Economists warn over spending cuts

image captionProtecting the NHS from spending cuts could lead to reductions in other services, the economists warned

Public services face the most severe round of cuts in the period after the independence referendum and the next Westminster election, Glasgow-based economists have warned.

A report by Jo Armstrong and John McLaren assessed the future path of government spending.

The economists challenged the Scottish government to re-think its protection of the health budget.

They warned ring-fencing health could lead to big cuts elsewhere.

Pay freeze

The report's authors, who are from Glasgow University's Centre for Public Policy for Regions, pointed to the opportunity to end wage increases for teachers, health workers and the police, which have gone ahead despite a pay freeze for other public sector workers.

They said the council tax freeze could be ended, and services now being provided to users for free could be reconsidered, including student tuition, and bus passes, along with personal and nursing care.

Armstrong and McLaren stressed that Treasury cuts were projected to focus on funds that keep public services running.

That contrasts with the emphasis in the earlier years on capital or infrastructure spending.

Facing an eight-year cut of 16%, or £4.4bn, that part of Holyrood's budget will have only seen one third of the UK government's planned squeeze by the end of this financial year. Less than half of the total 20% squeeze has been applied.

The spend on running public services - known as the resource or revenue budget - fell by 3.6% in the last financial year. They will face less than half that pace of decline over this year and the next two.

Then 2015-16 will see a 1.7% decline in resource spending in real terms, followed by 3.3% and 3.8%.

The report said if Holyrood ministers maintained a ring-fence protecting NHS spending, which accounts for more than a third of the Scottish Parliament's budget, the consequences would be a 30% cut in unprotected services, affecting transport, police and schools, among many other areas of spending.

Difficult decisions

The economists say ministers need to consider several options; wage restraint, an end to protection for the NHS, the range of services currently provided free, or the use of new tax and borrowing powers being introduced under the Scotland Act 2012.

That assumes Scotland opts to remain in the United Kingdom at the independence referendum next year.

The report said that indefinite continuation of protection for the NHS and student tuition brings "very serious implications for other budgets.

It said: "At some point the perceived advantages of such protection are likely to be outweighed by the negative implications of increasingly large cuts to other budgets."

The report concludes: "It would be unfortunate if both UK and Scottish governments did not use this opportunity to outline what their longer term proposals were to deal with deeper cuts or alternative difficult decisions.

"However with both a UK election and the independence referendum looming, it seems unlikely that this will be the case."