The choice facing John Swinney in the Scottish budget

Yesterday we learned the scale of the cuts facing the UK, and in doing so we see, laid bare, the scale of the spending challenge facing Scotland over the next four years.

After five years of public spending cuts across the UK, yesterday we learned that Scottish Parliament's funding, the Scottish Block Grant, will fall by 3.9 per cent in real terms between next year and 2019/20. Make no mistake, this will be an enormous challenge, meaning Scotland will have faced nearly a decade of cuts by the end of this time.

Equally, we estimate that with the Scottish Government already committed to increasing NHS spending, and spending on affordable homes and childcare, then other departments could face cuts of more like a tenth over the next four year, worth billions of pounds per year.

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The headline announcement from the UK Spending Review was George Osborne’s decision to reverse proposals to cut tax credits. Many of Scotland’s poorest families will no longer face the threat of steep reductions in their tax credits, however, we need to see the detail on changes to other benefits such as the Universal Credit and Housing Benefit before we can be sure of the full impact in Scotland.

The UK Chancellor found money for the Tax Credit announcement and others through some additional borrowing, and slight increases in projected growth over the next three years. However, he also found additional revenues through an Apprentices Levy worth £3bn a year across the UK, a two per cent Council Tax ‘precept’ ring-fenced for social care, and through lower order announcements such as an increase in stamp duty for additional homes.

The Apprenticeships Levy looks to be UK-wide with an as-yet-unknown allocation to Scotland. Stamp Duty was devolved and then replaced in Scotland a couple of years ago, but John Swinney may well consider similar moves in Scotland, if possible, when it comes to his draft budget.

Equally, the forthcoming Scottish Government and CoSLA Local Tax Commission may consider greater variation to Council Tax rates and ways to bring further income into local services such as social care.

The key point now though, for us in Scotland, is that the decisions shift to the Scottish Parliament, and our focus turns to Holyrood's decisions later in December and beyond. This is particularly the case as new tax, benefits and borrowing powers, may come to the Scottish Parliament following the Smith Commission. It will be up to the Scottish Parliament to decide whether these cuts are passed on in Scotland, and if so where the axe falls, or whether tax revenues are increased in order to reduce or fully reverse cuts in Scotland.

To give an idea of scale, the real-terms cuts we estimate will be coming to non-protected departments in Scotland will be into the billions of pounds per year by 2019/20. As an illustration, to reverse these fully would take an increase in every income tax rate of around 3p in the pound, or increasing Council Tax by around 75 per cent for every household in Scotland.

These projections are, however, based on the current arrangements for funding Scotland. However, negotiations are currently ongoing between the Scottish Government and UK Government over options of how to provide funding to Scotland after increased tax powers, and control over benefits, come into effect.

The worst options seeing the Scottish budget fall by further hundreds of millions of pounds over this same spending period. While these new powers may offer the hope of fewer cuts, as more of the budget in Scotland is decoupled from decisions to cut spending in the rest of the UK, if negotiations don't go well for Scotland, then Scotland's budget could face a double whammy of funding cuts and block grant cuts.

Overall, on benefits, the UK Spending Review was not as bad as expected, at least on the face of it. However, in terms of devolved spending, it was as bad if not marginally worse. How the Scottish Parliament responds this year and over the coming years, will decide how deep these cuts are, the type of tax and spend policies we see in Scotland, and help shape the type of country we live in. This should be a debate, not just for politicians or our Parliament, but a debate that matches the scale of the challenge, reaching every part of Scotland.

Russell Gunson is director of IPPR Scotland, the new cross-party, progressive think-tank for Scotland