Public spending cuts 'only 40% over'

George Osborne The report follows the spending review outlined by George Osborne in June

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The eight-year programme of cuts to budgets for running Scottish public services is only 40% over.

That is the finding of a new academic study of Whitehall spending plans as they apply in Scotland.

It said if spending on the health service continues to be protected, other services could face 25% cuts in real terms between 2009-10 and 2017-18.

It also showed the deep cuts in capital budgets during the early years of the programme may now be over.

The analysis, by the Centre for Public Policy for Regions (CPPR) in Glasgow, follows the spending review published in June by the Treasury.

It shows how the reduction of the deficit is being spread over eight years, instead of the initial plan for five.

Tax increases

It also shows that the extent of tax-cutting to bring the deficit down closes only 15% of the deficit. The remaining 85% will be achieved through spending cuts.

That is if George Osborne remains Chancellor and sticks to his plan to avoid further tax increases after the 2015 election.

The academic analysis says a 'yes' vote in Scotland's independence referendum next year could lead to the spending profile being changed, as Holyrood would move to running its own tax system rather than depending for much of its income on a block grant calculated through the 35-year old Barnett spending formula.

However, the report includes a challenge to the Scottish government to give more clarity on a budgeting strategy if it secures independence, as it plans, from 2016.

Start Quote

We are unlikely to know where these cuts will appear until after both the independence referendum and the next UK general election”

End Quote Professor John McLaren CPPR

The improved path of spending on capital is because Mr Osborne, has released a new form of funding, known as 'financial transactions consequentials' - allocating borrowing by the Scottish government, which later have to be repaid.

If that is included in capital budgets, it means the 35% cut to capital budgets will have been fully achieved between 2009-10 and 2012-13.

And while the resource or revenue budget will fall by £491m in real terms between next year and the year after, that new allocation means a rise in the capital budget of £75m, of which £124m will be the new borrowing facility.

Looking across the eight year period of deficit-cutting, the resource or revenue budget, which pays to keep services turning over, has seen only 40% of cutbacks, meaning 60% are still to be applied between this year and 2017-18.

The deepest cuts in that will be towards the last two years of the spending period, according to current Treasury plans.

At current prices, resource spending will have fallen by nearly £4.5bn, or 16.5%, between 2009-10 and 2017-18. Of that, £2.7bn is still to be cut, according to this analysis of the Treasury figures.

Professor John McLaren, one of the authors of the study, said: "The day-to-day, or resource, budget cuts still to come include some of the harshest annual reductions seen over this period".

'Independence referendum'

His co-author Jo Armstrong added: "The £2.7bn real terms projected cut in resource spending still to come will be increasingly hard to accommodate, especially given the £1.8bn already experienced since 2009-10.

"Unfortunately we are unlikely to know where these cuts will appear until after both the independence referendum and the next UK general election."

Responding to the report, the Scottish government's finance secretary, John Swinney, said: "If decision-making powers remain at Westminster, CPPR suggest Scotland will continue to face a future of public sector cuts or UK tax rises and increasing restrictions on our ability to spend Scotland's budget in the best way for Scotland.

"The recent allocation of financial transaction consequentials to Scotland, which can be used only to support loans and equity investment and have to be repaid to the Treasury, on top of the damaging cuts to capital already imposed over recent years, means that the Chancellor is restricting our ability to invest in the infrastructure that is essential to economic recovery and longer term growth".

A UK government spokesman said: "Scotland will have additional capital spending in 2015-16, which the Scottish government can use to fund shovel-ready projects as it wishes.

"Scotland has also received over £1.6bn in extra funding through the Barnett formula since the beginning of the Parliament and continues to benefit from substantially higher public spending per head than the UK average".

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