Spending axe could cut Labour down

FIRST indications are that Alistair Darling's package of measures announced on Monday have gone down well with voters. A YouGov poll published yesterday showed Labour had narrowed the Tories' lead to just four points, compared with a nine-point gap last month and the Conservatives' 23-point advantage six months ago.

Translated into seats, the latest findings would mean a hung parliament with Labour as the biggest party. And the poll confirmed the recovery of the Government's reputation in the face of the economic downturn.

On the question "Which party would you trust to look after ordinary people's interests during the present crisis and coming recession?", 40 per cent said Labour and just 26 per cent the Tories.

There may be scepticism about some of Mr Darling's measures, but it seems people would rather have Gordon Brown and he steering the ship than David Cameron and George Osborne.

The City seemed to like Mr Darling's package too, rewarding him with the biggest ever one-day rise in the stock market.

And if the Government's measures do work, Labour politicians dare to believe they could even win the next General Election. But Monday's package could cause problems for the party in Scotland.

The SNP has broadly welcomed the thrust of Mr Darling's measures, especially the bringing forward of capital spending to help get the economy moving.

But it warns there is a "sting in the tail" in the shape of spending cuts which will be fed down to the Scottish Government's budget as a result of the £5 billion of "efficiencies" the Chancellor promised to find by 2010-11.

Depending on which UK departments these come from, Scotland could face cuts of up to £500 million. And the SNP says a cut in the capital budget for health projects south of the Border will mean another reduction of £129m in the overall amount Scotland has to spend.

Alex Salmond and his colleagues will have to make tough choices about where the spending axe should fall. But it is Labour who could suffer more from the cuts – because the Scottish Government can and will put the blame on London.

For the last month or so, the SNP has been on the back foot over the banking crisis and economic downturn, which were seen as undermining its case for independence. But the prospect of London-imposed spending cuts is a new weapon with which the Scottish Government can beat Labour.

One Scottish Labour insider says: "We've been having some success in highlighting SNP cuts, but now these will be portrayed as Labour cuts. The SNP has had a really bad two months, but this could give them some life again."

The Nats are also taking the opportunity to try to claw back some credibility for the independence argument, claiming that this year a separate Scotland would have an economy in overall surplus because of booming oil revenues.

A senior SNP source says: "All this adds up to a good argument for Scotland to have control over its own finances. Oil revenue this year will be £13.2bn – £3.3bn more than the Chancellor expected at budget time in March. And over the six years to come, oil revenue will be £55bn, up from £41bn over previous six years."

Mr Darling's announcement of a new 45p top tax rate on salaries over £150,000, to be introduced after the next election, allowed commentators to hail his package as the death of New Labour.

"He's returned to his socialist roots," jokes one former Edinburgh colleague, recalling the Chancellor's days as a Lothian regional councillor fighting Thatcherite cuts.

It will be the first time Labour has gone into an election pledged to any rise in income tax since 1992, when John Smith proposed a top rate of 50p in the pound and an increase in National Insurance contributions from higher earners.

The "shadow budget" was apparently well received during the campaign, but was later blamed for Labour losing the election. Expert analysis suggests Mr Darling's top tax rate will bring in hardly any extra revenue, but after the public outrage over bankers' bonuses it must have seemed a good symbolic move if nothing else.

And right-wing commentators are already calling for the Tories to make the scrapping of the new rate their first act if they win the next election.

But one Labour insider says it's a trap set for the Tories which David Cameron will not fall into. "Those calling for the 45p rate to be scrapped are bone-headed right-wingers and unfortunately for us, David Cameron is not a bone-headed right-winger."

But the YouGov poll also found 47 per cent of people thought Mr Cameron had come out of the current crisis "badly".

Despite the Tories' attempts to blame the Government and the Prime Minister in particular for the economic downturn, an academic study published this week found few voters believe Gordon Brown is personally responsible for the crisis.

But Mr Brown and his Chancellor will be hoping they do get the credit if this week's package succeeds.