 per week for those in residential homes, a move that would save 120 million between 2011-15.

It also calculated that removing free personal care in care homes would save 330 million while removing free nursing care from care homes would save 100 million. The options for those being cared for in their own homes would be introducing a weekly fee of 77 for all personal care clients, making annual savings of 196 million.

HEALTH

On Scottish prescription charges, the panel pointed out that reducing charges to 3 meant income from scripts has almost halved from the 49 million gathered in 2007/08 to just 26 million in 2009/10. Abolishing charges altogether would cost 25 million.

SCHOOL MEALS

The panel approved of work to target free school meals towards those who need them most.

THE FUTURE

John Swinney has promised to protect free care and the travel concession.

Other universal policies appear up for grabs including higher education funding.

The report suggested the introduction of a graduate tax or the reintroduction of tuition fees, similar to that being proposed in England.