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The £4bn 'cut threat' plays into SNP hands

IAN Liddell-Grainger does not look like a natural ally of Alex Salmond.

The great-great-great grandson of Queen Victoria is the Conservative MP for true-blue Bridgwater and West Somerset. He is a Scot, born in Edinburgh - but he's also the feudal baron of Ayton Castle in the Borders, where he used to farm before entering Parliament. In short, he is the kind of cross-border, aristocratic Anglo-Scot you'd expect to have little time for independence.

An obscure report, however, published by the All-Party Parliamentary Taxation Group which Mr Liddell-Grainger chairs, has furnished Mr Salmond with his latest weapon in the independence battle.

The report recommends that, if Scots vote to remain in the UK next year, the decades-old Barnett Formula used to calculate funding for Scotland, Wales and Northern Ireland should be scrapped and replaced by new system that better reflects the different nations' needs. For Mr Salmond, that means a £4 billion cut to Scotland's block grant, a stark warning of the danger of voting No next September. The SNP has been making the point for a while, in fact since before the report came out at the end of last month. But now it has become a key line of attack, raised by Mr Salmond at First Minister's Questions on Thursday and, every bit as robustly, by John Swinney in his response to the autumn statement. "Westminster politicians have now threatened to introduce £4bn of additional cuts if Scotland votes against independence," the Finance Secretary warned.

That last claim is pushing it bit. No-one has made a direct threat to cut Scotland's block grant by £4bn. The cross-party group has no policy-making role and its actual recommendation is to negotiate a needs-based funding mechanism using criteria laid down by the Holtham Commission in Wales, whose 2010 report paved the way for devolution of tax powers to Cardiff. The £4bn figure comes from comments made by the head of the commission, Gerald Holtham, who argued in a newspaper article that Scotland could be "as much as £4bn" worse off under a fairer share-out of UK spending.

But if the SNP is guilty of exaggerating the "threat," it shouldn't be dismissed altogether. It is largely forgotten now but the Labour, Tory and LibDem-backed Calman Commission, which led to greater devolution of tax powers in Scotland, also favoured a needs-based alternative to Barnett, provided nations' needs could be assessed on a UK-wide basis. There is widespread agreement at Westminster, too, that Joel Barnett's temporary fix in the late 1970s is in need of reform.

What that would mean for Scotland is unclear, though concern north of the Border is understandable given that Barnett is regarded as a good deal, evidenced by the fact that Scots receive about £1300 per head more in public spending than the UK average.

The all-party tax group's report, written by Oxford University academic Marius Ostrowski, suggests a needs-based system should be negotiated as part of a UK-wide constitutional convention, looking afresh at the whole issue of tax-raising powers and funding for Scotland, Wales, Northern Ireland, the English regions and even local government, in the event of a No vote. The idea chimes with Calman, while a not-dissimilar constitutional convention has already been championed by Labour's Douglas Alexander. So the pro-UK parties should be right behind it, right?

In fact their silence on the issue, even in the face of the Mr Salmond's increasingly vigorous attacks, has been deafening. Asked about it yesterday, Secretary of State for Scotland Alistair Carmichael said: "This Government is not going to change the Barnett formula. The only sure way to get rid of the Barnett formula is to leave the UK". Aides accused the SNP of "scaremongering" and of admitting tacitly that Scotland does pretty well as part of the UK. We might get a clearer picture of what is likely to happen when Labour and the Tories publish their proposals for further devolution next year.

In the meantime, it is worth flagging up a couple of other conclusions from the all-party group report. If there is a narrow defeat for independence, it says, Scotland would still be on the road to a much looser "devo max" relationship with the rest of the UK. If Yes wins big, we will have our own currency sooner rather than later.

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