Pensions row could cost Scots £8 million a month

Scottish ministers want to delay an increase of up to 3.2 per cent in contributions paid by public-sector workers, due to come into force next April, while they bear the “significant burden” of an indefinite pay freeze.

However, in the letter to Mr Swinney, Mr Alexander issued a stark warning he would have to make an “according adjustment” to “reduce the Scottish Government’s budget by £8.4m for every month’s delay” to an increase in contribution levels. A spokesman for the First Minister yesterday claimed half a million Scottish public-sector employees, such as firefighters, police officers, teachers and NHS staff, would be affected by the UK government’s plans for a hike in public-sector pension contributions.

The UK government is already facing a wave of strike action involving more than 20 unions representing up to three million workers over its public-sector pension changes – a deficit-reduction measure that ministers at Westminster say is needed to save £1.2 billion next year.

But, in the latest in a series of high profile and bitter spats between Edinburgh and London, the SNP government said the threat of an £8.4m monthly cut would lead to 286 nurses, 216 police officers and 250 teachers being thrown out of work each month.

Mr Salmond’s attack on the UK government sparked claims from opponents at Holyrood that the SNP leader was “picking another fight with Westminster” following previous disagreements over issues such as the referendum on independence and the lapsing of Holyrood’s tax-varying powers.

The latest row between SNP-dominated Holyrood and Westminster broke out during a bad-tempered exchange between Mr Salmond and Scottish Liberal Democrats leader Willie Rennie at FMQs yesterday.

Mr Salmond, in a response to a question from the Lib Dem leader about government business, said the finance secretary had received “an extraordinary letter, even a threatening letter” from Mr Alexander in response to a “reasonable” request for the UK government to consider delaying increased pension contributions until the current pay freeze was over.

He said: “We received the following reply over the schemes that we have administrative responsibility for: ‘If you decide not to take forward these changes, the Treasury will need to make corresponding adjustments to your budget. I would have to reduce the Scottish Government’s budget by £8.4m for every month’s delay.”

The First Minister added: “You can call that letter many things, but it doesn’t seem to me either liberal or democratic.”

Mr Salmond went on to claim that the UK Lib Dems’ role in forcing through the public-sector pension changes at Westminster could lead to the party losing even more voters than it did in May’s Scottish election, when its tally of MSPs slumped from 16 to five.

But the First Minister was accused of having a “brass neck” over the public-sector pensions reform by Conservative Scotland Office minister David Mundell.

Mr Mundell said: “The First Minister is riding roughshod over the respect agenda once again.

“The Scottish Government is the only one in the world which thinks it can avoid having to take tough decisions.

“The Scottish Government accepted money from the Treasury on the understanding that this was only available because of increased pension contributions from public-sector workers. Now they want to keep the money and not have workers make the extra contributions.

“If the First Minister doesn’t want to help create the extra resources then he can’t be entitled to a share of it. That is the point that the Chief Secretary is making in his letter.

“It is a clear and reasonable explanation that the money comes from making tough decisions. It is not a threat. The First Minister knows they can’t have the money without taking a difficult decision.

“If he doesn’t want to increase the payments of public-sector workers then that is up to him. But he can’t then also hope to access the extra money that it will generate.

“Even Robin Hood would blush at this approach but there appears to be no end to the First Minister’s brass neck on such issues.”

Meanwhile, a spokesman for Mr Salmond said that Mr Swinney had “outlined a proposal” in a letter to Mr Alexander claiming that it would be “appropriate to defer the increase until there was no longer a pay freeze”.

The spokesman said: “Now, the Chief Secretary to the Treasury has set out a position that is effectively holding a gun to the head of the Scottish Government by threatening to dock its budget.”

Mr Salmond’s spokesman later described Mr Alexander’s warning of a budget cut to the Scottish Government’s funding as the threat of a “financial penalty” and confirmed that Mr Swinney would be demanding a rethink when he replies to the UK government in the next few days.

However, the spokesman said the Scottish Government would ultimately be unable to refuse to accept the changes because UK ministers had “tied its hands” because of Holyrood’s lack of financial powers over pensions.

He added: “We don’t believe that we have the financial autonomy to be in a position to do things differently in these circumstances.”

Scottish Lib Dem leader Mr Rennie claimed the SNP government had first been asked by UK ministers to resolve the pensions issue in January.

Mr Rennie said: “The SNP have had eight months to seek a resolution to this important pension issue.

“But instead of acting responsibly they have dithered and delayed refusing to make any decisions, recommendations or even suggestions.

“The UK government are taking difficult decisions in the interest of the future of the country by ensuring that public pensions have sufficient funds to pay for future pensions.

“It’s a shame that the SNP prefer to posture, picking another fight with Westminster, rather than seeking to secure the long-term future of the public-sector pension schemes.

“It’s not unreasonable for Danny Alexander to seek an answer and agreement from the SNP.”

A UK Treasury spokeswoman defended the public-pensions reforms, which were recommended by a commission headed up by former Labour cabinet minister Lord Hutton.

She said: “Lord Hutton set out a clear rationale for increased contributions for public-sector workers to deliver a pensions system which is fair to the taxpayer and public-service pensioners.

“Scotland will benefit from the savings across the UK and any failure to implement contribution increases in Scotland without corresponding adjustments to Scottish budgets would lead to increased costs for all UK taxpayers.

“This announcement was made in the Spending Review last year and Lord Hutton published his final report in March. This has given all public-sector employers, including the Scottish Government, time to take account of these changes.”