Osborne's gambit

"We will cuddle the SNP to death," was the answer. Fully aware of the possibility of Scotland reacting negatively to a Tory government it didn't elect, Mr Cameron's view was simple: don't give the Nationalists anything to rebel against. Today, thanks to comments from George Osborne, we can see what that means in practice. If Mr Osborne becomes Chancellor of the Exchequer in seven weeks' time, he will introduce an emergency Budget and announce swingeing cuts to public services in England and Wales. But, he tells us this weekend in a policy announcement with far-reaching implications, Scotland will be spared the pain for a year.

Mr Osborne's logic is sound. He accepts that the Scottish Government has already, in good faith, set its budget and had it endorsed by the Scottish Parliament. Any attempt to force the Scottish Government to abandon its financial plans and instead adopt a new Tory age of austerity for 2010-11 would have been seen as an attempt to interfere in the legitimate democratic process of Scotland's devolved government. Mr Osborne has made the right decision, and this newspaper welcomes his stance.

And yet the Tories must be aware that this opens up a can of worms. The key point is one of timing. The next Scottish parliamentary elections are just a year away. Mr Osborne's understanding attitude means that Mr Salmond can spend that pre-election period operating within his planned budget, and not scrabbling around trying to find deeper and deeper cuts in Scotland's front-line public services to satisfy a Tory diktat. This is a let-off for Mr Salmond. And it increases his chances of holding on to power next year, when he will face a renewed challenge from a reinvigorated Scottish Labour Party. The Scottish Tories have worked closely with the SNP administration and have supported Mr Salmond at crucial stages over the past three years. It is probably fair to say that Mr Cameron would rather see an SNP administration in Edinburgh (albeit one neutered on the constitutional question) than a Labour one. As a result, the Tories have left themselves open to the charge – justified or otherwise – that their decision on Scotland's budget is motivated not by respect for the Scottish democratic process but by naked self-interest.

Furthermore, by giving the Scottish Government a year's grace, England will see painful cuts over the next 12 months, while Scotland will escape relatively unscathed. There is an obvious risk of exacerbating the misinformed but persistent belief in some parts of England that Scotland gets an unfairly generous deal from the Treasury. A backlash from Middle England must surely be a possibility.

That being said, Mr Osborne's approach to the issue of Scotland's finances shows that a great deal of thought has been given by the putative next UK government as to how its relationship with Holyrood would work. A further sign of this is Mr Osborne's decision that the Scottish Government will no longer have to hand back any budget underspend to the Treasury at the end of every year. This is sensible and long overdue. It avoids the ludicrous situation in which, towards the end of a financial year, ministers will spend any remaining cash on anything, regardless of how much benefit or value it offers, rather than see the cash disappear back into the Treasury's maw. Again, credit to Mr Osborne.

What is not yet clear is whether this munificence towards Scotland would extend to backing the findings of the Calman Commission and agreeing to give the Scottish Parliament greater autonomy and a range of powerful fiscal tools. For all Mr Osborne's welcome flexibility about the budget, Calman is by far the more important issue. To play ball would be very much in the Conservatives' interest. The quicker Scotland has effective control over its own domestic taxes, the quicker Scots will stop complaining at having public services constrained by Westminster Tories who were rejected by Scots at the ballot box. Mr Osborne, Mr Cameron, you know it makes sense.