Spending Review choices

John Swinney MSP will present his spending plans for the next three years to Parliament tomorrow. It is unlikely to make good reading. So here are a few things UNISON members should be watching out for.

The context of course is the UK ConDem coalition's ideological attack on public services, dressed up as a deficit reduction plan. This means a further real terms cut in the Scottish budget, just at a time when the economy needs public spending the most. However, that doesn't mean that John Swinney doesn't have choices, they may not be easy ones, but choices there are.

The first thing we will be looking for is the choices he will make on public service pension contribution increases. The UK government is docking around £240m (recurring revenue) from his budget over the next three years in anticipation that he will enforce a 50% increase in the pension contributions of staff in NHS Scotland, teachers and others. The UK government wants him to do the same in the Local Government Pension Scheme, although there are no Barnett consequentials if he refuses. If he does increase contributions in the LGPS, this will be a 'made in Scotland' pensions tax. No point blaming the big boy down south on this one.

Next is public service pay policy. This is the second year of a real term pay cut for public service workers in Scotland. If that was to be continued for a third year it will add up to a double digit cut in living standards. For all the talk of cuts it is important to remember that the wage freeze has made the biggest contribution to the savings pot.  I suspect we will hear more about the 'social wage' and in particular the 'benefit' of the Council Tax freeze. This won't wash as this tax freeze benefits the wealthy home owner, not our low paid members. It also costs jobs and services.

Then we have the impact of the budget on jobs and services. Even with some protection for the NHS budget, inflation and increasing demand will still result in health cuts. The Non-Departmental Public Bodies faced far bigger cuts than the average last year and they will be concerned again. However, it will be the local government budget that will merit most scrutiny. The Council Tax freeze means they have no local flexibility and they are also facing increasing cost pressures. John Swinney may wish to incentivise reforms with financial sticks and carrots, and this may make it difficult to compare budgets. Watch out for some smoke and mirrors under this heading.

We should of course remember that none of this pain is necessary. It is low paid workers and communities who are again paying the price of corporate greed. It beggars belief that the cheerleaders for corporate greed, the CBI, are calling for more services to be handed over to them in this morning's Scotsman. Have they not done enough damage?

There are few easy choices for John Swinney tomorrow. But choices there are.

Local Government in Scotland

I gave evidence last week to the Scottish Parliament Local Government Committee on what I believe are likely to be the key issues facing the service in the coming year. In my view the agenda is dominated by the financial position and I categorised the impact into three strands:

Services
The Scottish Government allocation to local government this year was cut by 2.6%. But that is only the start of the story. Increasing demand, inflation and the recession means that councils have had to cut even further. We have identified £535m of cuts with 12,600 job losses across Scottish local government. These aren't projections, they are real cuts.

The economic impact of that is substantial with, according to the Treasury model, at least another 13,000 jobs lost in the private sector as a consequence. 70p in every pound spent on local government wages is spent locally. And for every job loss the state only 'saves' 8p in the pound.

Most service cuts so far are being achieved by salami slicing from services. Fewer staff are struggling to deliver the same services and that is resulting in delays and a diminution in service quality. The recent Audit Scotland report highlighted some of the impact this has on staff and service delivery.

Reform
There are positive reform initiatives and many of these approaches are identified in the Christie Commission report. However, the financial position is such that some councils are scrambling around looking for any proposal that might make savings, however ill thought through. The Edinburgh privatisation programme and the Clyde Valley shared support services are two topical examples.

Care procurement is another. We are seeing a race to the bottom in wages, conditions and quality of service. The Scottish Government's social care procurement guidance is very poor on workforce issues and even ignores their own statutory guidance. Integration is all very well but it is meaningless if you have a demoralised workforce.

We should not lose sight of the impact of UK Government reforms. In particular housing benefit changes that will undermine housing finance and cause administrative chaos.

All of this leads to a real concern over the future of local government in Scotland. The centralisation of police and fire simply adds to the growing quango state at the expense of local democracy.

Workforce
The biggest contribution towards the financial cuts has come from the workforce. In local government there is a pay freeze without the modest underpinning for the low paid that happened elsewhere. Progress on the living wage has also been patchy.

Now those same members face an unprecedented attack on their pensions with a 50% increase in contributions. In return they will get worse benefits and be expected to work longer. And no, I am sorry, but the Council Tax freeze doesn't make up for that.


All of this adds up to a toxic mix with a demoralised workforce struggling to deliver essential services. There is a better way.

Legislative programme

Some grand rhetoric in Parliament today with the unveiling of the Scottish Government's legislative programme. Lot of words, if not huge detail, in the 63 page document. Here are some highlights.

Workforce Issues

Unusually for a legislative programme there is quite a lot about the public service workforce. It confirms the policy of no-compulsory redundancies until March 2012, although that doesn't cover local government. There is an attempted 'social wage' trade off between pay restraint and  benefits including the frozen council tax, living wage, prescription charges and concessionary travel. This frankly doesn't wash with most public service workers particularly as many don't get the underpinning £250 for the low paid or the Living Wage.

The Council Tax freeze is particularly contentious. They claim “Analysis shows that, as a percentage of their income, households in the lower end of the income distribution benefit the most, on average, from the freeze in council tax.” This is a highly skewed statistic. The saving at Band A is £147pa compared with £441pa at Band H, therefore the richest households benefit more from this tax cut. Not to mention the jobs and services  lost to pay for the freeze.

The FM was a bit vague when questioned about pay policy during the election and we expect this to be clarified as part of the Spending Review later this month. “We will continue to set public sector pay in a way that is fair and helps sustain public sector jobs and protect public services in the face of deep budget cuts from Westminster.” Is just so much rhetoric if they continue a pay freeze.

Public services

A Cabinet sub-committee on public service reform “has been convened to shape and take

forward our response to the Christie Commission in a coordinated manner. The Spending Review, to be published later this month, will express our continued focus on driving reform and value for money throughout public services.”

Sections on integrated working, local partnerships, outcomes and preventative spending, essentially appear to implement the key Christie recommendations. There is also support for the Christie proposals on workforce development and in particular the concept of workforce engagement. 

Again reflecting Christie on structural reform; “Where structural reform is required in order to achieve the required outcomes and value for money it should proceed, but leadership and culture matter more than structure.”

There is reference in the list of Bills to a Freedom of Information Amendment Act. There is no explanation in the text other than it is intended to “add strength and clarity to the Act”. As the government has previously ducked extending the Act, we should be wary about what is meant by 'clarity'.

Economy

A strange mix of economic proposals. The Tory Enterprise Zones are to be imported to Scotland, despite previous experience that these simply move jobs around. Mind you I suppose that is at least consistent with the Corporation Tax strategy! Similar pandering to the business lobby over 'better regulation' and the Small Business Bonus Scheme. This is apparently "very successful", without a scrap of evidence that it has created a single job.

Water

The hydro nation concept is to be delivered through a water bill. This looks promising as is the idea of a strategic body rather than simply handing new roles over to Scottish Water. Again more detail needed, but looks as if it is moving in the right direction. 

Housing

Housing investment took a big hit in this year's budget and so we should be wary about the plan to abolish the Housing Support Grant. It looks as if it is another way of spreading limited cash even more thinly. However, the government should get credit for the modest council house building programme. Even modest is an improvement.

 

Health & Care

On the day that ConDem MP's voted to dismantle the NHS in England, it is welcome to see the Scottish Government “hold firm to the values of the NHS, which are so important to the people of Scotland. We will foster a mutual NHS, working competently and collaboratively to deliver healthcare which is free at the point of need. We shall not go down the route being pursued in England.” Gold star for that commitment.

Same applies to partnership working as “NHS Scotland staff will continue to be fully involved in shaping the future NHS, benefiting from partnership arrangements which are the envy of many, within and outwith Scotland.”

On care integration it appears that the Government will focus initially on older people, "This will require, amongst other things, delivering the integration of health and social care and improving joint working with other agencies and the voluntary sector. We are determined to ensure that the older person is the central focus of delivery the length and breadth of Scotland.” Again a lot of detailed work is required and I understand we will hear more on this later this month.

The Social Care (Self-directed Support) Bill will need some scrutiny. This is fine for appropriate groups, but it mustn't become the new 'one size fits all' policy. It is already being used to cut social care in a number of areas.

The Alcohol Bill will be reintroduced “bringing minimum pricing as a condition of licences granted under the Licensing (Scotland) Act 2005 with the actual minimum price being specified in subordinate legislation." We certainly have to do something to reduce alcohol consumption in Scotland and reduce the impact that alcohol misuse and overconsumption has on public health, crime, public services, productivity, and the economy as a whole. There will still be scepticism that this is the right approach, but as the UK government is unwilling to act on excise duty, it may be worth a try.

Justice

More rubbish on the claimed “additional 1,000 police officers on the beat in Scotland.” This is nonsense as many of these officers are far from “on the beat” - they are substituting for police staffs. It is hard to take the Government seriously on 'outcomes' when they persist with this policy.

Then we have a Bill to create a single Scottish Police Service and a single Fire & Rescue Service. “Our priority will be to ensure policing remains strongly rooted in and responsive to our communities, and that front line services are protected despite the financial challenges.” The paper claims this is consistent with Christie recommendations although it is hard to see how. These services are typical command and control cultures that don't do devolved management well.

The only bright point in the dismal Justice section is support for community alternatives to short term prison sentences for minor offences and the Community Payback Order (CPO). We really must do something to cut the appalling waste of the ever rising prison population. We will have to see if the Spending Review includes the promised "provision of realistic levels of funding.”

Environment

We should welcome the emphasis on Climate Change legislation and assessment of the carbon impact of proposed expenditure. Scotland may already be "more than halfway to meeting our 2020 target of a 42% reduction in emissions.” How much this is due to the recession is questionable and there is limited action on public duties. However, we should welcome the continuation of the Climate Challenge Fund "with an enhanced level of funding of £10.3 million in 2011-12."

 

Education & Children’s Services

If we are serious about preventative spending we need to invest in early years. There are a number of initiatives that expand provision and develop the early years workforce. A welcome move away from the obsession with nursery teachers. There will be new legislation on the rights of children and young people and consultation on a draft Children’s Services Bill for introduction later in this Parliamentary session. There will be an Early Years Change Fund “to deliver effective early intervention in a child’s life, including the development of a new generation of children and family centres across Scotland and support for families in crisis.” That looks promising and appears to build on the work done by Susan Deacon.

 

There will be a Pre Legislative Paper on Post-16 Education in September 2011. We should welcome the commitment to free higher education and a guarantee that all 16-19 year olds will get a place in post-16 learning. Maintaining the Educational Maintenance Allowance and “implement our new Careers Strategy with more and better support for those who need it most.” I would be sceptical about aspects of this careers strategy as so far as it is too reliant on web based services. But let's wait and see.

Conclusion

In the current budgetary environment it was always going to be a difficult programme to put together. It is a bit of the curates egg, good in parts, but plenty to scrutinise when we see the detail.

Bankers at it again

The bankers and their big business allies at the CBI are at it again - lobbying against regulatory reform of the banking system. The proposals, due to be published on 12 September, are aimed at ensuring taxpayers are not liable for any future losses or bank collapses, including ring-fencing banks' retail operations.


CBI Director General John Cridland said taking action now could starve businesses of the capital they needed and damage the economic recovery. However, Business Secretary Vince Cable has said the reforms will go ahead. He described the CBI's line as "disingenuous in the extreme. Banks are in a way trying to create a panic around something which they know has got to happen".

The 'spivs and gamblers' as Vince cable once described them are at it again. The only amazing thing is that these reforms have not already been introduced. The banking crisis was in 2007 and if you read the Treasury's response, it sounds like the CBI might get a better hearing there. 2015 or later for legislation?

The US at least has the Dodd-Frank Act. Even that was watered down by the usual suspects bemoaning the increase in regulatory powers, claiming it should all be left to the market. Even Adam Smith and Milton Friedman turned away from “free banking” to support, albeit limited, financial regulation and legislative reform in the wake of banking crises in their lifetimes. Smith’s views were influenced by the 1772 crisis and the failure of the Ayr Bank in Scotland. Friedman’s views by the U.S. banking crisis of 1930–1933.

Others predicted the resistance to change. Joseph Stiglitz in his 2009 book 'Freefall' used the plumbing analogy (p295):

"We called in the same plumbers who installed the plumbing - having created the mess, presumably only they knew how to straighten it out. Never mind if they overcharged us for the installation, never mind that they overcharged us for the repair. We should be grateful that the plumbing is working again, quietly pay the bills, and pray that they do a better job this time than last."

In the afterword to the paperback edition he called the Dodd-Frank Act a "Swiss cheese bill - seemingly strong, but with large holes." The man certainly knows how to use the English language! He also correctly predicted the "rewriting of history" that the usual suspects have been busy at in both the UK and USA.

I will leave the final word to David Hillman, of the Robin Hood Tax campaign:


"An out of control banking sector is no basis for economic recovery. Banks should be made to pay for the damage they caused and not be allowed to repeat the mistakes of the past. We must not be deterred by bank lobbyists whose idea of 'economic recovery' means increasing bank profits. We can protect jobs and help those hit hardest by the financial crisis if we ensure banks pay their fair share back to society."

 

Scottish Studies

The announcement by Alasdair Allan, Minister for Learning and Skills that a new topic, Scottish Studies, is to be taught in schools has caused a lot of debate. Maybe because it is the media silly season, after all Mike Russell made a similar statement in June without quite the same level of interest.

Alasdair said research showed there was widespread support for the plan, which he said would correct an “abnormal” situation where Scottish history and literature was not routinely taught. “You would anticipate that there would be a wide variety of material about Scotland made available in Scottish schools, but it has to be said that, although things have been getting much better, many people’s experience is of learning not much about Scotland.”

I have to say that I fully agree with that. Interestingly, similar points have been raised in England about how little of their history is taught in schools. Whilst we should of course learn about international history, that doesn't mean our own should be marginalised. I was fortunate to have an wonderful history teacher who gave me a lifelong passion for the subject. Others have not been so fortunate.

For those who view this as a nationalist plot, if it is, it could backfire. In my experience many Scots have a very romantic view of Scottish history, full of heroic myths that sadly are rarely true. The Wars of Independence, Jacobite risings and others are widely seen as Scotland v England matches, when the reality was much more complex. Teaching history properly can only improve our understanding of the past and move away from simply viewing Scotland as, that country that isn't England.

There is also a lesson for some politicians. Knee jerk reactions that it is all a nationalist plot is just not clever politics. It just plays negatively and turns the voter off politics. The research showed widespread support for the idea and a simple vox pox with friends would confirm this. Of course there is a political motivation, but that doesn't automatically make it a bad idea. My advice - take a deep breath next time you are invited to do a media reaction interview.

Corporation Tax

The long awaited Scottish Government paper on devolving Corporation Tax has been published. It has been some time coming given the FM raised the issue in May and this is a long standing SNP position.

UNISON Scotland is not only a strong advocate of devolution, but we would generally be regarded as in the 'devolution max' camp. This is reflected in our evidence to the Calman Commission and elsewhere. However, we have opposed the devolution of Corporation Tax and I can see little new in this new paper to justify this proposal.

So what are the problems?

• The bottom line is that there is little evidence that cutting taxes on business creates new jobs. If there is a link, it is marginal and there are more cost effective ways of using the same money to create more jobs. Most of the savings are likely to go into big company profits and shareholders pockets.
• Like the UK Government's enterprise zones, at best this might displace jobs from one part of the UK to another. Turning Scotland into some type of tax haven is not the basis for a strong economy with real jobs. At worst it will simply lead to 'brass plating' were companies notionally move their headquarters to Scotland, but no real jobs are created.
• Devolution of taxation is not a free lunch because there will be a corresponding cut in the block grant. Northern Ireland estimates have just increased to £400m and it would be much more for Scotland. The Treasury estimate is £2.6bn although I agree with the Scottish Government that this is an over estimate, but still around £800m. Even if the Scottish Government is right that the lower tax rate will lead to a higher yield, there will be several years during which public services will have to be cut to fund the gap. Obviously this is the worst time to take such a risk. In any case the evidence for higher yields (Laffer Curve) is again slim.
• Lower tax rates in one part of the UK could come up against state aid rules and what is known as the Azores judgement. In essence Scotland could face an additional cut in public spending. The cost to the block grant could be as much as £1 to 1.5bn. That's a lot of schools and hospitals.

There are many other arguments against this policy articulated by a range of groups across the spectrum. While I would always treat the views of PwC and the CBI with some scepticism, the same does does not apply to tax experts like Richard Murphy. In his commentary he said:

"The SNP’s policy on this issue comes from the economics of the madhouse. The trouble is they plan to release the mayhem, that’s intended to create on the UK economy. It’s an act of gross irresponsibility on their part. But worst of all it’s a betrayal of the ordinary people of Scotland to try to turn that country into a tax haven right now, at cost to those who need strong government and not business run amok with greed."

The only winners from this policy will be big business. The losers will be the rest of us through cuts in jobs and public services.

50p tax rate

So the Chancellor believes that we should consider scrapping the 50p higher rate of Income Tax. This is payable on income above £150k per annum and covers around 0.5% of UK taxpayers.


We have had a flurry of the usual suspects, in an obviously concerted move this morning, to wheel out the arguments. Even a Tory MP from England on BBC Scotland. Credit to Stewart Hosie MP for pouring scorn on his arguments. The tax rate is not competitive, tax efficiency, avoidance and evasion, and the most laughable, they will all flee the country. Even a large degree of scepticism it would appear from the other side of No.11, with Danny Alexander and other Lib-Dems sounding less than enthusiastic.

Of course the Cabinet millionaires will emphasise the tax efficiency argument rather than the role tax has in redistribution. The High Pay Commission has predicted a massive increase in top-end incomes over the next 20 years. Those earning £150,000 or more a year currently represent just 0.5 per cent of the population, controlling 5 per cent of national income. But trends suggest that figure will rise to 14 per cent of the national income - one in every six pounds earned - by 2030.

Even Adam Smith in his book A Theory of the Moral Sentiments said:

"The disposition to admire, and almost to worship, the rich and powerful, and to despise, or, at least, to neglect persons of a poor and mean condition, though both necessary to establish and maintain the distinctions of ranks and the order of society, is, at the same time, the great and most universal cause of the corruption of our moral sentiments."

Following the state of the economy and riots on the streets of England, the Chancellor might want to re-read his right wing icon on this issue. We now know, thanks to research by Wilkinson, Pickett, Dorling and others, that the fabric of society is strengthened when the 'distinctions of rank' are replaced by greater equality, social cohesion and trust.

Dorling's book Injustice - why social inequality persists was part of my summer reading. I doubt if it was on the Chancellor's list. As Dorling points out, the current day Adam Smith Institute was founded with donations from rich individuals who thought we were becoming too keen on ideals of equality. In Britain inequality in wealth fell from the late 1920's through to 1981 when the richest 10% held an all time low for their group of 'only' half the nations wealth. This came about because of progressive taxation, inheritance tax and higher wages fought for by unions. Things didn't change until Freidmanite policies were introduced by British and US governments in 1980. Two-thirds of the wealth increases in the US in the 80's and 90's were in assets held by the richest 1% of the population. They owned 40% of the wealth while the poorest 40% owned 1% of the nations wealth.

Adam Smith referred to this as a moral issue, another subject the PM has had much to say on in recent days. Dorling highlights that the psychological impact of inequality drives one family in three into mental health problems. Anxiety and depression is the most common mental disorder in Britain today, with almost 9% diagnosed. A fifth of children have a mental health problem in any given year. Instead of addressing the causes we indulged in mass medication and drug company profits soared.

So if the Chancellor is concerned about tax efficiency, look a little harder at tax evasion and avoidance. For the moral and economic justification, tackle inequality. Progressive tax is a key element of that strategy.