Spending plans outlined by the Scottish Liberal Democrats in their manifesto for the Holyrood election ran into serious trouble after claims that they could lead to a cut in Scotland’s £30 billion annual budget.
The Lib Dems, unveiling their manifesto in the Borders, said that they would be able to release £1.5 billion to fund a host of other commitments by selling off the publicly owned Scottish Water’s debt to the banks.
Proceeds would be spent on measures such as creating 100,000 jobs, superfast broadband for the whole country, investment in science at universities, plans to transform the lives of young people and a drive to cut bills in homes by saving energy. However, critics of the plan immediately raised concerns that the proposal could contravene Treasury rules on how the devolved administrations are funded.
In addition, in spite of Lib Dem claims that the party had the backing of the Treasury for the plan, a Treasury aide said it had not seen details of the proposal.
The Treasury rules, published only last year, say that automatic retention of proceeds of sales of capital assets by a devolved administration “does not apply to receipts from privatisations or similar sales”.
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Although the Lib Dem scheme is not an outright privatisation, it would still be subject to the Treasury rule that any capital receipt could lead to an equivalent cut in the annual block grant. The Treasury rules say that when capital receipts are realised “as a result of a major change in the role of the public sector such as might arise from a large scale asset disposal, in such circumstances Treasury Ministers reserve the right to reduce the grant to the devolved administration to reflect receipts”.
The Lib Dem initiative is similar to one floated last year by the Scottish Government’s Scottish Futures Trust and which was described as a public benefit corporation. But it is believed Scottish ministers abandoned it after it became clear it could lead to the Treasury clawing back cash from Holyrood.
A Scottish Lib Dem spokeswoman insisted that the plan had been cleared by the Treasury, where Danny Alexander, the party’s MP for Inverness, Nairn, Badenoch and Strathspey, is the Chief Secretary.
However, an aide to Mr Alexander said: “The Treasury will talk with whatever party or parties form the next Scottish Government. We have not seen the details of the proposition from the Lib Dems. Mr Alexander is very supportive but it is an issue for the next Scottish Government to raise with us.”
Further doubts about the plan were raised by John Swinney, the Scottish Government’s Finance Secretary, who said that the Treasury’s statement of funding policy for the devolved administrations meant that any such proceeds could be clawed back by the Treasury.
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He added: “The Lib Dems are in absolutely no position to assume that any such receipts would not simply be clawed back by the Tory Treasury. As the UK Government spelt out, in such circumstances Treasury Ministers reserve the right to reduce the grant to the devolved administration to reflect receipts — leaving Scotland no better off.”
The Scottish Liberal Democrats based the vast majority of their spending plans in their 83-page manifesto on the anticipated £1.5 billion windfall from the reform of Scottish Water. The party pledged to use the money to help create 100,000 jobs through the setting up of a network of regional development banks, replacing the local enterprise networks.
The party would spend a further £250 million rolling out superfast broadband across the country. The same amount would be invested in science research, another £250 million would be spent on early intervention initiatives to improve the life chances of children and £250 million would be spent on energy-saving measures.
On education, the Lib Dems would reward head teachers for “outstanding leadership”. Legal marriage would be extended to gay couples and civil partnerships to heterosexual couples. Trains to the north of Scotland would be improved but the age to qualify for a bus pass would be progressively raised to 65. About £500 million would be spent on other schemes such as the cost of regional development banks.
Launching the manifesto in Innerleithen, in the Borders, Mr Scott said: “Because of our change to Scottish Water, keeping it in public ownership but freeing up big money, we have a one-off opportunity, using at least £1.5 billion of new money. We can spend this just once. It won’t happen again. It’s an opportunity to invest in the long-term future of Scotland.”