UK Spending Review

The Chancellor has set out the UK Government’s spending plans today.

 The full report can be viewed at:

http://cdn.hm-treasury.gov.uk/sr2010_completereport.pdf

As expected the overall numbers are very similar to those set out in the June emergency budget. Our initial press response highlights the impact on services, jobs and the economy. As the General Secretary has said:

“For CSR read Cuts Strangle Recovery. The Tories’ ideologically driven, no hope, no ideas, cuts agenda is poisoning the country’s chances of recovery, infecting the public sector and costing jobs in the private sector. The much-trailed cuts come as no great surprise, but the scale is a devastating blow to communities who depend on essential public services.”

In Scotland the allocation is calculated in accordance with the Barnett formula. The detail (such as it is) is set out on page 70 of the report. The capital allocation looks as bad as expected totalling almost a 40% cut. The revenue allocation at first glance looks marginally better than expected, although the base line budget does not look right. However, this still involves a major cut in the budget allocation.  In practice the impact will be greater because public bodies have additional costs over and above these allocations. Councils and health boards have to live in the real world where inflation is more than double the nominal Treasury assumption.

We calculate that some 60,000 public sector and 65,000 private sector jobs could go in Scotland because of these cuts, They could cost the Treasury around £500m in lost tax revenue and £640m in increased benefit payments - adding to the annual deficit and almost entirely cancelling out the saving to the public sector pay-bill.

The Chancellor also covered how he proposes to deal with the Hutton Review of public service pensions (see page 37). The key points are:

·         Await the final report before deciding on changes to benefits and contribution structures.

·         Public consultation on the discount rate and two tier workforce agreements.

·         Progressive changes to employee contributions equivalent to a 3% increase between April 2012 and 2015.

·         Engagement with stakeholders including trade unions.

Pensions regulation is a devolved matter for the Scottish Government and it is not clear how the UK Government proposes to implement these plans. The increases appear to be on top of any cost sharing arrangements and therefore could result in very significant increases in contributions at a time of pay restraint. I will cover these points in more detail in the next Scottish Pensions Bulletin. In addition the state retirement age is to rise from 65 to 66 by 2020 and that will have implications for public service pension schemes.

The next stage is the publication by the Cabinet Secretary for Finance of the Scottish Government’s spending plans. That will set out the impact on allocations to public bodies in Scotland. Then the Finance Bill will go before Parliament early in the New Year.

Dave Watson

Scottish Organiser

UNISON House

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