Finance Secretary Kate Forbes has signalled a tight grip on public sector pay as she faces up to a multi-billion pound funding black hole.
Delivering a four-year spending review, the SNP / Green Government is aiming to freeze the overall pay bill at 2022/23 levels.
Forbes’ plan also looks like providing a tough settlement for local government and policing while also reducing the size of the public sector to pre-covid levels.
However, a Holyrood source said the Greens were responsible for a £1bn uplift in climate related spending.
Her Holyrood statement was the foundation of the Government’s day-to-day spending plans until 2027, amounting to over £180bn.
But it came after the Institute for Fiscal Studies (IFS) warned that Scottish ministers face “tough decisions” over a projected budget gap of £3.5 billion.
Part of the funding gap is caused by a combination of sluggish tax receipts, increased social security spending and pressure placed on public services by the pandemic.
The Government also has costly policies to deliver, such as creating a national care service, expanding free school meals and increasing spending on the NHS.
Sky high inflation has also led trade unions to demand large pay rises simply to avoid their members receiving an effective pay cut.
Addressing MSPs, Forbes pinned the blame on the funding settlement from Westminster:
“Following a real terms reduction of 5.2 per cent between last year and this, our real terms funding grows by only 2 per cent across the whole four year period, after accounting for the devolution of Social Security benefits.”
She said the “stark reality” of Scotland’s financial position was caused by the Tory Government making a “deliberate choice” and sitting on their hands.
She added: “It lays bare the constraints of the current fiscal framework - our budget largely decided by others, denied sufficient borrowing powers, yet facing the same demands for increased spending as governments with much greater levers do.”
Forbes said the Government had to “prioritise”, but added that not every policy area could be a priority.
Rises over the piece are forecast for health and social care, as well as social justice and housing, but local government spending will be frozen between 2022 and 2026.
The justice budget will also remain the same between 2022 and 2026, only rising slightly in 2027.
Cash for the Scottish Police Authority, which funds Police Scotland, will remain at £1.2bn over the multi-year period. Fire service funding is frozen.
Forbes has also earmarked £20m for a second independence referendum.
On public sector pay, unions are currently balloting their members about a 2% pay offer they believe is derisory.
Forbes signalled caution on public sector pay and signalled a fall in head count: “We do not intend to take the same approach as set out by the UK Government today, but we do need to reshape and refocus the public sector post covid and the spending review calls upon all of the public sector to look creatively at ways to sustainably address that challenge, while seeking to ensure fair increases.”
An accompanying document said of the devolved public sector pay bill: “If the total size of the workforce continues to grow this will increasingly squeeze our capacity to maintain services and increase rates of pay in the public sector, at a time of cost of living pressures and evidence of growth in private sector pay in some sectors.
“The Scottish Government will always look to support the lowest paid. However, a balance will be required to deliver sustainable settlements which we hope to achieve in a strategic and collaborative way, through considered dialogue with trade unions and employers, adhering to our Fair Work principles throughout.
“To achieve this we propose an approach which aims to hold the total public sector pay bill (as opposed to pay levels) at around 2022-23 levels whilst returning the overall size of the public sector broadly to pre-COVID-19 levels.
"This will enable space and flexibility for fair and affordable pay increases that support the lowest paid in these challenging times."
In her statement, she laid down a challenge to the public sector: “After years of growth in the public sector, due to Brexit and the pandemic, we need to reset. We need to focus on how the public sector can reform to become more efficient, giving us space to realise our ambitions for better outcomes.”
Labour MSP Daniel Johnson said: “Fifteen years of failed SNP economic policy have got us to this point, and this dire update promises more of the same."
“Scots have been paying the price the SNP’s warped priorities and disastrous incompetence for years, and now things are set to get even worse.
“Scotland deserves better than managed decline from this tired government– we need real ambition to get our economy back on track.”
Scottish Liberal Democrat finance spokesperson John Ferry said:
“Under the SNP, the Scottish economy has consistently been outpaced by the rest of the UK, meaning there’s less money to spend.
“We’ve seen money frittered away on botched projects from the ferries to the census. ScotWind, the best chance for generations to bring serious money into the public purse, was sold on the cheap after the government capped how much companies were allowed to pay. Next they want to spend countless millions stripping powers from local communities to create an expensive centralised National Care Service.
“It’s time to remove the drag of SNP economic mismanagement.”
Tory MSP Liz Smith said: “The gaping hole between projected public spending and tax revenues in the next few years is the product of staggering incompetence from an SNP Government that has no idea how to manage public finances – the ferries fiasco being just one example.
“With hard-pressed families here in Scotland struggling to make ends meet, the SNP must urgently get on top of our economic decline.
“They must commit to bringing Scottish income tax levels back on a par with the UK, so that Scotland is no longer the highest taxed part of the country. They must address the ever-growing skills gap that is stifling our productivity. And they must take an economically devastating independence referendum off the table, to finally prioritise Scotland’s economic growth.”
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