A lack of "prudent" financial planning by the Scottish Government has led it to impose an emergency brake on spending, according to a top economist.
The damning assessment of the SNP's administration's management of public finances was made by Dr João Sousa, deputy director of the Fraser of Allander Institute at Strathclyde University, previously a key figure at the UK's public spending watchdog, the Office for Budget Responsibility.
He spoke out after it was reported yesterday that finance and local government secretary Shona Robison has ordered a halt to "non essential" spending and the cancellation of projects to allow public sector pay deals to be struck.
In a letter to cabinet ministers, Ms Robison said that money would be allowed to go out from departments only if it was essential to meet legal requirements or prevent an economic crash.
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She said that the perilous state of the Scottish Government’s finances had raised the spectre of severe cuts beyond those set out in December’s budget for this year.
The Times, which saw her letter to cabinet colleagues, reported that Ms Robison is worried about the impact of the financial audit announced by Chancellor Rachel Reeves.
Ms Reeves last month accused the former Conservative Government of hiding a £21.9 billion overspend this year, as she set out a series of spending cuts.
She said the figure represented spending over and above what was forecast at the time of the last UK Budget in March, including £11.6 billion to give public sector workers south of the border recommended pay rises that were bigger than the 2% budgeted for by the last government. She also warned she would need to make "difficult decisions" on tax at the next Budget, set for 30 October.
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First Minister John Swinney responded at the time saying Ms Reeves’s announcement of cuts to cover the projected £22 billion UK Government overspend would lead to “tough decisions” on spending in Scotland and “inevitably” mean a reduction in the amount of money made available to his government.
However, writing on X, formerly Twitter, Dr Sousa, suggested that while the halt to non essential public spending announced by Ms Robison was in part related to the financial arrangement agreed between the UK and Scottish Government under the fiscal framework, "a major" cause for it was a "lack of prudent planning" by the Scottish Government.
"News coming out of Scottish Government about 'non-essential' spending to fund higher-than-budgeted for pay deals. While some of this is a consequence of the fiscal framework, it would be unfair to blame it all on that. Lack of prudent planning by Scottish Government is a major part of story," he said.
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He added that the Scottish Budget was passed without the Scottish Government publishing a public sector pay policy - which he told The Herald is usually customary.
Ministers in Edinburgh justified the non publication of the policy at the time of the Budget by saying that they did not have information from the Treasury allowing them to do so.
However, Dr Sousa said prudent financial planning was based on anticipating scenarios that could happen and including contingencies for them.
By seemingly failing to include such contingencies in its financial plans, he said the Scottish Government "left itself at the mercy of labour market conditions".
He wrote: "The 20245-25 Budget was passed with no set pay policy. This meant that the Scottish Government left itself at the mercy of labour market conditions and it seems now it set aside little to no contingency for pay increases. Questions must be asked as to why this predictable issue wasn't foreseen."
The senior economist added: "It now leaves Scottish Government facing less palatable trade-offs with added urgency of being in the middle of financial year.
"Probably also means cutting where spending can be stopped rather than on a considered value for money basis."
Fellow economist David Phillips, associate director of the independent think tank, the Institute of Fiscal Studies, agreed the Scottish Government could have acted more prudently.
He pointed to repeated statements on financial policy matters by the Chancellor ahead of the election which should have prompted the Scottish Government to act more cautiously.
"Given the previous UK government's plans, what Rachel Reeves had long said about tax, spending and borrowing pre-election, the Scottish Government could have decided to be a bit more cautious, and set a Budget with a bit more leeway for pay and other pressures," he told The Herald.
"That wouldn't have been costless - would have meant higher devolved taxes - e.g. not freezing council tax - or lower spending to free up that leeway. But it would have reduced the need for tricky in-year decisions."
James Mitchell, professor of public policy at Edinburgh University, said the Scottish Government should have anticipated the situation well before Ms Reeves statement on public finances last month.
"There have warnings for years re financial sustainability. If Chancellor’s statement really has just awakened Scottish Government to challenges then Government has been asleep," he said.
In her letter Ms Robison said “emergency spending controls will now be introduced with immediate effect”.
She added: “Any activity undertaken or commitment made that generates expenditure in 2024-25 must only proceed if it is truly essential and unavoidable. By unavoidable, I mean that the Scottish Government would otherwise breach its legal obligations or fail to provide essential support to emergency situations or cause significant economic damage across Scotland.”
It is expected that the total bill for the public sector pay uplift in Scotland will come to at least £500 million, with some ministers fearing it will rise even further to more than £700 million, putting more pressure on an already stretched budget, The Times reported.
In addition to a proposed deal being considered by unions to avoid bin strikes, which will cost the Scottish Government an extra £77 million if it is agreed, negotiations are continuing with nurses and junior doctors.
A third round of talks will take place next week with the Royal College of Nursing, which is eyeing an above-inflation deal. The 5.5% offer made in England is seen as a benchmark.
The British Medical Association has also highlighted the 22.3% increase over two years that has been put to junior doctors south of the border.
This has the potential to influence both sets of negotiations as staff from across the NHS push for more money.
It is expected that a series of projects previously promised by the Scottish Government will be paused or shelved in the coming days and weeks.
Ms Robison told The Herald: “The Scottish Government places the upmost importance on planning accordingly to balance its budget each financial year.
"The approach of the last UK government which started and suspended spending reviews and regularly moved budget dates, made this very difficult.
"And, alongside the whole of the public sector, we face a financial position that is extremely challenging, though we welcome the fact that the new UK Government has already indicated when its budget will be announced.
"It is always necessary to ensure resources are used economically, efficiently and effectively, and increased additional scrutiny will now be applied to expenditure. We would welcome any advice or input on any aspect of this from the Fraser of Allander Institute.”
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