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Could Scottish budget cuts plans be implemented here?

The Scottish government has published plans to operate within the reduced funds allocated under the Barnett formula.

From a Northern Ireland perspective there is an interest in how Scotland plans to cope with funding cuts which are similar to those of the Northern Ireland Executive.

Two features stand out.

First, as might be expected from the Scottish Nationalist Party (SNP) which leads the minority government, there is a plea that the decisions made at Westminster do not match what the Scottish government would want either in the scale and speed of the spending reductions or in relating to Scottish needs. This leads into the aspiration that Scotland should have greater devolution with full fiscal accountability.

The Scottish government, if the SNP had a majority, would want to reverse the Barnett formula for funding.

Scotland would raise its own taxes, decide its own borrowing strategy and would pay to Westminster the cost of Scotland’s share of central UK spending. That would not be a popular idea in Northern Ireland.

A second feature is that the Scottish government accepts that, under present arrangements, it must live within the resources allocated by the Barnett formula. A four year budget to 2014-15 is remarkable because Scotland is facing expenditure reductions similar, proportionately, to Northern Ireland.

Over the next four years, in Scotland, current spending is expected to fall by 8% (in real terms) and capital spending by 36%.

The steps to adjust spending to live within these constraints contain several features that might be mirrored in Northern Ireland including detailed estimates of how to maintain services whilst reducing delivery costs, proposals to increase locally raised revenue and Scottish ideas on how the level of capital investment might be kept higher.

The Scottish government is seriously concerned (as is the Northern Ireland Executive) about a big cut in capital spending. To partially offset the reduced allocation from the Treasury, the Scottish government is asking a recently created institution, the Scottish Futures Trust, to become heavily involved in improving the way in which their capital programme is devised and implemented. In addition, it has set a formula under which extra capital projects can be authorised under a non-profit distributing (NPD) scheme using a more carefully designed system drawing on private finance.

The Scottish government proposes to accept extra current revenue financed NPD contracts which can be paid for provided that they do not cost more than an extra 1% on overall current expenditure. These contracts would be subject to much tighter regulatory control than the former PFI system. Applying the Scottish formula in Northern Ireland might mean an extra £200m per annum for the capital programme.

In a further supplement to the capital budget, the Scottish Futures Trust is asked to develop proposals for projects which rely on tax increment financing (TIF). The TIF model allows borrowing to be repaid from the revenue guaranteed on public sector assets, such as social housing, water investment, urban regeneration assets or other trading entities.

Further capital finance may be sought through the European Investment Bank and the EU Jessica fund which could be applied to commercial projects within schemes of urban development.

For Scotland, the effort to draw in alternative sources of capital is designed to alleviate the problems over the next four years. Along with a clear operational and interventionalist role for the Scottish Futures Trust this should mean that the proposed 36% cut in capital allocations would be partly offset.

There are lessons for Northern Ireland particularly for a restructuring of the Strategic Investment Board. Finally, one Scottish proposal could prove controversial either in Scotland or Northern Ireland. They propose to increase revenue in 2011-12 by increasing the business rates paid by the largest retail properties, including supermarkets and out-of-town retail parks. This would raise extra revenue and, as well, would be an indirect support to town centres.

Will that idea survive in the Scottish Parliament?

Belfast Telegraph