Scotland's public sector is too big to survive in its current state – so who will have the guts to hack it back?
The debate about public spending in Scotland is like a cross between strip poker and blind man’s bluff. Everyone is stumbling around in the dark, trying to find out where they are. Meanwhile, the insistence by Scottish ministers that spending should actually increase in Scotland to counter the recession is leaving the administration increasingly bereft of fiscal clothing.
Frankly, everyone knows that spending has to be cut in Scotland and dramatically, but no-one really wants to admit it. Economic forecasting group the Ernst & Young Item Club says that 30,000 jobs will have to go over the next four years, but no-one believes that is possible politically. Certainly not the Liberal Democrats, who have been handed coalition responsibility for Scotland by David Cameron like a hot brick. LibDems realise the potentially disastrous electoral consequences in Scotland, not only of being in coalition with the hated Tories, but also of being responsible for throwing thousands of public sector workers on the dole.
The Scottish National Party administration has had enough trouble already, over the predicted loss of some 4,000 staff in the NHS. But that was the result of the 2009 Labour Budget – before the latest interim cuts of £6bn were announced earlier this month and before we know what the emergency Budget will contain on June 22. Scotland has been getting off lightly – for now.
Even the nation’s share of George Osborne’s token £6bn trim, £374m, is to be delayed until after the 2011 Scottish Holyrood elections – an exercise in fiscal gerrymandering if ever there was one. The LibDems have also launched a review of the previous government’s ban on releasing some £185m from the fossil fuel levy that had been locked up in Whitehall thanks to the Barnett Formula. The Scottish Government is also demanding around £160m in Barnett ‘consequentials’ from the Olympics spending in London.
When will reality finally bite? I don’t know because it isn’t really in anyone’s interest to spell out the ugly truth that everything is about to change. Scotland’s budget has risen year on year by more than inflation for the entire devolution decade. Spending has more than doubled since 1999.
Health spending is currently 16% higher than in England and NHS staffing is 30% higher. Given Scotland’s continued appalling health statistics – coronary capital of Europe, twice as many deaths from alcohol as England, shorter life expectancy etc – a number of economists are wondering whether all that money has been well spent. To cap it all, top health service managers had an astonishing 20% pay increase in 2009.
The Centre for Public Policy in the Regions recently estimated that the Scottish budget will have to fall by up to £1.6bn in 2011/12. That’s a cut of 6%, which could be an extinction level event for an economy that has become dominated by the public sector. The SNP administration is clearing its throat for an almighty shouting match over what it invariably calls ‘London cuts’.
But I’m not sure that First Minister Alex Salmond can be entirely confident of public support. There is a very widespread feeling, across the political spectrum, that the state in Scotland is simply too large.
According to the Ernst & Young Scottish Item Club, 30% of the growth in Scotland’s gross domestic product in the past decade came from the public sector, while the volume of Scottish manufactured exports fell in the same period by 30%. New business formation in Scotland, already abysmally low, is falling fast and the business investment rate is among the lowest in the Organisation for Economic Co-operation and Development. If Scotland is to develop a buoyant and dynamic private sector, something will have to give.
The Calman tax reforms, which the UK coalition government has promised to implement, might be the moment when the spending stops in Scotland, if only because the Holyrood government will then become responsible for raising taxation to pay for spending policies. Fiscal autonomy could mean fiscal discipline. Then again, it might not.
Iain Macwhirter is political commentator on the Sunday Herald
