THE Scottish Government is to consider whether or not to put up taxes next year to maintain public services in Scotland in light of the knock-on effects of the UK Government's continuing £30bn austerity drive.
Last week, George Osborne announced £3bn of extra cuts for this year due to a fresh round of belt-tightening in Whitehall departments. This had a knock-on reduction to the annual £30bn Scottish budget of £176m, which, after further number-crunching by the Treasury, was reduced to £107m.
But this is money John Swinney has to find from an already planned budget. The Deputy First Minister - after a pre-scheduled meeting with the Chancellor in London - said he was "very concerned" that the Scottish Government was losing not an inconsiderable amount of money that had already been allocated to public services for this year.
He also confirmed that the Scottish Government had "no advance warning" from the Treasury about the announcement of extra cuts and complained that this was "not an acceptable way to operate".
"What I want to make sure," he told reporters, "is that there is an understanding on the part of the Treasury that the Scottish people and the Scottish Government take a fundamental different view on austerity to the UK Government."
Mr Swinney said the Chancellor had offered the Scottish Government a range of options, including deferring the £107m in extra cuts to the next financial year; an option offered when cuts were made in 2010 by the then Lib-Con Coalition.
"The Scottish Government will consider that as part of the way in which we look at the changes, that have been made to our budget; changes we did not expect to see happening and clearly present us with a serious difficulty given the fact the budget for this current financial year has already been set," explained the DFM.
Asked if he would rule out any tax increases next year to fill the gap left by extra cuts, Mr Swinney replied: "What we will consider, and I stress the word consider, is how we can best take forward the investment in our public services given the fact we have had a further reduction in the budget(than) we expected from the Chancellor within this financial year. So we will consider all of these questions as we prepare our budgets for forthcoming years."
Asked again if he would consider tax changes, he said: "Well, we will have those powers. If we don't use the tax powers that come to us in the spring of next year, there will be a substantial gap in our budget, something in order of £5bn to £6bn. So, of course, we have to exercise those tax powers. The question is whether we decide to change them from the existing tax arrangements of the UK and that's the point we will consider."
Given that the Chancellor has yet to outline where £12bn in welfare cuts will be made between now and 2018 - he is expected to do so for this year in next month's Budget - the Scottish Government could be faced with more knock-on cuts. Furthermore, as Mr Osborne seeks to reach his £30bn target over the next three years, the Scottish Budget is set to face more additional reductions between now and 2018.
Mr Swinney could defer the cuts for a year but this would mean next year, the level of reductions would be at least double. It is believed a 1p tax rise in Scotland would raise £330m in a year.
In 2016, the Scottish Parliament will receive more powers on income tax as recommended by the Calman Commission in 2010. This allows Holyrood to vary income tax by up to 10p in the pound across all rates ie there is no flexibility; if one band is raised by 1p,then all bands are raised by the same amount.
The way this has been enacted means that the Scottish Parliament has to set a tax rate for that 10p element; if it were to do nothing, then that would effectively be lowering tax by the full 10p. This would be worth around £5bn in revenue each year. So, simply to maintain the status quo, the Scottish Parliament will have to use the Calman tax powers next year.
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