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David Cameron, independence referendum, politics, scotland

Tory spending cuts? Barnett scrapped? English votes? Vow broken? Can’t say we weren’t warned.

Scottish voters can’t say they weren’t warned about George Osborne’s £25 billion austerity programme.

But even I’m shocked that Britain’s already paltry benefits are to be cut in real terms for two years. Forget the bedroom tax; this is the austerity tax, and it’s hitting the poorest.

But that’s the Union we’ve voted to remain a part of, and it’s not going to get any better. Labour are being very cagey about reversing the cuts. Anyway, the Tories aren’t concerned if liberal left opinion in Scotland is outraged. They think that Scottish voters aren’t as keen on benefit claimants as is claimed and that, despite the austerity, they are in the running for an electoral revival in Scotland.

Yesterday, the Chancellor pre-empted the outcome of the Smith Commission by saying that income taxes in Scotland will be reduced in Scotland after the new devolution bill is law. Scottish party leader Ruth Davidson isn’t proposing income tax devolution because she wants to see Scotland become a more socialist place, or because the Tories are somehow committed to a federal Britain. It is about hard politics.

If income tax is devolved in isolation from other revenue raising taxes such as excise duties, corporation tax and oil revenues, the Scottish Parliament will be in a deep financial hole, arguably worse than the one the IFS forecast for independence. This is because Scottish public spending levels cannot be financed by income taxes alone.

Yet David Cameron made clear again on the eve of the Tory Conference that the Barnett Formula spending differentials are no longer sacrosanct. The Times reported government sources as saying public money going to Scotland would fall over time. The Barnett Formula distributes increases in Scottish revenue in line with increases in England on a population basis.

If you throw all or most of the cost of Scottish spending onto income tax you are looking at around £4bn in cuts. What the Tories hope is this: the financial squeeze will force radical service cuts that will damage the SNP fatally, because they will have to implement them, and will undermine Labour by reducing its public sector client base. Most public sector workers vote Labour. In attempting to restore the damage inflicted by the post- Barnett financial freeze, an incoming Labour government will try to increase taxes using the new powers. The Tories will argue instead for a tax freeze and go to the country promising to cut income taxes in Scotland at some future date. Hard-pressed middle class voters will then have a direct incentive to vote for their “natural” party which Tories believe are the Conservatives.

Will this work? Well, it’s not yet clear what the Smith Commission will come up with and, as The Herald reported yesterday, Labour are in no mood to link a deal to English votes for English laws (EVEL) as proposed by David Cameron. However, it sounds to me like the deal will be that Labour accepts the Tory income tax plan in exchange for uncoupling EVEL from the new devolution legislation.

But if this is the future – austerity compounded by austerity – there will be a furious reaction in Scotland. This is not what people thought they were voting for when they responded to Gordon Brown’s promise of near federalism and a caring, sharing union. The Vow on further home rule was a desperate attempt to head off independence and it succeeded only by persuading Scottish voters they would get a deal. They’ll get a gradgrind union of low pay, public service cuts and rampant inequality.

It is ironic the minority Tories seem to be calling the shots on the shape of devolution to come. This will put the Scottish Government in an awkward place. Merely devolving income taxes will be unacceptable to Nicola Sturgeon. If Lord Smith cannot come up with a fair way to devolve taxation to Scotland, using the full range of tax raising powers, don’t be surprised if the SNP start calling for retention of the Barnett Formula. It at least embodies a tacit recognition that Scotland’s contribution to UK revenues justifies spending levels here.

And, come to think of it, didn’t the Vow say Barnett wouldn’t be abolished?

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About iain2macwhirter

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