'Public sector jobs will have to be axed'

THE SNP Government will have to cut a raft of public sector jobs to cope with the recession, one of Alex Salmond's key economic advisers warned last night.

Professor John Kay has said Salmond and his Finance Secretary John Swinney will have to take some deeply unpopular decisions after the General Election if they are to achieve long-term economic stability.

Kay, one of Britain's leading economists and a member of Salmond's 11-strong Council of Economic Advisers, said that public sector employees would not be immune from the swingeing job losses that will be inflicted on Scotland over the next few years.

Economists have predicted that workers in the civil service, local authorities and defence will bear the brunt of the pain with around 6,000 jobs being lost from those areas by 2012.

Unlike Labour and the Conservatives at Westminster, the SNP administration has not explicitly pledged that health and education budgets will be exempt from budget cuts, although ministers have said those two areas will be regarded as spending priorities.

Kay, a fellow of St John's College, Oxford, and a visiting professor at the London School of Economics, said there would be "no alternative" to significant cuts in Scotland's budget over the next five years. When asked if Swinney would have to cut jobs in the public sector, Kay replied: "Yes."

"We are talking about some really tough choices both for the UK and Scotland – looking ahead. And it is not as if it were Scotland's fault.

"Indeed, bluntly, Scotland has been messed around, because Scotland did extremely well up to 2006 and things are going to be unreasonably rough for Scotland looking forward and that's the product of the mismanagement of UK public finances over the period. But we have to live with that fact."

Kay added: "John Swinney's going to have to look at everything. The whole structure of public expenditure in Scotland is going to be up for grabs in a big and serious way."

Kay said that the reality of the situation was that tackling Scotland's inflated public sector would not be considered until after a new government is installed after the General Election, as the current UK administration was not facing up to the difficult financial situation.

He added: "The Scottish problem is a backlash of a UK problem. You've got to be clear about that. This isn't a mess that the Scottish Government – either this one or the previous one – created. But it is a mess that the Scottish Government will have to deal with."

Research by Ernst and Young's Scottish Item Club predicts that the number of Scots employed in public administration and defence will drop from last year's level of 158,000 to 152,000 in 2012.

Dougie Adams, an independent economic consultant and adviser to the Item Club, said: "We probably have a time of real public sector restraint coming and even if we attempt to protect health and education the implications for things like local authorities are pretty dire."

"Budgets are under enormous pressure and there are going to be lots of arguments about public sector pay and conditions and even pensions."

Public sector job cuts would hit Scotland hard, since about one in four working people are employed by the state.

In 2007-8, 56 per cent of economic activity in Scotland flowed from public spending, compared with 43 per cent across the UK.

Last night the SNP claimed that Kay's analysis boosted their argument for independence and control over Scottish finances.

A spokesman for Swinney said: "This is exactly why Scotland needs to gain responsibility for our own finances, and why we need as much clout as possible by electing SNP MPs, because it is clear that either a Tory or Labour government would slash public spending after the next election."

Last month Treasury figures revealed that departmental expenditure in Scotland would be cut by 1 per cent in 2010-11 from 27.746 bn to 27.451 bn.

It was calculated that the money available to the Scottish Government to be spent on services such as health, education and transport would fall by almost 300 million next year.

But Andy Kerr, Labour's finance spokesman, said that the SNP Government had more funds than ever before. Labour has argued argues that the Scottish budget of 34.8 bn was double that given to Donald Dewar in 1999.

Kerr said: "John Swinney has been given access to more funds from the UK Government and he has spent the budget with no eye to the future.

"(He] needs to learn how to make tough decisions about how he spends our money."