0:00:07 > 0:00:10being cut in education. Tonight on Newsnight Scotland: How
0:00:10 > 0:00:13the spending review will affect life up here. And whether any of the
0:00:13 > 0:00:16politicians can offer a plausible alternative.
0:00:16 > 0:00:19Good evening. George Osborne is offering more austerity, even into
0:00:19 > 0:00:22the first year of the next Westminster parliament, and beyond.
0:00:22 > 0:00:25But he argues that it's all worthwhile, because it's working.
0:00:25 > 0:00:27How much of this is economic realism, and how much political
0:00:27 > 0:00:35positioning? We'll hear from the politicians shortly, but first
0:00:35 > 0:00:39Andrew Black reports. Suites. Everybody loves them
0:00:39 > 0:00:45especially politicians. They come in handy when trying to keep the voters
0:00:45 > 0:00:52on site. That's why the Chancellor outlining his spending plans the
0:00:52 > 0:00:572015 and 2016 to make he gave something back. Amid all the doom
0:00:57 > 0:01:02and gloom, yet more spending cuts. This coalition came into office with
0:01:02 > 0:01:08a commitment to address with firmness and resolve one of the
0:01:08 > 0:01:11biggest economic crises of the post-war era. The action we have
0:01:12 > 0:01:17taken together with the British people as brought the deficit down
0:01:17 > 0:01:22by a third, helped a record number of people into work and taken our
0:01:22 > 0:01:29economy back from the brink of bankruptcy. That is the vision
0:01:29 > 0:01:32anyway so what about Scotland? out today the block grants to the
0:01:32 > 0:01:38devolved administrations. Because we have prioritised health and schools
0:01:38 > 0:01:42in England this feed through the Barnett Formula to savings of around
0:01:42 > 0:01:472% in Scotland, Wales and Northern Ireland. The Scottish resource
0:01:47 > 0:01:53budget will be set at �25.7 billion and Scotland will benefit from new
0:01:53 > 0:01:57capital borrowing powers almost �300 million. Being part of the UK means
0:01:57 > 0:02:03Scotland will see its capital spending power increased by almost
0:02:03 > 0:02:0713% in real terms in 2015 and 2016. It is right for the Scottish
0:02:07 > 0:02:11Parliament to decide how best to use it. That is devolution within a
0:02:11 > 0:02:16United Kingdom delivering to Scotland. So what does all that
0:02:16 > 0:02:20mean? Let's look at the suites first. The Chancellor says
0:02:20 > 0:02:25Scotland's capital spending allocation to build schools and
0:02:25 > 0:02:29hospitals will increase by almost 13% which is the government -- or
0:02:29 > 0:02:38cover learnt of almost �300 million. But the resource budget, the money
0:02:38 > 0:02:42used to keep Scotland ticking over in public services, will be at �25.7
0:02:42 > 0:02:48billion which is a decrease of 2% in real terms. The Scotland Office will
0:02:48 > 0:02:52have to make savings of 10% in line with cuts to other UK government
0:02:52 > 0:02:55departments. Overall, the Chancellor says his plans will cut the deficit
0:02:55 > 0:03:00and help economic recovery. But the Scottish government does not see it
0:03:00 > 0:03:04that way. The Spending Review has essentially resulted in the UK
0:03:04 > 0:03:10government applying more cuts to the Scottish government's budget in
0:03:10 > 0:03:14terms of the operating resources of the government and capital budgets.
0:03:14 > 0:03:22It compounds the reductions we've had since 2010 with our capital
0:03:22 > 0:03:32budget down by 26%. This has been about more cuts and not about
0:03:32 > 0:03:42investment. And it's not just budgets which affect Scotland.
0:03:42 > 0:03:45Changes in reserved areas also have an impact north of the border.
0:03:45 > 0:03:49George Osborne says under the circumstances he is offering
0:03:49 > 0:03:53Scotland a bitter sweet deal. His opponents say it has left a bitter
0:03:53 > 0:03:56taste. A little earlier, I spoke to the
0:03:56 > 0:03:59Scotland Office Minister of State, Conservative MP David Mundell. I put
0:03:59 > 0:04:08it to him that the Chancellor reckoned he was aiming to promote
0:04:08 > 0:04:14economic growth through massive capital investment. I think for
0:04:14 > 0:04:24Scotland it is certainly a positive statement in relation to capital
0:04:24 > 0:04:24
0:04:24 > 0:04:29spending. The Scottish government have been calling for additional
0:04:29 > 0:04:34capital spending. That is what they are going to get. They will have
0:04:34 > 0:04:39�3.3 billion. 400 million of it will be extra. They will have additional
0:04:39 > 0:04:45borrowing powers. These are the messages I've been getting every
0:04:45 > 0:04:48time I've come on programmes like this. They say they have programmes
0:04:48 > 0:04:56ready to go and if they had additional money they will be able
0:04:56 > 0:05:00to take them forward and now they can. More generally, you get the
0:05:00 > 0:05:07impression listening to George Osborne that this was his way of
0:05:07 > 0:05:10prompting some sort of economic growth. We'll hear tomorrow from the
0:05:10 > 0:05:14Chief Secretary to the Treasury about some detail on significant
0:05:14 > 0:05:21infrastructure projects which the government are taking forward. Many
0:05:21 > 0:05:24of which will have a positive knock-on effect in Scotland. The
0:05:24 > 0:05:30Chancellor accepts that investment in infrastructure and capital
0:05:30 > 0:05:33spending is the way to secure growth. If that is the case, can you
0:05:33 > 0:05:40explain why according to the Spending Review document today
0:05:40 > 0:05:50public sector growth capital formation will either be flat in
0:05:50 > 0:05:51
0:05:51 > 0:05:572015 and 2016 or decrease by 1.7%? It is still the case that they will
0:05:57 > 0:06:07be additional funding for capital projects. That is what the
0:06:07 > 0:06:08
0:06:08 > 0:06:15Chancellor has made clear. Specific projects which of the government
0:06:15 > 0:06:25will bring forward will be set out tomorrow. There will be additional
0:06:25 > 0:06:26
0:06:26 > 0:06:31funding for capital projects available. The only reason we have
0:06:31 > 0:06:34to believe any of this and the only thing that is real is the numbers
0:06:34 > 0:06:42which you filled in in the document produced today and on page of that
0:06:42 > 0:06:49document you find that it public sector gross capital spending is
0:06:49 > 0:06:53exactly the same according to the big figure in 2015 and 2016 as it is
0:06:53 > 0:06:58in 2014 and 2015 although it is filled in as a decrease of almost
0:06:58 > 0:07:022%, which is the opposite of everything we are being told. So in
0:07:02 > 0:07:12fact there is no extra capital spending pencilled in for 2015 and
0:07:12 > 0:07:152016. You might not even be in government. That will be for the
0:07:15 > 0:07:25people to decide whether we have pursued the right policies in terms
0:07:25 > 0:07:30of determining what we're doing or go down the Labour root of more debt
0:07:30 > 0:07:34and more spending. There is a clear choice that has been created today
0:07:34 > 0:07:43as to where people see future spending my government. Whether they
0:07:43 > 0:07:53want the Labour model which was supposed to be announced by Edmonton
0:07:53 > 0:07:53
0:07:53 > 0:08:00and. -- by Ed Miliband. You are not proposing any increased capital
0:08:00 > 0:08:05spending at all in 2015 and 2016. The �50 billion figure which George
0:08:05 > 0:08:10Osborne talked about today is exactly the same as the �50 billion
0:08:10 > 0:08:18figure he talked about in his March budget. There is no extra capital
0:08:18 > 0:08:27spending whatsoever. They will be �400 million extra capital spending
0:08:27 > 0:08:30available in Scotland. -- they will be. That is in addition to the 1.3
0:08:30 > 0:08:36billion extra funds they have had since the comprehensive spending
0:08:36 > 0:08:39review. So for the Scot -- so the Scotland these are good arrangements
0:08:39 > 0:08:49which blow the Scottish government to get on with the projects they
0:08:49 > 0:08:52
0:08:52 > 0:09:02they have. That's -- which allow. It is time the Scottish government gets
0:09:02 > 0:09:09
0:09:09 > 0:09:11shovelling. We will have to leave it there. Thank you very much.
0:09:11 > 0:09:15Just before the programme, the Finance Secretary, John Swinney,
0:09:15 > 0:09:25came into our Dundee studio and I put it to him that he was about to
0:09:25 > 0:09:26
0:09:26 > 0:09:34get exactly what he's been demanding for years. Not exactly. We have seen
0:09:34 > 0:09:37a reduction in our capital budget of 26.6% since 2010. But you have been
0:09:37 > 0:09:44given extra powers the capital spending which no other government
0:09:44 > 0:09:48department in Britain gets anywhere near. That was what the Scotland act
0:09:48 > 0:09:52was designed to give to the Scottish Parliament and those powers will be
0:09:53 > 0:09:56used from April 2015 onwards. The challenge in terms of economic
0:09:56 > 0:10:03recovery is what we can do now to improve the economic conditions
0:10:04 > 0:10:11within Scotland. You have said in the past it is terribly unfair and
0:10:11 > 0:10:16the British Government should skew spending away from current spending
0:10:16 > 0:10:23and they have given new �400 million or the ability to borrow that
0:10:23 > 0:10:27amount. At least you've got something you want out of the
0:10:27 > 0:10:32constitutional arrangements in Britain. We welcome the fact we're
0:10:32 > 0:10:36getting borrowing powers. The point I am making is that the economic
0:10:36 > 0:10:40challenge today is about getting investment into the economy and
0:10:40 > 0:10:50build on the fact we're seeing some progress coming into economic
0:10:50 > 0:10:50
0:10:51 > 0:10:56recovery. We have higher employment in Scotland -- higher unemployment.
0:10:56 > 0:11:00I wanted the Chancellor to give us the immediate ability to invest more
0:11:00 > 0:11:10money in projects that would create employment within Scotland. That has
0:11:10 > 0:11:12
0:11:12 > 0:11:20not materialised. You would like more borrowing powers on -- and more
0:11:20 > 0:11:30capital spending powers but intellectually you agree with the
0:11:30 > 0:11:37
0:11:37 > 0:11:46Chancellor's strategy of deficit reduction, don't you? Since 2010 the
0:11:46 > 0:11:52Chancellor has cut too far. I accept the debt has to be repaid and we
0:11:52 > 0:11:58have to reduce the level of debt. If you look at the borrowing figures,
0:11:58 > 0:12:04the UK Chancellor is going to borrow �275 billion more than the planned
0:12:04 > 0:12:08in 2010. Not to invest in growth but to deal with the consequences of
0:12:08 > 0:12:12failure. If the Chancellor had made different decisions in 2010 and had
0:12:12 > 0:12:22invested more in capital investment we would have been able to invest
0:12:22 > 0:12:26
0:12:26 > 0:12:31more in employment. That argument has now been vindicated by the IMF
0:12:31 > 0:12:39and the Institute for fiscal studies. But you are not arguing
0:12:40 > 0:12:47with a reduction in your current budget. It is undesirable and I
0:12:47 > 0:12:54will... And unacceptable for budgets which are already set for this
0:12:54 > 0:12:59current financial year to have new reductions applied. That is what the
0:12:59 > 0:13:06Chancellor set out in the budget statement in March. Sometimes you
0:13:06 > 0:13:09talk about the fact you are against any cuts in public spending.
0:13:09 > 0:13:17accept we have to repay the public finances but the Chancellor cut far
0:13:17 > 0:13:25too fast and far too deeply and as a consequence he has brought on rising
0:13:25 > 0:13:30debt. Let's say people vote for independence next year. Buy you
0:13:30 > 0:13:35saying that from day one of independence they would be no
0:13:35 > 0:13:45structural deficit in the Scottish budget? If you look at the most
0:13:45 > 0:13:46
0:13:46 > 0:13:52recent financial information, Scotland words... Scotland would
0:13:52 > 0:13:57have been in a stronger financial position compared to the rest of the
0:13:57 > 0:14:05UK. That will give us choices about whether we want to reduce debt
0:14:05 > 0:14:10faster whether we want to put money aside for an oil fund. I am asking
0:14:10 > 0:14:16whether Scotland would have a structural deficit from day one of
0:14:16 > 0:14:26independence? There's going to be an overhang of debt that we will
0:14:26 > 0:14:28
0:14:28 > 0:14:38inherit from the rest of the UK. am asking you whether you would be
0:14:38 > 0:14:39
0:14:39 > 0:14:44in that camp? If you look at the data it shows that Scotland
0:14:44 > 0:14:48contributed 9.9% of UK revenue and we got back 9.3% of UK expenditure.
0:14:48 > 0:14:53What that demonstrates is that we are in a stronger financial position
0:14:53 > 0:14:59and able to invest in our economy. If you deliver more growth, he
0:14:59 > 0:15:09deliver more tax revenue and it allows you to run sustainable and
0:15:09 > 0:15:21
0:15:21 > 0:15:25effective public finances. If we don't have a structural deficit,
0:15:25 > 0:15:30with one bound we are free from all of this austerity, we can just spend
0:15:30 > 0:15:36any money we like. That is the choice that faces people in
0:15:36 > 0:15:41Scotland. The Chancellor confirmed to me that for the foreseeable
0:15:41 > 0:15:45future and Ed balls has confirmed this is that UK administrations will
0:15:46 > 0:15:55be undertaking an austerity agenda. We believe we should be investing in
0:15:56 > 0:15:56
0:15:56 > 0:15:58growth, in expanding the economy... What you appear to be saying...
0:15:58 > 0:16:06consequence people in Scotland can see investment in their public
0:16:06 > 0:16:11services. This idea you can just sidestep austerity altogether by
0:16:11 > 0:16:16voting for independence, your critics would say you are living in
0:16:16 > 0:16:22a fantasy. You appear to be saying that Scotland would not have a
0:16:22 > 0:16:30structural deficit, we can forget about cuts in capital spending but
0:16:30 > 0:16:33also day-to-day spending in order to answer the books. We are in a
0:16:33 > 0:16:43stronger position than the rest of the UK which allows us to design our
0:16:43 > 0:16:44
0:16:44 > 0:16:54public colour sees in aid different fashion. -- public policies in a
0:16:54 > 0:16:55
0:16:55 > 0:17:05different fashion. You will presumably have to do something
0:17:05 > 0:17:11similar to the pay policy. The pay policy has to be available...
0:17:11 > 0:17:21you going to follow George Osborne's lead? We will decide that
0:17:21 > 0:17:23
0:17:23 > 0:17:26in September. Will due be favourable in principle? -- would you be.
0:17:26 > 0:17:33are going through a process of public service reform, we have to
0:17:33 > 0:17:37make sure we can take public servants with us. John Swinney,
0:17:37 > 0:17:44thank you very much. I am joined from London by Labour's Shadow
0:17:44 > 0:17:48secretary, Margaret Curran. How joyful are you about your party's
0:17:48 > 0:17:57new policy of signing up to the coalition government's public
0:17:57 > 0:18:03spending limits? I think we have seen from John Swinney's interviews
0:18:03 > 0:18:09exactly what the differences between us and the other parties. There is a
0:18:09 > 0:18:15big contradiction between what he is saying and what he is being honest
0:18:15 > 0:18:19about. We are being honest and we think the government should change
0:18:19 > 0:18:21course immediately, we should stimulate the economy with different
0:18:21 > 0:18:28approaches and we could avoid perhaps some of the challenges of
0:18:28 > 0:18:31the future. We need to look at trying to single out the economy,
0:18:31 > 0:18:37increased tax revenues, get growth back into the economy, that would be
0:18:37 > 0:18:42much better but we have said to people honestly, if the government
0:18:42 > 0:18:48continues as it is we will inherit a very stringent financial situation
0:18:48 > 0:18:52and that needs be addressed. Rather than hiding things like John Swinney
0:18:52 > 0:18:56has, when he denies what the realities are, we don't want to do
0:18:56 > 0:19:02that, we want an honest conversation and we want to be realistic but say
0:19:02 > 0:19:06there is an alternative and we can offer hope. I am even more confused
0:19:06 > 0:19:10now. You sign up to these constraints for a year or you don't.
0:19:10 > 0:19:16You don't have to do that. The coalition government had a budget
0:19:16 > 0:19:21and it threw out most of what Alistair Darling had planned, it is
0:19:21 > 0:19:26possible for you to see the same. We think the coalition government is so
0:19:26 > 0:19:31wrongheaded that if we win the next general election we will have an
0:19:31 > 0:19:40emergency budget, get rid of the austerity nonsense and have an Ed
0:19:40 > 0:19:45Miliband/ Ed balls programme for the future. The government said they
0:19:45 > 0:19:51would get growth going and it's stalled. They said they would get
0:19:51 > 0:19:55spending under control but it has gone up. -- borrowing under control.
0:19:55 > 0:19:59We have to recognise the government are not solving the economic
0:19:59 > 0:20:03programmes, the overhang from the financial crisis, and we have to
0:20:03 > 0:20:07face that fact. We have to look into the future about how we are going to
0:20:07 > 0:20:11sort out the finances, we have to make public finances work more
0:20:11 > 0:20:16effectively and get the balance right. That is a more credible
0:20:16 > 0:20:19approach and I think it is the approach the modern times to get the
0:20:19 > 0:20:26economy growing and offer opportunities for families and young
0:20:26 > 0:20:28people going forward. Everything you have said is vacuous. You haven't
0:20:28 > 0:20:35told us a single thing that Labour would do that the coalition
0:20:35 > 0:20:40government is not doing. Ed Miliband made a speech the other week about
0:20:40 > 0:20:44spending into the future and I think all credible economists will say
0:20:44 > 0:20:48that if you project public expenditures into the next years you
0:20:48 > 0:20:54need to take a serious look at welfare spending. Anybody who denies
0:20:54 > 0:21:01that is not living in the real world. You support a welfare cap?
0:21:01 > 0:21:06Would you include pensioners? very long-term yes, that has to be
0:21:06 > 0:21:11done. In the first few years we don't think it does. In the longer
0:21:11 > 0:21:14term, as a country we have to come to terms with the balance of public
0:21:14 > 0:21:19finance. What we are seeing from this government, who are not
0:21:19 > 0:21:29concerned about the future, just about a political debate about
0:21:29 > 0:21:29
0:21:29 > 0:21:33spending in the future... We could stimulate the economy. George
0:21:33 > 0:21:36Osborne's point is that you can't have a situation where you need to
0:21:36 > 0:21:44start cutting the old-age pension because more people are claiming
0:21:44 > 0:21:49benefits. I don't think that is the framework that is right. We are
0:21:49 > 0:21:55saying in the longer term we need to look at the exponential rise because
0:21:55 > 0:22:03people are living longer, thankfully, and the balance is even