GEORGE Osborne’s surprise abandonment of his tax credit cuts got all the headlines when he delivered his Autumn Statement in the Commons last week.
The move –which followed a humiliating defeat in the House of Lords on the issue – was welcomed on all sides. But the Chancellor’s apparent generosity is in contrast to the longer-term reality of his planned welfare cuts, which will still make many poorer people thousands of pounds worse off.
And despite some claims that the statement signalled the end of austerity, the independent Institute of Fiscal Studies has made clear that is far from the case. “This spending review is still one of the tightest in post-war history,” said IFS director Paul Johnson.
Attention now switches to the Scottish Government’s Budget, which finance secretary John Swinney will present to MSPs on December 16, and whether his announcements could include an income tax rise.
The Chancellor has not left the SNP with much scope for Christmas cheer. Mr Swinney has warned the UK government’s continued cuts will mean a 6 per cent reduction in Scotland’s day-to-day budget.
And think tank IPPR Scotland has said the cuts are worse than expected and that if the SNP sticks to its pledge to protect spending on health, education and childcare, other areas will take a massive hit. Local government is particularly worried that it will see a yet bigger squeeze on its budget.
For the first time, the finance minister will also have to propose a Scottish rate of income tax.
From next April, the UK 20p basic rate of income tax will be reduced by 10p in the pound for Scottish taxpayers, and the Scottish Parliament must set the new Scottish rate, which could be 10p, or more or less.
The option is there, then, for the SNP to make up for some of the Conservatives’ cuts by increasing taxes and giving itself more scope for spending.
The signs are, however, that this is not likely and that Scotland will settle for the same tax rate as south of the Border. This is at least partly because Holyrood cannot levy the new tax in such a way that higher earners pay a higher rate, so the poor would have to pay more as well as the rich – all rates must rise or fall together.
Mr Swinney might, nevertheless, give some idea of his plans for the following year, when fuller tax powers will arrive, which do include the possibility of raising higher rates without also raising the basic rate.
That will, of course, become part of the debate for next year’s Scottish Parliament elections.
With a wider range of tax powers available, Holyrood could begin to carve out a different set of taxation policies from the rest of the UK.
The Tories are widely expected to go into the Scottish election campaign proposing a cut in income tax. And there has been speculation that Labour could campaign on a tax increase.
But with all the polls pointing to a big SNP victory, the crucial question is whether the Nationalists might also advocate a tax increase. SNP leaders will be haunted by memories of the 1999 “Penny for Scotland” campaign – when the party proposed using the “tartan tax” powers to forego a UK-wide 1p tax cut and got a worse-than-expected result. But so much has changed since then.
Increasing income tax has been a taboo policy for a long time, but it may be that Tory austerity is now taking such a toll that political parties feel voters are ready to see the better-off pay a little extra for the good of all.