Money talks

IT WILL be his crowning moment of a quite astonishing year. When Alex Salmond bounds on to the stage of a packed Osprey arena at the Macdonald hotel in Aviemore at 3:30pm today, to the inevitable standing ovation, the First Minister of Scotland will know he has truly made it.

Opening the conference on Friday, Salmond said that the Scottish people would be willing to accept that the SNP celebrates a little today: it is, after all, the first time in the party's history that its leader addresses them from a position of power. Only a few short years ago, the party appeared in danger of being torn apart by internecine feuds and lost confidence.

Yesterday, one London-based newspaper chose to devote its entire front page to the land of milk and honey which the SNP now controls. Underneath the headline "Scotland 10, England 0", The Independent listed the benefits of living north of the Border, such as "free" school dinners and "no" university fees. It was not entirely accurate, but it was indicative of a mood that will see Salmond today claim that, such is the change in Scotland's political landscape, he can deliver his promised referendum on independence in 2010. Life, for Alex, has never been much better.

But as the applause dies down and cheerful SNP activists return home, the question being increasingly posed is whether Salmond's long honeymoon is about to come to a crashing end. In just over two weeks his government faces perhaps its most important date. On November 14, Finance Secretary John Swinney will reveal the government's spending plans for the next three years. Scotland's public sector - or, at least, that part of it which relies on the Scottish Government for its cash - is collectively waiting with bated breath to find out how big its budget will be.

On Salmond and Swinney's calculations hang the fates of everything from universities to hospitals, schools to roads. And it will also be the moment when voters find out whether the myriad of election pledges made by the SNP - such as freezing council tax, abolishing student debt, and recruiting an extra 1,000 police officers - will be met. At a reception for journalists in Aviemore on Friday evening, Salmond was able to joke about his failure to live up to his promises, but come the middle of November, there may be no place to hide.

Opposition parties are beginning to circle Salmond with the air of politicians who scent sweet revenge. So is the Teflon First Minister facing a first and potentially mortal blow? Or does his easy confidence in Aviemore indicate that this constantly surprising politician is about to pull off his biggest masterstroke yet?

Asking ministers about the budget at Aviemore over the weekend was a little like reminding pupils during the summer holidays that school was about to start. "You would have to bring me down!" exclaimed one minister on Friday evening, who had been enjoying the party atmosphere. "The budget is duff," said another, philosophically. "A lot of us are going to come out of this badly," he added. The view is pretty consistent: ministers are preparing for disappointment.

Their pessimism is rightly placed. Chancellor Alistair Darling announced two weeks ago that while Scotland's budget will continue to rise over the next three years, the rate of growth will slow down dramatically. Real annual increases have been as high as 7% in the years since devolution. According to Salmond - although this is disputed by Labour - the figure for next year will be just 0.5%. With government getting ever more expensive because of increased wage costs, and with vast commitments such as free personal care to deliver, the increase - to £30bn a year - just isn't enough, say Salmond's aides.

One consequence has been quiet dissent: within the Scottish Government's Edinburgh headquarters, St Andrew's House, inter-departmental warfare is said to be rife, as ministers and their civil servants battle to ensure their own budgets aren't hacked.

Ministers issued spending bids to the Finance Department over the summer, and the Finance Department then sent back its revisions. But, following Darling's spending plans two weeks ago, further cuts were imposed and many ministers have been left disappointed.

"You are trying to tell them that something is a priority. But then everything is a priority - that's the trouble," said one. One senior public sector official added: "This is the first time since the two years after New Labour took over, when they stuck to the Tory spending plans, that people are really having to tighten their belts. It's come as a real shock."

Labour politicians disagree. Finance spokesman Andy Kerr insists that the SNP knew exactly what was heading its way. "Before the election, they were boasting about all the meetings they were having with the civil service. They knew exactly what was coming their way." But Swinney insists that the funding deal offered by Darling two weeks ago was far, far more punitive than they had expected. Speaking to delegates on Friday, he claimed the government now had £700m less over the next three years than they had calculated. Add to that the £500m they say they have to spend on the Edinburgh tram project - which opposition parties voted through - and there is a big black hole in the spending plans.

As a result, tensions within Salmond's team are increasing. Last week, Salmond faced a pincer attack from both Labour and the Tories over his pledge to increase police numbers by 1,000. The First Minister insisted that he would meet his target - not through finding 1,000 new officers, but by "redeployment, recruitment and retention". A host of bad headlines followed, with Salmond accused of reneging on a key pledge. Justice Secretary Kenny MacAskill, forced to stay silent on the matter last week, is said to be increasingly unhappy at the state of affairs.

Another funding battle typifies the atmosphere - this time over education. Around £20m a year is due to be spent on a flagship education policy of the previous Labour administration called Determined to Succeed. Designed to nurture entrepreneurialism in schools, sports tycoon Sir Tom Hunter is a major fan of the scheme, and Education Secretary Fiona Hyslop is believed to be fighting to keep the cash.

But sources say Swinney has considered giving the funding to local authorities as a sweetener as he tries to persuade them to freeze council tax - a key election pledge. "His view is that the bulk of it should go to local authorities," says the insider "That would be a total disaster because the money would disappear."

Little wonder that Salmond's key strategic aim has been to try to ensure that Westminster gets the blame if and when budgets do get savaged. Despite having declared he wanted to work with Gordon Brown, Salmond has effectively declared war on the Westminster Government following the spending review, accusing Brown and Darling of "idiocy" and "betraying" their homeland.

His aides have already begun the softening up process, willingly conceding that they do not have enough money for all their plans for the next financial year. The high-profile plan to end student debt is likely to be one key pledge that will be put on the back burner for at least the next year. Even the big one - the deal to freeze council tax - is in the balance. Swinney last week held what were described as "productive" talks with council bosses over the freeze. But nothing has yet been settled. "No-one knows what will happen there," said one senior SNP figure last week. "We'll just have to wait and see." Swinney remains confident he can deliver the goods, but also knows full well that ultimately he can do little about it if councils decide to ignore him.

So, is Salmond heading for a fall, in the same way that Brown lost his footing so catastrophically last month?

SNP MSPs who have watched Salmond's remarkable victories over the years insist that this most canny of politicians will have a plan at his fingertips to ensure the circle is squared. One suggestion is that Swinney will find more cash by asking for even more punitive savings from departments than have already been ordered.

It is estimated that around £1bn a year could be found by ordering radical cutbacks across the board. Ministers who have already been ordered to cut back therefore find that further reductions are to be imposed.

SNP activists in Aviemore at the weekend expressed the hope that Salmond and Swinney would be able to deliver on the party's high-profile pledges, and that this would be enough to stave off damaging criticism, whatever the cuts elsewhere. "They might get knocked around a bit in the parliament but if people can be told that their council tax rates aren't going up, then that is a major victory," said one.

If he fails, however, the enemy awaits. Away from Aviemore and the spotlight of the media, Labour leader Wendy Alexander had her own party get-together on Friday last week. The behind-closed-door meeting is said to have contained a plethora of home truths for the party's MSPs. They were told their backroom team is still way, way behind the SNP's Rolls-Royce operation. They were given a severe talking-to about the lack of direction and aimlessness that has characterised it over the summer months.

Perhaps most tellingly, Tony Blair's former chief spin doctor Dave Hill arrived to lecture them on the importance of drumming home a consistent message - to point out relentlessly how Salmond puts fights and rows with Westminster ahead of the interests of the public. Those who emerged from the away-day said it had the effect of clearing the air. One MSP said: "We were pretty buoyed up after the meeting. If felt like the end of the beginning."

A straw in the wind, Labour MSPs say, was one headline last week attacking Salmond's failure to deliver on his police recruitment pledge. It has given them hope that the First Minister's honeymoon is - finally - coming to an end. Today, the relentless march of the SNP will steamroller ahead. But tomorrow, as ministers return to their civil servants and their balance sheets, the problems are stacking up. The next two weeks will be crucial to deciding whether Alex Salmond's perfect year will end on a high - or with the first signs of shortage and discontent in the land of milk and honey.

How will Swinney balance the budget?

WINNERS

Universities Ministers handed over £100m last week to pay for new buildings and capital projects. Higher education is also expected to receive a good chunk of the £169m a year it says it needs to keep standards high.

Councils The SNP's pledge to freeze council tax has the Government over a barrel. Not only are they to be offered £70m to fulfil the pledge, they are to be given far more freedom over how they spend their cash.

LOSERS

Civil servants Scottish Government administration costs are set to be stripped back to the bone. No more cushy away days for Scotland's mandarins.

Doctors Ministers have warned they may seek to renegotiate the massively expensive contracts handed to GPs and medics in a bid to save millions.

Transport May take a cut as ministers seek to find savings in their capital budget.

Quangos Efficiency savings will mean massive scrutiny placed on why bodies such as SportScotland, Scottish Enterprise and Communities Scotland need to exist.