SCOTLAND'S annual block grant will be cut by "hundreds of millions of pounds" should the Conservatives win the General Election, the SNP has claimed, as George Osborne announced he wanted to slice another £25 billion off UK Government spending.
But as Nationalists warned the Chancellor's desire to continue to cut the budget deficit would load "austerity on top of austerity", Treasury sources said that, even if Scots voted for independence, "more fiscal consolidation would still be needed in Scotland".
The respected economic think-tank the Institute for Fiscal Studies (IFS) last autumn said a newly-independent Scotland would have to impose deeper spending cuts or higher taxes than the rest of the UK to balance the books, with declining North Sea oil revenues contributing to a £6bn black hole.
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Mr Osborne's declaration that a future Tory government would want to see a "permanently smaller" welfare system, with around half of the extra £25bn in the years 2016/17 and 2017/18 coming from welfare, caused a rift within the Coalition.
Nick Clegg, the Deputy Prime Minister, said the Tories were making a monumental mistake by imposing "cuts for cuts' sake" and trying to place all the burden of deficit reduction on the working-age poor.
Labour said the Chancellor was focusing on future cuts as a smokescreen to divert attention from the "cost-of-living crisis" and the Government's failure to eliminate the deficit as planned.
Shadow Chancellor Ed Balls said: "This failure means Labour will have to make cuts and in 2015/16 there will be no more borrowing for day-to-day spending.
"But we will get the deficit down in a fair way, not give tax cuts to millionaires. And we know the way to mitigate the scale of the cuts needed is to earn and grow our way to higher living standards for all."
In the first major political speech of the year, Mr Osborne told an audience in Birmingham that 2014 was "the year of hard truths" and that welfare could not be protected from further substantial cuts.
He said: "I can tell you that, on the Treasury's current forecasts, £12bn of further welfare cuts are needed in the first two years of the next Parliament. That's how to reduce the deficit without even faster cuts to Government departments or big tax rises on people."
The Chancellor mentioned removing housing benefit from the under-25s and possibly barring people on incomes of £60,000 from having council houses.
However, it is estimated, this would only raise around £2bn of the £12bn earmarked. Paul Johnson of the IFS said none of the remaining options were easy.
Stewart Hosie, the SNP's Treasury spokesman, said: "No matter how hard they try to hide it, it is becoming increasingly clear what a No vote means for Scotland - more welfare cuts, more spending cuts and more years of economic mismanagement."
He estimated that the latest projected cuts would mean the Scottish annual block grant would be reduced by "hundreds of millions of pounds at least".
He added: "Scotland needs to escape from the financial strait-jacket imposed by Westminster, which is why we need the full financial freedom of independence."
Asked if the proposed additional £25bn Whitehall savings would hit the Scottish annual block grant even harder, a No 10 spokesman stressed how the rationale of fiscal consolidation was living within one's means.
He said it would "continue to involve difficult decisions".