Magazine article Public Finance

The Other Side of the Coin

Magazine article Public Finance

The Other Side of the Coin

Article excerpt

The Scottish National Party celebrations were just a little muted at its first conference as a governing party in Aviemore at the weekend.

Of course, it was an historic occasion: the SNP is riding high in the opinion polls and has won over much of the Scottish press. But the event lacked the triumphalism many had expected.

Nationalist politicians are looking to gloomier times ahead, and not just because the clocks went back over the weekend. The hours are ticking away to the SNP government's first budget on November 14. In the next fortnight, the SNP has to somehow deliver on its many election promises while remaining within the limits set by the tightest spending round in Scotland since devolution.

Finance minister John Swinney isn't lying when he says that he has been clobbered by Chancellor Alistair Darling's Comprehensive Spending Review. In 2003/04, the then Labourled Scottish Executive received an 11.5% real-terms budget increase. Next year, it will be 0.5%.

On the Treasury figures, the average for the three years of the spending round will be 1.8%, little more than half that of the previous one. Moreover, the SNP insists that, because of the manipulation of the spending baseline on health, the true figure will be 1.4%. Swinney says he has 'lost' £1.2bn.

The irony is not lost on SNP politicians that the row about lavish Scottish subsidies, which has been raging in the London press, is occurring at the same time.

It is true that in the past, the way the Barnett Formula operated tended to give Scotland generous settlements. But the point about Barnett, which columnists like the Sun's Kelvin Mackenzie don't understand, is that it is designed over time to lead to a convergence of spending north and south of the border. In times of reduced public spending in Westminster, there is the phenomenon of the Barnett sgueeze.

The nationalists have won power just at the moment the cash has been taken away. This means that they are having to review a number of their spending commitments. Already they have had to water down their promise to employ 1,000 'additional' police officers and shelve plans to pay off student debt.

Expensive road schemes on arterial routes such as the A9 are likely to go, as is the promise to hand £2,000 grants to first-time home buyers. The party is still committed to scrapping business rates for 130,000 small businesses and to cutting primary class sizes - but the timing might slip.

The commitment to freeze council tax in Scotland might mean hard choices. The British Medical Association is worried that the health budget, which accounts for some 40% of all spending in Scotland, could be vulnerable to a squeeze. …

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