THE last Budget used a funding mechanism to force Scotland down the privatisation route, according to a leading think tank, which says that without this formula both revenue and capital funding would have fallen.

The Centre for Public Policy for Regions says the latest spending review saw a cut in day-to-day spending, and a rise in capital spending only through a new Treasury category of "Financial Transactions" or "loan support".

Loan support forces spending into the private sector, while at the same time is essentially a loan to be repaid to the Treasury rather than a traditional block spending allocation.

When this is stripped ou, Scotland lost money on both revenue and capital spend.

The report states: "The next UK Spending Review, likely to happen in 2015, will need to face up to big decisions on which budget areas will have to accommodate the deeper than average future cuts. For example, the day-to-day (resource) cuts implied by the current UK Government plans for both 2016-17 and 2017-18 are bigger than we will see in any of the years up to then."

But it also calls for more detail from the Scottish Government, which has "avoided outlining where it would seek to make the implied post 2015-16 cuts".

"This may be explained by the potential change of circumstances brought about by a Yes vote on the referendum, although, even then, greater clarity will be needed on a budgeting strategy for an independent Scotland."

Finance Secretary John Swinney said: "As a result of Westminster holding responsibility for setting Scotland's overall budget, Scotland is now facing eight years of real terms spending cuts, extending well beyond the referendum and the CPPR warn that more than 50% of Westminster's cuts to frontline spending are to come."

A UK Government spokesman said: "The economy is growing, over one and a quarter million private sector jobs have been created and the deficit has fallen by a third over three years."