Alex Salmond, the First Minister, warned this week that an "extraordinarily tight settlement" for Scotland under the Chancellor's spending review will put pressure on essential public services.
The Cabinet would meet to discuss how it could implement its manifesto commitments, he said, warning that the distribution of the pound;1.1bn increase over three years had been spread in such a way that next year would see a rise of only 0.5 per cent. The Scottish Government had expected an allocation of pound;1.8bn pound;700 million more than it received from Alistair Darling. But the Chancellor said Scotland had got what it was entitled to under the Barnett formula.
The annual Scottish budget will rise to pound;30bn in 2011 more than double the level available to Labour First Minister Donald Dewar in the first Scottish Executive in 1999.
The Treasury said this equated to an increase of an average annual rate of 1.8 per cent over the next three years. Mr Salmond said the true increase was 1.4 per cent.
The Centre for Public Policy for Regions said that if Scotland were to match pound for pound the increases seen in England for education and health, there would be very little left for other services. If Scotland were to match the percentage increase seen in these two areas, there would be even less available. It warned: "The tightness of the Scottish settlement will be heavily dependent on the public sector wage deals that are struck. These deals tend to settle above inflation and staff costs account for almost 50 per cent of the annual Scottish budget."
Union leaders fear that the tight settlement from the Treasury will impact on the teachers' national agreement on pay and conditions, due for renegotiation this year.
CBI Scotland's chairman, David Thorburn, said the spending focus for the next three years should be "enhancing education and skills, infrastructure and transport capacity, and the planning system".