We’ll All Pay for Devolved Administrations’ Budget Cuts

The reality of massive public spending cuts has finally hit the devolved administrations (if not all their politicians). As Mick highlighted in his recent essay, NICVA’s report suggests that Stormont will have to make budget cuts of (at least) £1.2 billion in the next five years. Earlier today, the Independent Budget Review in Scotland recommended a fall in public sector employment of between 5.7% and 10% by 2014-15.

In both Scotland and Northern Ireland, the debate about ring fencing health spending (which accounts for about a third of Holyrood’s and around a half of Stormont’s budget) and education has been going on for some time. But the magnitude of the cuts facing both administrations in next year’s Barnett allowances is such that both areas are unlikely to remain protected much longer.

Scotland and NI share an over-reliance on the public sector, but the notion that a reduction in government spending will lead to a growth in the private sector looks fanciful. Research by the TUC suggests that as much as a third of private sector revenue is generated from government capital spending projects (think roads, hospitals, schools, etc). Exactly the kind of projects that will be axed as the pinch of budget restrictions begins to be felt.

The Scottish review also calls for a two-year pay freeze, before warning that, ‘In the first 10 years of the Scottish Parliament, there has been an annually growing budget. However, the future will require a very different mindset. Figures from the Scottish Government show that we are entering a long period, perhaps as many as 15 years, before the budget will return in real terms to 2009-10 levels.’

But is a pay freeze really the panacea? Less public sector wages means less disposable income in the economy, means difficult times ahead for retailers and others in the private sector. The Conservatives might be ideologically wed to cuts, but in the devolved regions in particular – where business start-up rates are much lower than in south of England and success harder to come by – it seems highly unlikely that a growth in the private sector will compensate for public sector cuts.

‘Recruitment freeze’ is another phrase on many lips. Again this is no sliver bullet; pulling the ladder up before new graduates and school leavers get a chance to enter the workforce, and almost certainly consigning tens (if not hundreds) of thousands to the dole queue (and increased welfare payments).

There is a very real danger that if politicians in Edinburgh and Belfast are unable to rise to challenge of making cuts with sense and foresight then the UK’s devolved regions could be looking at a ‘lost generation’ (with all the social problems that come with it).

It’s also time to stop thinking that these spending reductions – which will almost certainly increase further in coming years – are just about trimming back a bloated public sector. The cuts will further deflate the very UK economies that are finding it most difficult to come out of recession.

On both sides of the Irish Sea, devolved government is about to get a whole lot more difficult.

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  • HeinzGuderian

    Agreed. But aren’t you doing an ‘Andy Gray’ here……….as in,stating the obvious ??

  • aquifer

    ‘Less public sector wages means less disposable income in the economy, means difficult times ahead for retailers and others in the private sector.’

    More money given to hight tech entrepreneurs could mean half fail, but the others can employ the young graduates the civil service will not hire in the first place, and who will emigrate otherwise. And success or failure, the money ends up with retailers and others in the private sector anyhow.

  • Actually, more than half fail during the 1st year, and only 1 out of 10 grow enormously. That is why business angels are advised to invest in 10 start-up companies.