THE Scottish Government will have the power to reverse cuts to working tax credits in Scotland as well as redesign the benefit system, a senior Whitehall source has told The Scotsman.
The revelation comes as Scottish Secretary David Mundell has confirmed that new powers on controlling income tax north of the Border will be made available for Holyrood to use by 2017, which means the parties will have to lay out their plans in next year’s Holyrood election.
However, a senior source has also said that changes by the UK government to the Scotland Bill, which is enacting the all-party Smith Commission proposals agreed by the SNP, Conservatives, Labour, Lib Dems and Greens after the referendum, will mean that Scottish ministers will be free to top up any benefit and create new benefits in devolved areas.
It is expected that Mr Mundell will bring the bill back for the report stage for amendments in mid or late October.
In particular the changes will allow whoever is in government in Holyrood to restore working tax credits which are being cut by Chancellor George Osborne and could hit lower income households by an average of £1,350 a year, according to the Resolution Foundation, headed by Tory former minister David Willetts.
The row over cutting tax credits has blighted the conference with many, including outgoing Conservative London mayor Boris Johnson, warning that it will hurt many families in the UK where people are working hard to get by.
Yesterday Tory health secretary Jeremy Hunt sparked fury with comments that people will need to work much harder.
Mr Hunt insisted the government’s changes, which are predicted to affect millions of people, are a “very important cultural signal” and part of efforts to make the country’s work ethic match those of Asian and American countries.
Mr Hunt added he did not “entirely buy” the argument that families will lose “hard cash” through the reforms, claiming the benefits of more job opportunities, extra hours and the national living wage need to be considered.
The comments were condemned by Len McCluskey, the general secretary of Britain’s biggest union Unite, as “a disgraceful insult” from the “richest member of the Cabinet”.
He sought an immediate withdrawal of the comments and an apology from Mr Hunt while Labour said working families would find the remarks a “kick in the teeth”.
However, with welfare powers in Scotland to come into place in 2018, a senior Whitehall source said that Scotland could choose a different path to the one being pushed through by Mr Osborne if the Scottish Government was willing to raise taxes for it.
The government source said: “We will be putting out a written statement confirming that if the Scottish Government wants to restore tax credits it can.
“They [the Scottish Government] will have to pay for it either through using the new tax powers to raise revenue or by making cuts elsewhere and they will have to explain their decisions to Scottish voters.”
The source went on: “We will also be clarifying the language in the bill to make sure that there is no doubt the Scottish Government can create any benefit they want in devolved areas. This will allow them to reshape the welfare system in Scotland if they want to, but, as they are beginning to realise, this takes time to do.
“The limits mean that they will not be able to change the state pension but, for example, if they want to create a benefit to help prisoners after they have been released or help a single parent return to work then they could.”
The clarification will also mean that the UK government will make it clear it has no veto on the new powers.
The source said: “We do not accept that there is a veto but we will change the language to make that clearer.”
In his speech to the Tory conference in Manchester tomorrow, Mr Mundell will announce that the new tax powers giving Holyrood total control of all income tax north of the Border, including varying the different bands differently and creating new tax bands, will be available from 2017.
Mr Mundell will say: “Because we know that the new tax powers are at the heart of the devolution package in the Scotland Bill, we want them to come on-stream as soon as possible. I would like that to be in 2017. The final date for the transfer will be agreed by both of Scotland’s governments as part of the Fiscal Framework negotiations, which are on-going.
“But we think 2017 is an achievable and desirable time for these powers to take effect.”