Call for radical reform of public sector finances

By Isabelle Bell

3 March 2015

Dr Robert Black CBE FRSE discusses the challenges Scotland faces in public finances and the opportunities for creating lasting reform.

Scotland's public finances are in need of drastic reform and politicians must introduce better fiscal analysis and transparency, according to former Auditor General Dr Robert Black CBE FRSE.

Speaking to ICAS members at an event in Edinburgh, Dr Black said that factors such as Scotland's ageing population are increasing cost pressures on public services, because of a greater demand for concessionary travel, personal care and prescriptions.

He said: "I've been concerned for several years that we are not being transparent about the build-up of cost pressures on our public services, which are really exacerbating these issues.

"By 2030 there will be 38 pensioners per 100 people of working age. That's a very significant change. So we'll have significantly fewer people of working age paying taxes and able to deliver the services on which we all rely, at the same time as we have an ageing population.

"We've got this pressure cooker effect in the budget that's getting quite serious. The next few years are going to be very challenging."

Scottish Budget reductions

Dr Black went on to say that while the Scottish budget has not changed in cash terms over the last five years, in real terms it is now 10% lower and by 2018-19 it will have fallen by almost 20% - equating to £6 billion. Both Scotland and the UK are half way through a series of annual budget reductions.

In a wide-ranging speech on 26 February, Dr Black analysed the UK's public spending during 2010-20 and said that while total public spending has continued to rise in cash terms every year, spending on public services has fallen significantly.

He quoted the Office for Budget Responsibility's (OBR) estimate that from the outbreak of the global financial crisis in 2007-08 to 2018-19, "the UK's public finances will have suffered the largest peacetime shock in living memory, followed by one of the biggest deficit reductions programmes seen in any advanced economy since World War II".

Local government pressures

Dr Black also spoke about the pressures on local government, and said that more of the strain has been taken by Non-Domestic-Rates-Income due to the council tax freeze. He said that Scotland's public finances will still be in an "uncertain period" after 2020.

"The FTSE may have reached a temporary spike, but the world economy is still looking pretty difficult. The level of debt is going to be enormous and the demographics are really beginning to bite because of the ageing workforce. It's highly unlikely the situation will get much easier after 2020."

Independent financial analysis

Dr Black, who is the chair of the new economic think tank Fiscal Affairs Scotland, told the audience that Scotland's public finances need independent financial analysis and better budget scrutiny.

He said: "We need bodies in Scotland that are going to do independent analysis away from the politics to tell us exactly what is happening out there with the public services and our fiscal position.  That's what Fiscal Affairs Scotland is designed to do."

"We need improvements in financial reporting and that's essential before we can begin to do serious budget scrutiny and performance.

"The proportion of assets being funded by public private partnerships in the NHS is over 20% and in local government it is about 10%, so we need to know exactly how that is going to be managed in the future."

"Academy of government"

Dr Black said an effective "academy of government" should be established to help "politicians of the future" understand the realities of delivering public services and identify opportunities for innovation.

He said: "The Scottish Parliament doesn't actually run any services – services are run by health boards, by Police Scotland, by local government and so on. This means that in the system there's a disconnect between the MSPs and what's actually happening in our hospitals and in the local communities.

Dr Black said political parties could talent spot their brightest and best people to join the "academy of government" and "sit down with the Chief Executive of the Greater Glasgow Health Board, or a senior Police Officer from Grampian, for example, and talk and learn about the issues of the public services".

He said: "We are all in this together. If we don't address these issues then we are leaving a challenging legacy for our children and grandchildren.

"I'm innately optimistic - I think this is achievable. We have a lot of resources and talent in Scotland. We have got to work together to solve all of this."

Dr Robert Black was the first Auditor General for Scotland and held the post between 2000 and 2012. He is a member of the board of the British Library; a public interest member of the Council of ICAS; a lay member of the Court of Edinburgh University; a Fellow of the Royal Society of Edinburgh; and an Honorary Member of the Chartered Institute of Public Finance and Accountancy. He is chair of the new economic think tank, Fiscal Affairs Scotland and also chair of the Scottish Commission on Housing and Wellbeing, which is looking at housing policy into the next decade in Scotland.

Topics

  • Public sector
  • Political landscape

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