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Spending review means problems ahead for Scotland

The Scottish Government has been boxed into an even tighter political and financial corner, as a result of the UK comprehensive spending review unveiled by Chancellor George Osborne on Wednesday.

In decisions largely affecting England, Mr Osborne has protected the health service from cuts in spending, which will rise above the rate of inflation.

He has also decided to provide a real-terms increase for schools, raising expenditure from pound;35 billion to pound;39 billion over the four-year period of the review from 2010-14.

The Chancellor said there would be "consequential allocations" for Scotland, Wales and Northern Ireland. This means "the increase in health spending and the relative protection of education spending will feed through to the devolved resource budgets".

Nonetheless, the Salmond Government and the other devolved administrations are not obliged to earmark these increases for health and education; they can be allocated to any areas of spending. But SNP ministers and the Tories in Scotland have already committed themselves to pass on any enhanced funding for health. This means an even tighter squeeze for other areas.

Scottish Finance Minister John Swinney now has to decide how he will play his hand when he unveils his budget next month. He is in a worse position than expected after the Chancellor's statement: although spending by government departments in Scotland will rise from pound;24.8 billion this year to pound;25.4 billion by 2014, this represents a real terms decrease of 6.8 per cent.

There will also be a substantial fall in infrastructural spending on schools and other public sector projects of 38 per cent over the four years.

Alan Gray, director of government and public sector practice with PricewaterhouseCoopers, suggests that, at this stage, "it is difficult to discern the implications of the Chancellor's statement for education in Scotland".

He added: "In one way, it is a challenge for the devolved administrations to see whether they will measure up to his investment plans and targeting of resources."

Local councils in Scotland have already been bracing themselves for the worst: the Convention of Scottish Local Authorities has estimated a spending black hole of pound;3.859 billion in cash terms over the next six years.

This is now expected to be much greater with the ring-fencing of the health budget, and the pound;4.8 billion expenditure on schools in Scotland will inevitably come under greater scrutiny.

Colleges and universities, which receive their pound;1.7 billion grant directly from the Scottish Government via the Scottish Funding Council, are also fearful.

Mr Osborne said there would be savings of 40 per cent on higher education, research and science in England. But the National Union of Students claims this could amount to an 80 per cent cut for university teaching south of the border, offset by hikes in student tuition fees, after the Chancellor announced the science budget would be protected.

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