Kate Forbes says Scotland must 'reset' public services

Kate Forbes said public services in Scotland would have to become more efficient, with the country facing a budget squeeze

Scotland must rethink how it delivers its public services in the wake of Covid and Brexit, the finance secretary has said.

Kate Forbes said the public sector had grown for years but now needed to "reset" and become more efficient.

She was speaking as she outlined the government's spending plans for the next five years.

The spending review suggested there would be real-terms cuts in several areas of the public sector.

These included local government, higher education, the courts service, culture and external affairs.

Ms Forbes said spending would be prioritised in areas such as health, education and tackling climate change.

Health spending is due to rise from £17.1bn to £19bn over the next five years, while funding for social security benefits will increase from £3.9bn to £6.3bn in cash terms.

The overall budget for the Scottish government is due to increase from £41.8bn to £47.5bn.

Ms Forbes admitted that the government "cannot prioritise everything", adding: "We do need to reshape and refocus the public sector post-Covid and the spending review calls upon all of the public sector to look creatively at ways to sustainably address that challenge."

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Ms Forbes also said the government would seek to ensure public sector workers were given "fair" pay increases, but warned that it was having to operate with a "severely limited budget".

Her spending review outlines plans to reduce the overall size of the public sector workforce to pre-Covid levels, with the aim of keeping the total pay bill, as opposed to pay levels, at 2022-23 levels.

It said that this should be achieved through "effective vacancy and recruitment management" and would allow remaining staff to be given year-on-year pay increases.

It also said there should be a renewed focus on wellbeing, with bodies being invited to take part in the four-day working week pilot, as well as continuing to make better use of new technology to allow for hybrid or home working.

About a fifth of Scotland's workforce are employed in the public sector - with a pay bill of over £21bn per year - and public sector staffing has grown from about 410,000 to about 440,000 over the past five years.

The review said that while some growth related to the devolution of new functions to Scotland - such as elements of tax and social security - continued growth was not sustainable.

The government said it will now consult with trade unions and workers to "navigate the challenge" of a post-pandemic reset.

The review said the government could also look at reducing the number of public bodies as well as buildings it owns.

'Unprecedented cost-of-living crisis'

Ms Forbes said: "We are experiencing an unprecedented cost-of-living crisis. Inflation is at a 40-year high of 9% with households facing considerable hardship."

The finance secretary warned that she had limited powers to help, with the Scottish government having to prioritise its response.

She accused the UK government of "sitting on its hands" in the face of the cost-of-living crisis, adding: "The chill winds of Tory austerity are blowing when it comes to spending on public services."

The Institute for Fiscal Studies has said the Scottish government is facing a £3.5bn gap opening up between spending and income as a result of generous spending pledges and revenue from taxes being less than expected.

The institute's David Phillips said budgets for local government, the police, justice, universities and rural affairs were due to fall by about 8% in real terms over the next four years, while spending on enterprise, tourism and trade promotion was set to fall by 16%.

Although health spending was set to increase by 2.6% in real terms over the next four years, he said this would be "slower than needed," adding: "Health services could really struggle."

But social security spending is forecast to increase by 48% as new, more generous, Scottish benefits replace UK-wide benefits.

'Gaping hole' in Scotland's budget

Scottish Conservative finance spokeswoman Liz Smith highlighted the "gaping hole" between projected public spending and tax revenues.

She added it was "the product of incompetence from an SNP government that has no idea how to manage public finances".

Labour finance spokesman Daniel Johnson criticised the lack of detail, and said the government had managed to find £20m for a second independence referendum despite freezing spending in other areas.

A UK government spokesman said Scotland was benefitting from unprecedented support. He said the Scottish government had been provided with a record £41bn per year for the next three years.

He added: "The Scottish government's official figures show being part of the UK is worth more than £2,200 every year for each person in Scotland.

"An agreement to review the fiscal framework is under way and we will continue to work with the Scottish government."

STUC general secretary Roz Foyer said the review will "ring alarm bells for many public sector workers".

In recent days, the Institute for Fiscal Studies has warned of a potential gap of £3.5bn opening up in the Scottish government's finances over the next few years.

It is the finance secretary's job to close that gap - to make sure that the books balance and that's what Kate Forbes has tried to do in her spending review.

So what's the trick when spending on key priorities like the NHS and social security benefits, including the new child payment, are being protected?

There's little or no new cash planned for local government, higher education, the courts and many other areas - which amounts to real terms cuts, the painful details of which are yet to be decided.

There are also plans for so-called efficiencies - reducing the overall public sector workforce to pre-Covid levels, reducing the number of government buildings and potentially reducing the number of devolved public bodies.

Much could yet change in the public finances before the next Holyrood election and the Scottish government still hopes there will be an independence referendum next year, for which £20m has been earmarked.