Guidance on Public Spending

Guidance on Public Spending
John Swinney, The Scottish Government

I am writing to you today to reiterate that I and my Scottish Ministerial colleagues are looking to you to work within the spirit of this note, to deliver the maximum impact and value for public spending in the current constrained climate.  The people of Scotland are depending on us all to play a full and active part in this work and to deliver the best possible outcomes.   

It is clear that all of us across the public sector in Scotland have to work within sharply constrained budgets in 2010-11 and beyond, while seeking to maximise the effectiveness of the public services we deliver.  Although the scale of the cuts in future years is not yet finalised, and will not be until Whitehall concludes its Comprehensive Spending Review this autumn, we already know from analytical work produced by the Scottish Government’s Chief Economic Adviser that overall budgets in future years will be sharply down on 2010-11, which itself represents the first real terms year-on-year cut in the Scottish budget since devolution. 

As you know, we are seeking to protect recovery in Scotland by planning to defer into 2011-12 the most recent spending cuts announced by the Chancellor on 24 May.  We have made strong representations to the new UK Government about the dangers of damaging the recovery across the UK through cutting public spending too far and too quickly.  The further cuts announced on 24 May add to the pressure faced by those who use and manage public services, and it is possible that the Chancellor’s "emergency” budget on 22 June will go further.

All of this places a big responsibility on us as leaders and managers.  The people of Scotland who depend on the public services we provide expect us to act with absolute prudence in the way we plan and spend public money, and to ensure that everything we do can stand scrutiny in terms of economy and efficiency.

Against that background, we must all act to protect public services by giving top priority to making changes that will save money – including:

• Scrutinising the way we provide services to the public and asking ourselves where changes can improve outcomes for citizens at a reduced cost – for example, through better use of technology or through emphasis on early intervention to reduce the need for late, high cost crisis action;

• Looking critically at staffing and vacancies to ensure that our workforce in the public sector is the most flexible, efficient and effective possible;

• Looking hard at administrative / back office functions and identifying how to share or amalgamate these or otherwise reduce their cost;
• Appraising the way we procure goods and services to ensure that we all adopt good practice and take advantage of our buying power;
• Reviewing rigorously the costs of running our organisations – travel, hospitality, accommodation – and cutting these back; and
• Avoiding new commitments to spending money that may simply not be there in future years.

Within the Scottish Government, we took the difficult decisions last September to cut our running cost budget for 2010-11 by £14 million or 5% below planned expenditure for the year.  We also cut our centrally-held marketing budget by over £5 million or over 50%.  We now have a presumption against external recruitment, strict controls on staff headcount numbers, and robust limits on the use of consultants, managed within strict financial restraints.  We have reduced air and rail travel costs by 25% in the second half of 2009 compared with the first half, and are continuing to bear down on these costs.  I and my Scottish Ministerial colleagues have taken a pay freeze in 2009-10 and have decided to continue this into 2010-11.  Senior civil servants will also have their pay frozen in 2010-11.  We are taking these steps to release cash to fund frontline services.  We will continue to search for further savings. 

Across the public sector, action is being taken to bear down on running costs and further improve economy and efficiency.  Our pay policy for public sector staff, launched in March, limits basic pay awards to 1% for staff groups due to settle between May of this year and next March.  Our pay policy for senior staff, issued in May, freezes pay in 2010-11 for the chief executives of non-departmental public bodies and for the most senior NHS managers.  Local authority chief executives have agreed to forego a 2.5% pay award they were due to receive under a multi-year deal in 2010-11, and a number of chief executives of NDPBs have agreed to waive part or all of the performance bonus due to them in 2009-10.  Pay costs account for over half of the £26 billion resource budget controlled by the Scottish Government budget and what happens to pay costs is very important in determining the sustainability of our public services.  We do however accept that where multi-year pay agreements have been entered into, these should run their course.

As public sector leaders and managers, we must all be very clear that every pound of public spending for which we are responsible is targeted to address key public priorities and secures real value for the people who rely on these services.  We must be vigilant, determined and encourage innovation in pursuing economy and efficiency.  We have been able to rely over the past 10 years on real terms increases in public spending year on year and we must now adapt to a different climate.  That different climate will require us to exercise our professional skills and personal commitment as public service providers even more rigorously than previously. 

We are very aware that much work is already underway.  That includes joint work between the Scottish Government and local government, and across many other sectors including health.  All of you will therefore already be looking hard at these challenges from the perspective of your own organisational costs and processes, and taking action in response.  In that context we take satisfaction in our collective track record on efficiencies, including our recent delivery of £839 million efficiency savings in 2008-09 (£300 million above target).  However, given the scale of the financial challenge facing our public services, we will continue to pursue further efficiencies that take us beyond the current targets and help address future budget pressures, whilst ensuring that, as far as possible, we protect frontline services.

The challenges we face will impact on every man, woman and child in Scotland.  No part of the public sector will be immune.   To emphasise the collective nature of the challenges we face, similar letters are going to other public sector organisations.  

Cabinet Secretary for Finance and Sustainable Growth
The Scottish Government