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Peter A Walker

Budget cuts of £500m following new pay awards – Swinney

Savings of around £500m will be made in the Scottish Government’s planned spending following new pay awards for public sector workers.

Deputy First Minister John Swinney said the new pay agreements had led to a bill of £700m, which meant “taking money from elsewhere”.

He updated MSPs on public finances on Wednesday afternoon, speaking in Holyrood’s debating chamber and writing to the Finance Committee.

Swinney told MSPs in the chamber that the current Scottish budget had simply not foreseen the current levels of inflation, adding: “Indeed, in all of my experience now, and during my previous tenure as Finance Secretary, there has never been a time of greater pressure on the public finances.”

As well as the £700m on enhanced pay offers, he said refugee support schemes following the outbreak of war in Ukraine had resulted in costs of £200m which the Scottish Government had not planned for.

Swinney, who is currently acting as Finance Secretary, continued: “Difficult choices must be made, there is no unallocated cash, there is no reserve that has not been utilised.

“I have therefore written to the Finance Committee setting out around £500m in reductions in planned spending and forecasting that we have made in recent weeks.”

This includes a £53m reduction in employability schemes and a £37m reduction in the budget for concessionary fares.

His letter to the Finance Committee set out further areas where the government would make savings or require additional income, including utilising £82m in consequential funding as a result of the UK Government’s cost of living announcements from the spring.

There was also a £120m “reprioritisation” of local government capital spending.

Scottish Conservative MSP Miles Briggs suggested the Scottish Government should apologise for the strike action taken across the country over the pay disputes.

The Lothian MSP said: “There was one word missing from this statement, and it was ‘sorry’.

“Sorry to the people of Edinburgh, of Scotland, for the impact which these strikes have had on their lives, especially here in the capital.”

He added: “Ministers didn’t listen, and after year-on-year cuts to council budgets, were limited in their ability to address these local issues.”

Labour’s Daniel Johnson called for “greater clarity, honesty and transparency” over the government’s choices.

He asked: “Can [Swinney] set out what plans he’s asked civil servants to examine, and when he will confirm both when they will be put in place and the timelines for implementing them?”

Swinney replied: “The budget process will go through the normal process of parliamentary scrutiny, and the ultimate budget revisions will go to the Finance Committee in due course.

Scottish Liberal Democrat MSP Willie Rennie pointed out that £82m of the savings is Barnett consequentials from the UK Government as part of cost of living announcements in the spring.

“I think people deserve to know what the real impacts will be on rural communities, on trading funds, and of course, on employability schemes,” he stated.

Separately, Swinney outlined key measures the UK’s new Chancellor can take to “urgently” address the cost-of-living crisis.

Kwasi Kwarteng was selected for the top role by the new Prime Minister Liz Truss on Tuesday, with new measures expected to combat the cost crisis, including freezing energy prices.

In a letter to the new Chancellor, Swinney said: “You appointment comes at a time when citizens and businesses across the UK face incredible challenges, with the cost crisis continuing to spiral out of control.”

The Scottish Government set out its Programme for Government on Tuesday, outlining measures such as an emergency rent freeze to alleviate pressures felt by tenants.

But Swinney told Kwarteng that his government need support from Westminster due to Scotland’s limited fiscal powers.

Key actions include targeting support to low-income households and those negatively impacted by spiralling costs, such as unpaid carers, larger households and disabled people.

The package of support recommended by Swinney suggests uprating all social security benefits in line with inflation, providing a £25 uplift to universal credit and introducing an enhanced windfall tax to raise additional revenue.

“In order to urgently address the crisis faced, it is clear that the UK Government must intervene and use reserved powers and financial resources to support our citizens and businesses,” he wrote.

“Most of the key policy levers that can address this crisis sit with the reserved powers of the UK Government - given this context, I ask that you urgently cancel the proposed increase in the energy price cap in October.

“This course of action is supported by energy companies and advice organisations and came to the fore in a recent meeting hosted by the First Minister.”

A Treasury spokesman responded: “We know that rising prices are impacting people across the UK, and as the Prime Minister has said, we will set out plans for further support to Scottish families with energy costs tomorrow.

“We have already taken action to help households with £37bn worth of support throughout the year, including £1,200 for eight million households, £400 for all households to help with energy bills, and a national insurance cut worth up to £330 a year for the typical employee.

“We have also provided the Scottish Government with a record £41bn settlement for the next three years and it has significant control over taxes and benefits.”

Elsewhere, Swinney warned that new Prime Minister Liz Truss’s tax cuts proposed during the Tory leadership election could have a negative effect on the Scottish budget.

He told BBC Scotland’s The Nine on Wednesday evening he did not think the UK Government “believed in public services”, which “presents some very real dangers to the public finances of Scotland”.

Swinney continued: “Essentially, if the Prime Minister changes the balance between the amount of tax raised and the amount of public spending, and goes down the route of of reducing public spending, there is a risk that public spending in Scotland could fall as a consequence because of the way in which the block grant is calculated by changes to public expenditure in England.

“We need to see exactly what proposals the Prime Minister comes forward with and of course, there is a danger that the Prime Minister can bring forward proposals which will actually have a negative effect on our budget, depending on the way in which she decides to undertake those tax reductions.”

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