The Swinney squeeze

John Swinney Image copyright Getty Images
Image caption John Swinney delivered his spending plans for the next three years

Next year is the least eye-watering of the austerity years, with the official version of the real terms cut at a mere 1.3%.

The year we are in now looks more like 7% less spending, and after next year, the squeeze is 2.7% and 1.8%.

That leads to a not-at-all-grand total fall in real terms budget from £30bn to £26.3bn, or 12.3% less spending through Holyrood between 2010 and 2015.

That is if you believe the government's assumptions on inflation, which are lagging far behind the harsh reality consumers, and procurers of public services, are now facing.

A 12.3% cut is about one pound in every eight.

Yet there is a claim that public services do not have to suffer because efficiency gains are delivering in a big way, even outstripping bold expectations for last year by more than £600m.

If that is true, perhaps Scotland's finance secretary John Swinney should be paying tribute to his political adversaries in the Westminster coalition, for doing him the favour of imposing such tight spending and forcing the pace of reform.


At least it seems to have been a stimulus to some new thinking, about preventative spending - investing now to save money later, as they're doing, for instance, with the reform of police forces.

It's not a new idea, and it's not a bad one either.

But committing £500m in front-loaded investment over the next three years is a brave thing to do when finances are going through an unprecedented squeeze, and the demand is for protecting public services as they are now.

However, it is what John Swinney has set out to do amid the battlefield carnage of slashing at some budgets in order to save his priorities.

His university priority, for instance - with higher education gaining from the cuts to further education colleges, where non-vocational courses are for the chop, and the drop-out rate is under pressure.

University principals will still, however, have to attract lots of students from the rest of the UK, to pay up to £9,000 per year to fill the spending gap, along with inefficiencies being driven out.

Health is the other big priority - more than £800m extra in spending over three years, though that looks likely to fall short of both price inflation and health service inflation rates.

While the health service revenue budget is protected, others suffer bigger consequences.

By the end of these austerity years, health will account for more than 40% of Holyrood's spending.

Capital ideas

It all adds up, and it avoids severe cuts if you think that efficiency drives really do drive out inefficiency.

Yet that is notoriously difficult to prove, and anecdotal evidence suggests they are likely also to cut and to squeeze public services.

It also adds up if John Swinney gets his way in squeezing capital spending out of other people's budgets.

He is asking councils to use their borrowing powers, at least until he has some introduced under Westminster legislation.

But if you are in a council, these powers are called "prudential" for a reason, and it is not clear they will want to take risks in pursuit of a national government's priorities.

The big rail projects - more than £1bn for Glasgow-Edinburgh, and the new link between Edinburgh and the Borders - seem to be dependent on Network Rail's borrowing powers against the value of its assets.

And then there is the Non-Profit Distributing model of funding - the idea of securing private finance on condition that its profits are capped, with surpluses being recycled into the public sector.

John Swinney is looking to that delivering £2.5bn of capital funding, via the Scottish Futures Trust, which has been slow to deliver on the anticipated promise with which it was set up, but which now has even bigger anticipation heaped upon it.

That raises a few questions.

Doesn't this mortgage even more future revenue budgets against privately-financed assets, when ministers are already complaining about the extent to which they were saddled with similar Private Finance Initiative commitments by past governments?

And isn't this a tricky time to be seeking to unlock private finance on terms specifically designed and publicly proclaimed to be as unattractive as possible for financiers?