Spending review: Jenny Stewart: Public sector must change

There has been much debate over how Scotland's public sector will face up to the challenges posed by spending cuts.

We now know the figures. Expenditure on revenue - staff and services etc - will fall in real terms by around 10 per cent by 2014-15, compared to last year. But capital expenditure - new projects and maintaining existing schools and hospitals etc - will fall by well over 30 per cent.

The Treasury's published numbers on this year's spend are different from Scottish Government's so it is difficult to make precise comparisons with this year.

The short-term challenge is significant - 1.1 billion of savings are needed next year compared to last year's level of spend - with the brunt following very much on capital, which is set to fall by 900 million. In the medium term the challenge grows as we look at real savings targets of 3.7bn in 2014/15 and in the longer term, it will not be until to 2025/26 that we are likely to see public spending back at 2009/10 levels.

The Scottish Government now has to decide how to implement those cuts.

It could decide to cut capital less, but more would need to be taken out of revenue expenditure. It has already set out clearly which areas it intends to protect - health, free personal care and free prescription charges for all - meaning potentially larger cuts in other areas of up to 25 per cent.

So the public sector needs to take action, but it can rise to the challenge. Now is the time for managers to plan and implement changes. They need to review every aspect of their business and to challenge existing ways of doing things. It will not be easy willinevitably lead to job losses. Challenging times require a different culture than in times of plenty.

• Jenny Stewart is head of public sector for KPMG in Scotland