Continued growth to staffing levels in Scotland’s public sector is “not sustainable”, with cuts set to be made across a variety of departments.
Yesterday's Resource Spending Review laid out indicative plans for the remainder of this parliamentary term, with Finance Secretary Kate Forbes stating a need to “re-shape and re-focus” in the coming years - although she was keen to stress this was not a budget statement.
Digging into the 79-page document reveals that the budget for rural affairs, universities and police will drop by 8% - equivalent to a real-term cut of £1.1bn over the next four years.
The Scottish Government will also cut its budget for enterprise, trade and tourism promotion by 16% in real terms.
The tourism budget will receive £39.7m over the five years in total. This year the sector was receiving 18.3m in funding, but following the spending cuts it will only receive £5.3m over the remaining four years.
The general enterprise budget will in total receive £46.5m over the five year period, with funding being cut from £35.4m this year to £200,000 over the four year period.
The Scottish Government has also set aside £20m to spend on plans for a second independence referendum.
The documents also revealed plans to provide three more years of funding to Ferguson Marine, with £89.3m being invested.
Sticking with transport, more than £5bn has been set aside for ScotRail's services and infrastructure over the next five years.
Due to the pandemic, public sector staffing has grown to about 440,000 in the past two years - from about 410,000 in 2016-17 - something which the review warned cannot be allowed to continue. However, the Scottish Government has proposed to cut the workforce using “effective vacancy and recruitment management”.
It stated: “We expect all public bodies to demonstrate that they remain fit for purpose against the present and future needs of Scotland’s people, places and communities.”
The Scottish Government will now consult with the sector, trade unions and workers to “navigate the challenge of a post-Covid-19 pandemic reset”.
Scottish Trades Union Congress general secretary Roz Foyer said the review will “ring alarm bells for many public sector workers”.
The review outlines increases in spending on health, including the creation of the new national care service and social security, which will continue to be devolved to the Scottish Parliament throughout this parliamentary term.
Health spending is due to rise from £17.1bn to £19bn, while funding for benefits will increase from £3.9bn to £6.3bn in cash terms.
Local government funding will remain at £10.6bn for each year of this parliamentary term before rising by £100m in 2025-26.
The overall budget for the Scottish Government is due to increase from £41.8bn to £47.5bn.
The spending review will introduce “hidden tax rises relative to the rest of the UK” on top of the 8% cuts to many service areas, the Institute for Fiscal Studies (IFS) responded.
The Scottish Fiscal Commission (SFC) is assuming that the higher rate income tax threshold will be frozen over the next four years, rather than increased in line with inflation. This would mean the freeze is one year longer than the one by the UK Government and is estimated to raise £503m a year by 2026-27.
It is estimated that higher rate taxpayers will pay an extra £653 in income tax in 2023-24, rising to £1,317 in 2026-27.
The IFS noted: “If the Scottish Government instead chooses to increase the higher rate threshold, its funding will be lower than assumed in the Spending Review, potentially necessitating further spending cuts.”
Income tax policies have generated around £1bn to address the gap between spending pressures and funding identified by the Scottish Government in its December Spending Review framework report.
The SFC now forecasts that the Scottish Government may have to repay £817m in 2024-25 as a result of forecast errors in relation to Scottish income tax revenues and block grant adjustments in the year just ended, 2021-22.
It also forecasts slower growth in employment from 2023-24 onwards, along with fall in real average earnings by 2.7% in 2022-23.
David Phillips, associate director of the IFS, said: “The relative winners are health, some smaller service areas, and above all social security spending - spending on health is set to increase by 2.6% in real-terms over the next four years, although this will almost certainly be slower than is needed to meet rising costs and demands.
“Underlying these difficult decisions are UK Government funding plans that look less generous than when they were set last autumn, as a result of higher inflation.
“But big increases in social security spending and a relatively poor income tax performance also make the challenges more difficult, and that’s despite the Scottish Government implicitly assuming a further rise in income tax relative to the rest of the UK."
The Fraser of Allander Institute stated that the Scottish Government deserves “some credit for setting out its plans despite significant uncertainty in its outlook”, but added that the funding outlook is “extremely tight”.
Mairi Spowage, director of the Institute, said: “It is hard to understand from what has been published how the government will meet its transformational objectives on social care, child poverty and climate change, to name a few within this tight funding environment.”
Don't miss the latest headlines with our twice-daily newsletter - sign up here for free.
