The Government's calculations for the amount it would save from

reorganisation of local government in Scotland had been ''blown out of

the water'' by a European Court of Justice finding, Shadow Scottish

Secretary George Robertson claimed yesterday.

Mr Walter van Gerven, the ECJ's advocate-general, gave an opinion --

effectively a preliminary judgment -- on Wednesday, that Britain had

defied European Union rules by failing to safeguard employees' rights

when they were sacked or transferred from one employer to another.

His findings were based on an examination of the privatisation

exercises of the Thatcher era but Labour believes they could have

profound implications for the transfer of staff under the local

government reform plans.

The Government's view is that it is acting within the law and that Mr

van Gerven's opinion will make no difference to the local government

changes.

The issue was raised by Mr Robertson on a point of order when the

committee considering the Scottish Local Government Bill convened for

its latest deliberations yesterday morning, and again later, in a debate

on transitional costs of the reorganisation.

Mr Robertson's point was that the calculations on staffing levels --

the Government has said it expects a reduction of between 700 and 2000

-- were fundamental to the calculations on the notional budgets it would

set for the new authorities from 1996-97.

He accused Ministers of failing to recognise the significance of the

ECJ finding. ''The Government is in deep financial water here,'' he

said. ''The Bill is designed to reduce the number of staff and, through

that, make savings which will justify this unnecessary and unwanted

legislation.''

He argued that the Government was embarking on a totally new concept

by setting notional budgets for the new authorities.

The Government's view is that it had always been envisaged that all

existing employees of local authorities would transfer to the new

authorities under the same terms and conditions of employment. The new

authorities would then decide on their manning levels and would be

entitled to make people redundant -- or take on more staff -- as they

saw fit.

This, it was claimed, would not be covered by the EU's Transfer of

Undertakings (Protection of Employment) directive (Tupe) which is at the

centre of the controversy.

Scottish Office Minister Allan Stewart told the committee yesterday

that what had been arrived at on Wednesday was an opinion by the

advocate- general, not a finding by the ECJ, and that the Government

would await the decision of the ECJ in due course.

He added: ''The UK reached agreement with the EC on these directives

some time ago. Appropriate changes were implemented by the Trades Union

Reform and Employment Rights Act 1993. The remaining area of

disagreement is a technical one, relating to consultation procedures

with employee representatives.

''There is absolutely no question of such a technical issue affecting

the costs of reform.''

In later exchanges, Labour strongly challenged the Minister on how the

costs of the reorganisation would be paid for, but Mr Stewart stuck to

his guns.