Thursday, 23 April 2009

Scotland - £500m of cuts of £367m efficiency savings?

The debate will carry on today but here's my analysis for the Herald of the disputed budget implications for Scotland

The key Scottish battleground in the budget is over what is meant by an "efficiency saving" and what amounts to a "cut" in public services.

Last night - as Mr Darling rested in Downing Street, his agenda for fairness delivered and the Conservatives calling the staggering levels of public debt the worst Budget ever - the SNP and Labour locked horns over what the Budget really means for Scotland.

The SNP government has been complaining long and loud that the efficiency savings demanded of it by the Treasury would mean that £500m would be cut out of the Scottish budget in the financial year, 2010-11.

This claimed Stewart Hosie, the SNP Treasury spokesman, threatens 9000 jobs in Scotland which depends disproportionately on the public sector.

Not so claimed Jim Murphy, the Scottish Secretary, who described Mr Darling's statement as "right and responsible".

In fact Mr Darling went much further than the £5bn of efficiency saving already announced and said he wanted an extra £9bn to be taken out of the public sector. Public spending growth is to be cut from 1.1% next year to 0.7% from 2011-2012.

Regardless of which government is in power then, this will mean real cuts across the whole of the UK in services that voters really care about.

The Conservatives say they would have made £5bn in efficiency savings and given it back in tax cuts on savings, a move that would help many pensioners. This would be a fiscally neutral move for one year only. The focus in the future, George Osborne said, would be spending restraint - for that read cuts in services - rather than tax cuts.

The Scottish Government, which gets a block grant from Westminster, will have to feel the pinch along with every other part of country and it won't be nearly as bad as the SNP predict, Mr Murphy said yesterday. His figures showed that the net effect of yesterday's Budget was actually only a cut of £367m in the Scottish budget (out of a total of about £31bn) for 2010-11, and he called them "efficiency savings".

How was that worked out? Over the next two years the Scottish Government will get an extra £104m of funding through Barnett consequentials - pro rata increases in its budget - from announcements like the housing package, energy-efficiency schemes and funding for schools and colleges in England.

The Barnett money means an extra £79m this year and more than £24m next year on top of the annual capital budget.

In the disputed 2010-11 financial year the Scottish budget will be cut by £392m but gain £24m which comes close to an efficiency saving of £367m, according to Mr Murphy.

But John Swinney, the Scottish Finance Secretary, was scathing of these claims. Mr Swinney's asserted that the real "cuts" amounted to £500m. The £367m figure they can't agree on - Mr Swinney sticks to £392m - and claims Mr Murphy is not including a cut of £129m which Scotland "lost" when spending on the NHS in England was cut back due to underspending. This is a kind of "reverse Barnett" consequential and it brings the level of cuts back up to £500m say the SNP.

"We have an annual 2% efficiency programme across the Scottish public sector. Crucially, this is money that can be reinvested in services, whereas what the Chancellor has announced today is simply a crude cut," said Mr Swinney.

The dispute does not end there. Andy Kerr, Labour's shadow finance secretary, insisted that there was a Treasury deal to allow the use of End Year Flexibilities so that Scotland need not lose out, but the SNP Government pointed out that EYF involves Scotland's own cash, so this can hardly be called replacement money.

Even then Scotland is better off in real terms, said Labour. Andy Kerr produced a blizzard of statistics to suggest Mr Darling's announcement was one of milk and honey for his native land.

"Despite John Swinney's scaremongering the Scottish Government will have £700m more cash next year in 2010/11 to spend," said Mr Kerr.

Scotland is also getting an additional £260m of UK investment from the Budget, according to the Scotland Office. This comes in the form of £170m for JobCentre Plus, a £75m share of the strategic investment fund and £12.9m of family tax credits, which is an £20 extra a month for 540,000 schoolchildren in Scotland.

Labour say the overall budget increases each year in both cash and real terms. The SNP says the headline figures are worse than those previously announced and therefore a real cut.

"A cut is a cut when the Treasury itself confirms it," said Stewart Hosie. "Euphemisms like efficiency savings and squeezes cut no ice." Mr Murphy wrote to Alex Salmond yesterday offering to help the Scottish Government devise solutions that would not affect public services.

"We're certain this level of efficiencies can be found without affecting frontline services," said Mr Murphy. He has offered to meet the Scottish Cabinet as soon as possible to outline the Budget and is offering "the finest minds in the Treasury" to help the Scottish Government find the necessary savings.

The Scottish Government, the Scotland Office points out, have lower efficiency targets than Wales, Northern Ireland and the UK Government.

"The Scottish Government, has to behave like Scottish families and make some savings," said Mr Murphy. "The public will punish politicians for singing the old songs and making the old arguments."

This is Mr Murphy at his diplomatic best. There is little patience across Whitehall for the SNP trying to avoid spending cuts when everyone else has to grin and bear them.

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