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It mostly covers my work as UNISON Scotland's Head of Policy and Public Affairs although views are my own. For full coverage of UNISON Scotland's policy and campaigns please visit our web site. You can also follow me on Twitter. I hope you find this blog interesting and I would welcome your comments.

Wednesday, 5 December 2012

Hold the shovels!

Amid the failure report that was the Chancellor's 'autumn' statement there was what appears to be some good news in the form of £330m of Barnett consequentials for Scotland. Sadly, this is not quite as it seems.

To start with Scottish capital budgets have been slashed by 35% in the current spending round so at best this is simply returning a small amount of the planned cuts.

If this was additional capital funding it would be welcome, but it isn't. It's being funded by cutting departmental revenue budgets (Scotland is a department in UK terms) by 1% next year and then by 2% the year after. This means we get a one off boost at the expense of a recurring revenue cut.

It is at least arguable that at this stage of the economic cycle what we need is revenue not capital spending. Capital spending has significant leakages from Scotland. The contracts may go to firms outside Scotland and even staffed by workers who are brought up here. Materials are purchased outwith Scotland, like Chinese steel for the Forth Bridge, leaking more of the spend. Even the tax revenue is not guaranteed given tax avoidance schemes in the construction industry.

In contrast, revenue spending on public services is much more likely to be spent in the local economy and drive the demand deficit that is the major economic problem we face. The Chancellor has added to this problem with his additional cuts to welfare provision.

That leads to how the 'extra' cash should be spent. I would argue that because of the revenue cut, shovel ready projects may be the wrong spending decision. The cash should be spent on projects that deliver preventative spending, thereby reducing demand on the revenue budgets that now face a further cut.

As always with this Chancellor good news comes at a price. But it also comes with a headache for the Scottish Government.

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