Scottish budget squeezed as Osborne orders an extra £2.5 billion of cuts

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  By a Newsnet reporter

With the budget due to be announced tomorrow, Chancellor George Osborne has ordered Whitehall departments to make an extra £2.5 billion of spending cuts, over and above the 3% cuts announced in previous budgets and autumn statements.

The Chancellor and Chief Secretary to the Treasury Danny Alexander told ministers that they can afford to cut another 1% off departmental budget each year until 2015.

Health, education, aid and HM Revenue and Customs will be exempt from the new cuts, but all other Whitehall departments have been instructed to find 1% savings in each of the two years 2013/14 and 2014/15.  Local government and police budgets will be protected from the cuts for the first year.  The brunt of the cuts will be borne by other government departments, including Scotland, Wales and Northern Ireland.

The estimated  £2.5 billion in savings will be used to invest in capital projects in an effort to kick start the UK’s ailing economy, however no details have been released on where the money is to be spent.  It remains unclear whether Scotland will be compensated for its share of the cuts through increased UK government capital spending in the country.

It is understood that the savings will be taken into account in Mr Osborne’s Spending Review for 2015/16, to be unveiled in June, delivering around £1.2 billion of the £10 billion spending cuts which he is looking for in that year.

The government has been under pressure to increase spending on capital projects, with critics saying this is the only way to promote economic growth.  However the Chancellor refuses to find the money via increased public borrowing despite calls for increased spending on infrastructure by Vince Cable, the Lib Dem business secretary.

The TUC believes that the extra funds for infrastructure projects will not have a significant impact on the economy, estimating that the extra £2.5bn a year for infrastructure would only “boost growth by a measly 0.06%”.

Speaking to BBC news TUC general secretary Frances Grady said:

“With the economy stagnating, the pressure is on the Chancellor to deliver a pro-growth Budget.

“But spending just £2.5bn a year more on infrastructure projects will boost growth by a measly 0.06%. Worse still, funding it through departmental spending cuts will mean further reductions in public services.

“With interest rates negative in real terms, the Chancellor has the perfect opportunity to invest in Britain’s future, rather than raiding departmental budgets to cover his failed economic strategy.”