LAST week saw both of Scotland’s governments sharpening the axe ahead of what are expected to be two cuts-packed budgets – with both sides blaming the other for the miserable financial situation.
In the red corner, Chancellor Rachel Reeves said the SNP were “as guilty as the Conservative government” when it came to the state of the public finances.
In the yellow corner, Finance Secretary Shona Robison laid the blame for the cuts she is preparing to inflict squarely at the black door of No 10 Downing Street.
Economic expert Dr João Sousa, the deputy director of Strathclyde University’s Fraser of Allander Institute, compared the situation with the height of the Tory austerity years – but said the Scottish Government also had “choices” to make.
He told the Sunday National that the Scottish Government had its hands tied by some of the restrictions placed on it by Westminster – including limited “flexibility” compared with the UK Government’s ability to borrow money.
But Dr Sousa also argued that the Scottish Government appeared to have failed to plan adequately for what was going to happen in Labour’s first budget - due at the end of October - and had self-imposed some restrictions which failed to give it more wiggle room.
These included higher pay awards than had been granted under the Tories in England – which the Scottish Government credits with avoiding the levels of industrial action seen south of the Border – and an unflinching commitment to universal free policies, which John Swinney has defended as part of the “social contract” of Scotland.
Dr Sousa said: “Universal policies will, by definition, will go to more people and therefore they’ll cost more, that’s just a fact. The fact that the Scottish Government says that they’ve committed to that removes a degree of freedom.”
He added that these were “perfectly valid political choices” but said it made cuts deeper in areas which were not protected.
“It’s very similar to the austerity years at UK Government level where there were certain things that were protected and ring-fenced and that meant that the cuts fell very heavily on other areas,” said Dr Sousa.
“That’s what happens when you don’t make cuts to certain big areas - you just end up having to swing the axe so much more on the other ones.”
He argued that it appeared the Scottish Government had failed to take seriously Reeves’s commitments to abide by Tory spending rules, which limit the amount the UK Government can borrow, meaning major cuts to public spending.
“It certainly seems like the Scottish Government has to some extent been hoping there would be more largesse from Westminster in terms of Barnet consequentials,” said Dr Sousa.
“When those haven’t come to pass, it makes the budgeting situation a lot trickier.
“It wasn’t just the Scottish Government - the now Chancellor was very clear that she was going to stick to very similar fiscal rules to those that were in place before and so perhaps people didn’t really believe that to the full extent that it’s come to pass.
“But it shouldn’t be a surprise based on the statements that came before the election.”
Elsewhere, Dr Sousa said that the Scottish Government could have attempted to avoid strikes given the higher-than-average public sector pay north of the Border – and questioned why Holyrood ministers previously failed to set out a pay policy to regulate its negotiations with trade unions.
He said: “For the last few years, the Scottish Government has been increasing pay for public sector workers above what the UK Government has done for comparable occupations.
“I’m not sure there is necessarily a clear-cut case that whatever the UK Government does, is necessarily what has to be done in Scotland. It is slightly surprising that the Scottish Government is not out making that case.”
The economist, a former senior analyst at the Office for Budget Responsibility, said that the “point of devolution is that the Scottish Government has operational independence in how it wants to allocate its money” and said Holyrood ministers could have been more successful than the Tories in fending off strikes.
“The fact that the Scottish Government has had higher pay awards over time means that the more that you then add on top of that, the more it costs,” he said.
“If you have higher average pay - which we do have for public sector employees in Scotland than in the UK as a whole - then it’s going to cost you more if you then increase the pay on top of that.”
He said it was “incumbent on the Government to then make the case that this offer is reasonable in the historical context”.
But Dr Sousa said the Scottish Government also faced restrictions which Westminster did not – including an “unavoidable” obligation to balance the books, without the extensive borrowing powers of the UK Government.
He said: “The Scottish Government does have limited borrowing powers so it does have to act pretty quickly to manage any budget pressures in year, particularly on the day-to-day spending side, it has to balance the books. That is something that is unavoidable.”
Sousa added that life would be “easier” for the Scottish Government without Reeves’s efforts to plug a £22 billion black hole in the public finances or the relatively short notice they have to respond to decisions taken in Westminster.
“It is not the easiest system in which to budget,” he said.
But he argued that ministers in Edinburgh must take it as a “given” that they face these restrictions and plan accordingly.
“The framework does restrict things quite a bit because of the lack of power to borrow for current spending, but that needs to be taken as a given in my opinion when you are preparing the budget because it’s not feasible that that’s going to change within the year of the budget, you have to take that as a given when you’re putting your financial plans together.
“Although yes, the Scottish Government would have a lot more flexibility if it had more borrowing powers - it can’t budget on the basis that it will have them if it doesn’t at the moment.”
