JOHANN Lamont was late for her own big speech on Tuesday, after becoming snarled in storm-lashed traffic on her way from Glasgow.

So late that her aides issued the text of the address to pacify reporters long before she finally bustled into the small meeting room at the top of the Royal Mile.

She could see in their faces that it had already made an impression.

In the mandarin-speak of Yes Minister, Lamont's was a "brave" speech, possibly even heroic.

Then again, possibly lunatic and suicidal.

But there is no doubting its significance – not just for Labour, but for the SNP, the referendum, and the next Holyrood election.

The Lamont review – swiftly dubbed the "Cuts Commission" by the SNP – could see Labour ditch its support for a range of popular universal benefits, such as free personal care, university tuition, concessionary travel and prescriptions and the council-tax freeze.

In a phrase straight out of the Tory hymn book, Lamont declared: "Scotland cannot be the only something-for- nothing country in the world." Expensive policies would have to be paid for through "increased taxation, direct changes or cuts elsewhere", she said.

The days of ducking those "tough decisions" were over, it was time to get real about what the nation could and could not afford.

There would be no sacred cows, everything was up for consideration, came the message.

Except, minutes after Lamont sat down, it seemed some things were inviolate after all.

A spin doctor said it wouldn't make sense to cut concessionary travel or reduce student numbers. The Scottish Police Federation revealed it had been assured by Labour that the party had no plans to remove 1000 extra police put on the streets by the SNP.

This was in spite of Lamont saying in her speech that this specific policy was "not the best use of police resources".

The muddle continued when Labour MSP Kezia Dugdale said free prescription charges should be left alone, only to be over-ruled by Professor Arthur Midwinter, an adviser to Lamont's review, who said: "We are going to review everything ... there is nothing off the table."

His quote was cast up to Lamont at First Minister's Questions by Nicola Sturgeon, who was deputising while Alex Salmond was in the US.

Laying down the battle lines the SNP will use for the independence vote and beyond, Sturgeon thundered: "We will be proud to protect the council-tax freeze, we will be proud to protect free education for working-class people, we will be proud to protect free personal care and bus travel for our pensioners.

"If Johann Lamont wants to make that the dividing line of Scottish politics, I say bring it on."

To cap a bad week for Lamont, on Friday the shadow chancellor, Ed Balls, announced – spookily enough – that an incoming Labour government would hold a ruthless review to examine all public spending.

Instead of appearing her own woman and leading from the front, Lamont looked like she had trailed the idea on orders from the party HQ in London. The SNP had a field day.

"We're not pretending, we really are rubbing our hands over this," said one senior Nationalist. "Johann Lamont is pretending to lead the debate, when she's really following a Westminster agenda rather than what's best for Scotland."

But point-scoring aside, was Lamont right on the big picture?

After a decade at the start of devolution in which budgets rose every year, Scotland now faces annual budget cuts for the foreseeable future. Finance Secretary John Swinney has seen his budget fall by 7%, or £2.1 billion, in real terms in just two years, and by 2016-17 it will be 17%, or £5.3bn, smaller than it was in 2010-11.

With spending not expected to return to peak 2009-10 levels for 15 years, those on the opposite side of the fence to the SNP feel generous spending programmes started in the good times are no longer affordable in their current form.

Compounding the squeeze is the way many programmes, such as free personal care for the elderly, have rocketed in cost because of increased demand from an ageing population.

In 2010, Swinney commissioned an independent budget review of his own from former Scottish Enterprise chief, Crawford Beveridge. "Many will find this report uncomfortable reading," it began chillily.

Foreseeing swingeing cuts, it recommended job losses, pay freezes, raising council tax, no free prescriptions, college and quango mergers, and warned universal benefits "may no longer be affordable", concluding: "We cannot stress too highly the importance of taking immediate action".

Its chapter on universal benefits is particularly relevant, as it is the crux of the row between the SNP and Labour.

Universal services cost less to administer, cause less stigma and have a higher take-up than means-tested services, and don't create winners and losers around the means-test threshold.

But they also waste resources by going to the rich as well as the needy (a quarter of those with free bus passes are in work), create inflated demand, and become very difficult to withdraw as they are soon seen as rights.

Crawford Beveridge sliced through the pros and cons. Even if universal services are a good thing, he said, the costs are simply unsustainable. As if with a sigh, he wrote: "The issue is not one of desirability, but of affordability."

He urged an immediate review of all free, universal services to see which should be kept in their current form, and which changed.

For example, raising the age for free bus travel from 60 to 65 would save £37 million, and ending free personal care at home could save £105m.

Lamont's review is essentially examining what Beveridge said required "urgent" action in 2010. Beveridge knew that in the "pre-election period" before the 2011 Holyrood vote it would be hard for MSPs to avoid scrapping over these issues, so he included a plea for calm: "Given the seriousness of the current fiscal situation ... [we] strongly encourage the maximum degree of frankness and cross-party agreement about the scale of the problem, potential solutions and the necessity to act now."

It didn't happen, of course, as Labour and SNP bid against each other on the council-tax freeze, tuition fees and other pricey freebies. But another key strand of Labour's argument is that those "pre-election" nerves about cuts have been replaced by years of pre-referendum fear on the part of the SNP, meaning crucial choices are deferred to the detriment of the whole country.

"We're living in La La Land at the moment in Scotland," said one senior Labour source. "The SNP are not interested in governing, they're interested in the referendum. If you're a party interested in governing, what do you do with a parliamentary majority in your first year?

"All the tough stuff. But the SNP have done the opposite. It's all caution. They're feart. Every other country in the world is saying there's a problem with public spending, but the SNP is saying, 'Nah, it's fine, let's wait till we're independent.' But where's their Plan B?"

Some around Holyrood last week argued that Lamont was right to try to start a debate away from the SNP's preferred constitutional ground, and deserved Brownie points for taking on a difficult, almost taboo subject.

"She's certainly set the agenda," said Labour blogger Ian Smart. "A lot more people have heard of Johann Lamont now than a week ago. Better this than paralysis."

At Westminster, shadow Scottish secretary Margaret Curran insisted the policy shift was not a betrayal of Labour's traditional values, and accused the SNP of trying to shut down the debate. "We have to move away from fantasy politics in Scotland," she said. "We are constantly told by the SNP Government everything is fine and that's just not true. If we serve our constituents we have a duty to flag up the true costs: 30,000 workers have been lost in the public sector and services are being squeezed constantly."

But there is also deep scepticism that the hair shirt approach will win Lamont any votes. After all, the electorate gave the SNP a majority in return for policies like freezing council tax.

At a trades union gathering on Friday, there was bafflement about how Lamont can turn bad news into good ratings, not least because she didn't tell unions, MSPs or MPs her thinking in advance.

"People are wondering, 'What's the political strategy?'" said one senior union official. "What's the point of doing this at this time? "If you are going to launch something as eye-catching as this, a bit of discussion beforehand might be a good thing."

STUC deputy general secretary Dave Moxham said yesterday that the announcement "came as a bit of a surprise, to put it mildly".

Lamont's review also seems badly lopsided. Unless she can offer some positive policies to offset the dire financial news, the risk is that she will come across as an impotent message-bearer, merely relaying bad tidings from the south.

In 2015, the Scotland Act will give Holyrood more sway over income tax and powers to invent new taxes, and many in her party will want to raise tax on the wealthy instead of reforming universal services.

One Labour insider predicted the review would have to consider progressive taxation, saying: "Johann's got to answer the question: If you had greater devolved powers over income tax, would you raise it to fund the public services we like?"

In the meantime, the SNP will spend the next two years painting Labour as a Coalition fellow traveller, another Unionist cutter lacking the imagination to plot a new course for Scotland, and another reason to vote Yes in 2014. Lamont may wish she was still stuck in the traffic.

'If you are going to launch something as eye-catching as this a bit of discussion beforehand might be a good thing'