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Tough choices: Devolved, and deferred

Stephanie Flanders | 08:17 UK time, Thursday, 18 November 2010

Scotland and Wales produced their new budget plans on Wednesday, less than a month after Chancellor Osborne told them how much money he had to give them between now and 2014-15.

George Osborne

 

Particularly in Scotland, politicians in the devolved nations have tended to say they have the worst of the cuts. The Treasury insists that they have only had their fair share. The answer is that they are both right.

Overall, the chancellor in the spending review decided that departmental spending across the UK was going to be cut by 11% in real terms by 2014-15. Another way to think about that is that it is just a bit better than a cash freeze. The real cut in the block grant for Wales and Scotland is also 11%, with the cut for Northern Ireland only slightly lower: 10%.

As we know, the Westminster government made a decision not to distribute the pain equally. Far from it. The NHS in England and overseas development will get real increases - albeit very small ones in the case of the NHS. That means unprotected departments are looking at a cut of 19%. The schools budget and defence are doing much better than that, meaning really eye-watering cuts for, among other things, higher education and housing.

The Welsh and Scottish governments also had to decide how to distribute that 11%. But arguably, they had less room for manoeuvre than Mr Osborne, because there have fewer places to distribute it. In that sense, things are a little harder for them. Health and education between them account for around two-thirds of spending by the Scottish government. They account for an even larger share of the Welsh budget. .

You can see the difference this makes in the cuts in capital spending which the Treasury pencilled in for Scotland and Wales at the time of the Spending Review. Across the UK, there will be an average 29% real cut in capital spending by departments by 2014-15 - but the cut for Scotland and Wales is close to 40%. The Scottish government tried to lessen that cut slightly today, but it did not have room to do much.

In this draft budget, Wales is going it alone in suggesting that everyone - and every department - should take their fair share of pain. If passed by the Assembly, the budget would cut health spending by nearly 8% in real terms, with similar cuts for education and local government.

If devolution is supposed to be about nations having the freedom to go their own way, this may be the most striking example yet. It will be interesting to see if they manage to hold the line, if and when the difference in health spending between Wales the rest of the UK starts to become obvious to voters.

The Scottish government played it differently - displaying, in many ways, similar priorities to the chancellor in Westminster. As in England, health is being protected, while universities, prisons and housing are being hit. There is also the obligatory public sector pay freeze and talk of sweeping efficiency savings.

However, George Osborne did at least bother to come up with spending totals through to 2014-15. Today's Scottish budget only covers 2010-11. It's easy to see why the other years have been left blank: there is the small matter of a Scottish election in May. But it does mean that a lot of the tough decisions have been kicked down the road.

Comments

  • Comment number 1.

    If the Scottish (and in part Welsh) governments choose to have less student fees, free prescriptions and care for the elderly etc. etc. then it's their choice. But they should not expect largesse from the English who do not enjoy the sane freebees.

  • Comment number 2.

    In Scotland and Wales they tend to vote for a Labour Government.

    OOPS!

    You voted for the wrong parties this time.

    What a shame.......

  • Comment number 3.

    It does seem remarkable that the Welsh Assembly is proposing an 8% cut in overall health spending in real terms, yet is keeping free prescriptions.

  • Comment number 4.

    Scottish voters wont be fooled by the absence of figures beyond 2011/12. It is the severe reduction on capital spending across the UK but particularly in the devolved nations that should give rise for concern. These are big numbers and reflect not only an impoverishment of public capital and infrastructure but a severe squeeze on the private sector that has grown to serve the public sector. It will significantly slow the recovery and is in addition to the general slash and burn of the public sector revenue budgets - also significantly deflationary. This has not much to do with curing the deficit and more for the political recasting of the welfare state well illustrated by the attack on legal aid by Kenneth Clark earlier this week.

  • Comment number 5.

    "Health and education between them account for around two-thirds of spending by the Scottish government."

    Could this be largely due to free higher education for students in Scotland? I think there is something fundamentally wrong where students in one part of the United Kingdom pay up to £9000 per year in fees, and those in another go for free - especially when taxes are centralised and redistributed. How can the Scots and the Welsh (whilst not free, have no increase in fees, and higher subsidies than we currently have) afford this, and the English cannot?

    Is it right that a student from a disadvantaged background in England has to pay, and be saddled with upwards of £20,000 in debt, and a student from a very wealthy background in Scotland goes for free?

    I believe in a Scottish Government to govern in Scottish issues, but education is univeral, and rights and access to that education should be universal to all British citizens, whether fee-based or free.

  • Comment number 6.

    Stephanie,
    The SNP spending decision for only 1 year was predictable – Labour would have done the same.

    #5
    It's not that Scotland/Wales can afford free university places and England can't, they just believe education is a higher priority.

    I find it strange the English tax payer is willing to pay the salary of GPs, surgeons, nurses, school teachers etc but not for their training.

    I believe some degrees should be paid for (medicine, science, engineering, etc), some shouldn’t (music, arts, film studies etc).

    Again, it is about prioritizing.


  • Comment number 7.

    Scottish, Welsh and English politicians are so far failing to see the enormous economic errors of their and their predecessors' ways despite the current humiliation of their Irish peers just next door.
    How to remove the burden of the £80,000+ per citizen debts that we are all drowning under is the only elephant in the room worthy of our attention at the moment.
    Independence, free or not free higher education, fox hunting or not etc are perhaps for future times after this mess has been overcome. In the meantime lets hope that we get the leaders who can save us from joining poor Ireland.

  • Comment number 8.

    When a commentator generally refers to 'cuts', there seems to be at least two ways this is done. Either you can accept that the slump in the economy from 2008 is unrecoverable, or you say that, as Krugman blog 23 July 2010 has it, “whenever I draw a chart comparing actual growth with the pre-crisis trend...it’s standard practice to assess economic trends with peak-to-peak interpolation, because the peaks are a reasonable estimate of the economy’s capacity, while other points on the business cycle don’t convey anything like that information.”
    Here is Adam Posen 8 October 2010, “a key factor underlying policy reactions is the size of the negative supply-side shock resulting from the crisis – or at least the perceived size of this non-observable shock. If policymakers believe – rightly or wrongly – that the GDP declines essentially results from a demand shock, leaving potential output unaffected, they will be naturally inclined to advocate further stimulus. If they tend to believe – again, rightly or wrongly – that the supply-side damage is significant, they will have less appetite for it.”
    I think these two poles need to be kept in mind when 'cuts' are mentioned, irrespective of what the politicians are currently saying.

  • Comment number 9.

    Perhaps we Scots care more for our education system and perhaps are prepared to allow our governments to pay for it....thats our choice....not a freebee. Also the fees are free...not the living costs...our students still run up debts same as in England!!

    At least our politicians haven't so blatantly lied....."we sign this plege not to raise tuition fees".......well that lasted all the way to their ministerial cars!

    in respect of the block grant.....everyone else has screamed about cuts from the police to the politicians....the people of scotland are like everyone else waiting to hear how the cuts will affect our services etc.

    in respect about the comment about largesse.....lets not forget that good old Britain (and yes that includes you England) has benefitted to the tune of £1.5Trillion from North Sea Oil....without that I think we'd all be poorer......Scotland isn't on the receiving end of free hand outs as English MP's would like us to believe....we contribute a great deal to the Union.

  • Comment number 10.

    newblogger, at #6 you write

    "I believe some degrees should be paid for (medicine, science, engineering, etc), some shouldn’t (music, arts, film studies etc).

    Again, it is about prioritizing."

    What gives you the authority to decide which degrees should be paid for and which shouldn't?
    Just because some university courses do not lead onto a career in medicine or engineering it doesn't mean that those they provide training for are unecessary - surely it's more unfair to be what is basically elitist towards course funding than to have restrictions placed on all courses?

  • Comment number 11.

    With freedom comes responsiblity!

  • Comment number 12.

    Unlike Osbourne, who expects to be in power right into 2015, the Scottish government might be changed in May 2011, so there is little point in making plans for later.

    Because of the lack of full taxation powers, the Scottish government have had to go along with the Westminister cuts. The Scottish people would probably have preferred more taxation of the rich, particular of large scale landowners who sterilise huge tracts of Scottish countryside, and use it only for the entertainment of their friends and business associates.

  • Comment number 13.

    10. At 11:26am on 18 Nov 2010, _g_ wrote:

    The very principle of a University is elitist - it used to be for the best academic minds only!

    Now it is for anyone above average intelligence (50% was Labour’s target) hence is has become so expensive for taxpayers.

    Doctors, teachers etc used to have their training paid for, now they don’t, due to the film studies type degree inflation.

    Why are we happy to pay to train police but not doctors etc?

  • Comment number 14.

    Is it not the case that the Scottish bregional government can increase Income Tax, I believe by 2p in the pound.
    If the Scottish people want their government to spend more, surely this is the answer.

  • Comment number 15.

    "Tough choices: Devolved, and deferred".

    Surely, this whole debate has to link with subsdies from English tax-payers who are facing massive cuts.

    The Scottish and Welsh Parliaments have been riding for too long on a wave of subsidies from England since devolution? That fact can't be denied.

    If any part of the previous UK desires and believes in full, honest, true and genuine independence and devolution from England, therefore surely that independence requires independent tax-raising measures from the devolved population?

    In other words, devolution was fought for, and was won by political egos to gain power for it's own sake and yet continued to demand 'maintainance' payments from it's divorced partner?

  • Comment number 16.

    12. At 11:56am on 18 Nov 2010, stanblogger wrote:
    Unlike Osbourne, who expects to be in power right into 2015


    Until the LibDems lose their bottle more like.

  • Comment number 17.


    Latest trade figures make interesting reading.

    Top free import sources

    1. Germany £3,822M
    2. China £2,633M
    3. US £2,339M

    I wonder what 'tacky artefacts' we import from Germany.

    Audi, Mercedes ?

    If we protected our workers from 'foreign competition'... :)

    Remember the Marina (my first car) ?

  • Comment number 18.

    The economy will never start to move until we manage to get more money in poor people's pockets. The point is, poor people spend the money they have which creates wealth. Rich people sit on their money which stifles the economy. The hardest question is how do we redistribute wealth from the rich to the poor regardless of which part of the UK they live in?

  • Comment number 19.

    15. At 12:15pm on 18 Nov 2010, corum-populo-2010 wrote:

    'The Scottish and Welsh Parliaments have been riding for too long on a wave of subsidies from England since devolution? That fact can't be denied.'

    Evidence please?

  • Comment number 20.

    #19
    Certainly Scotland from way before devolution.
    It is called the Barnett formula - see Wilipedia and here
    http://www.telegraph.co.uk/news/newstopics/politics/scotland/6761172/England-loses-4.5-billion-to-Scotland-thanks-to-Barnett-formula.html

  • Comment number 21.

    the Scots are supposed to be the experts in fiscal management Alex Salmon is always stating how Scotland could manage its affairs far better if it had the resources it was entitled to, so let him imagine that the situation is that these are those resources they are entitled to and see what transpires

  • Comment number 22.

    18. At 12:41pm on 18 Nov 2010, Richard Thomson wrote:

    The economy will never start to move until we manage to get more money in poor people's pockets. The point is, poor people spend the money they have which creates wealth. Rich people sit on their money which stifles the economy. The hardest question is how do we redistribute wealth from the rich to the poor regardless of which part of the UK they live in?

    -------------------------------------------------

    Actually, giving money to the poor still ends up in the pockets of the capitalist rich. It goes to the bank (mortgage), private landlord(rent),large supermarket chain, tobacco company, multi-national energy company etc etc.

    Capital accumulates more capital. It is the contradiction of the system.

    To properly redistribute wealth we need 100% inheritance tax for over say; £1 million?

    The problem is those who have money don't want to share!

  • Comment number 23.

    15 - corum_populo_2010

    "That fact can't be denied"

    What fact? All you've provided is a brainless assertion, maybe you borrowed it from the Daily Mail.

    Devolution was and is the settled will of the Scottish people - even the Tories accept that now. Choices are made by the Scottish parliament based on a formula-driven amount supplied by Westminster. If Scottish politicians choose to spend on different priorities then that is their right as elected representatives.

    I agree that the SNP can only present a 1 year plan at present and Labour is disingenious (at best) to suggest otherwise given their lack of detail before the UK election on cuts. I'm not an SNP supporter but the budget seems sensible given the cuts we are rightly sharing with the rest of the UK (although I dont agree that the UK should be facing the level of cuts it is).

  • Comment number 24.

    Today's Scottish budget only covers 2010-11. It's easy to see why the other years have been left blank: there is the small matter of a Scottish election in May

    You must be pals with Iain Gray the Labour Commissariat leader in Scotland. In reality there's a commission been set up to review the whole public sector set up in Scotland and that will inevitably impact on any future budget.

    Gray of course wants to cut costs by doing things such as having only one police force presumably to be known as the Stazi and controlled by a Labour apparatchik from a bunker in Glasgow. I wouldn't trust any political party to do that.

  • Comment number 25.

    Only the Scottish parliament could trumpet a "£1bn budget surplus" in the middle of a recession after a £4bn initial donation from Westminster as good economic management. Only the Scottish government can then claim that only receiving £3bn the next year as a vicious and excessive cut to public spending that puts the economic recovery in trouble. Only the Scottish will complain when their public spending on areas such as university tuition gets closer to the rest of the world where people have to invest in their own education.

  • Comment number 26.

    #20



    The Barnett Formula is just about spending and says nothing about revenue, so says nothing about Scotland being 'subsidized'.

    Is there any evidence Scotland recieves more than it pays in?









  • Comment number 27.

    @ 17 Richard Dingle hits the point. There's loads of stuff we don't manufacture. Therefore we import and we pay for the imports either by borrowing or printing more pound notes. Neither route is very good, but, looking at Greece and Ireland, borrowing money seems even worse than printing it.

    How did we reach this situation? France subsidised Renault. Italy subsidised Fiat. Germany didn't subsidise, but opted to produce goods of perceived quality and charge a suitably high price.

    In the late 1960s, Jaguar wanted to build a smaller car. They went to the British Leyland management, but were told oh no, no, No! And what did we get instead: the Morris Marina. If you want cheap, that's OK. But to produce cheap and sell cheap, you need a low cost, low wage environment - the far east, eastern Europe - or government subsidy.

    Have we learnt anything since? Did Lord Mandelson give Jaguar a loan at the depth of the recession or did he pay incompetent bankers to take early retirement? Is the present UKGov investing in our universities and science and technology? Is Stephanie Flanders really Nigella lawson?

    If you want an investment tip: manufacturers of money printing machines. Though we probably even import that.

  • Comment number 28.

    26. At 2:09pm on 18 Nov 2010, newblogger wrote:
    Is there any evidence Scotland recieves more than it pays in?
    =========================
    Since tax is paid over from various random points throughout the country with no refernce to where it was collected I think that is very unlikely. A national company may have its admin centre including payroll and accounting in Glasgow so pay VAT, PAYE, NIC and Corporation Tax from there but much of it may be actually collected in East Anglia.

  • Comment number 29.

    This whole debate ignores the impact of an unfair funding process - Barnet formula - which needs changing.

    The fact is that the English cannot keep funding the Scottish and Welsh assemblies to deliver services superior to those experienced by the English.

    There needs to be full independence for Scotland so that they can be cast off from England. We cannot afford them and they abuse the English largesse that is provided. If they want indepdences like Northenr Ireland let them have it. England and the English cannot afford them anymore.

  • Comment number 30.

    29 - DibbySpot

    "The fact is that the English cannot keep funding..."

    I'll say it again - What fact? All you've provided is a brainless assertion, maybe you borrowed it from the Daily Mail.

    What next after you cast off Scotland and Wales - maybe the North East? Maybe all the different parts of England until you're left with all those real value-add bankers. Then you can concentrate on immigrants maybe?

    Oil is the elephant in the room with regards to Scotland and theres many ways to look at the value and what would "belong" to Scotland. In the UK current predicament I wouldn't be so hasty to cast us away.

  • Comment number 31.

    Yes no:17 I do remember the Marina, a load of rusty, unreliable junk. That is the reason I have bought a Mercedes and it is more ecenomical, quieter, more reliable, confortable and could but won't go on.
    I wish you safe and happy motoring.

  • Comment number 32.

    Oh dear. More internecine squabbling about who subsidises who. Last I read when it came to greatest subsidy, it was the Northern Irish who topped the list, then the Scots, then the Welsh and yes then the English. Unfortunately what it didn't then do was to look at how the English regions broke down. When you look at region spend across England it then becomes apparent that the region that enjoys the greatest subsidies through direct and indirect Government spending was in fact the South East. Those whom I believe squeal the most about carrying the rest of the UK. One point to note from McKinsey's report today is the recommendation that the UK should seek to develop a balanced economy. Balanced across all sectors and across all regions.

 

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