What would a UK income tax hike mean for Scotland?

“Each of us must do our bit for the security of our country and the brightness of its future,” the Chancellor said, signalling “hard choices” ahead.

There is speculation Labour could be preparing to increase the basic rate of income tax. A UK Chancellor has not done this since Labour's Denis Healey in 1975, so it would be a big deal.

But what would it mean for Scotland? Income tax rates and thresholds are devolved, meaning they are decided in Holyrood.

However, any change down south would have an impact on the Block Grant Adjustment (BGA). The respected Fraser of Allander Institute (FAI) describes this as “a deduction that attempts to capture what would have happened in the absence of devolution”.

In essence, the BGA would deduct funding because the Scottish Government raises its own income tax revenue. An additional 2p on the UK basic rate would cost the Scottish Government £1 billion next year, according to the FAI.

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“This would be a pretty significant cut to funding, and it would then be for the Scottish Government to determine how to react to this,” the research institute said.

It added: “Either way, there’s no free lunch here. If UK income tax rates are raised, either the Scottish Government will have to spend less or Scottish taxpayers will also have to pay more tax – it’s just arithmetic.”

In other words, SNP ministers could face a very difficult choice when they set out their own spending plans in January, just a few months shy of the next Holyrood election.

Of course, they could seek to pin the blame on Labour. After all, its general election manifesto last year was crystal clear.

"Labour will not increase taxes on working people, which is why we will not increase National Insurance, the basic, higher or additional rates of income tax, or VAT,” it stated on page 21.

But the SNP has also ruled out any income tax changes next year. Anyone earning more than £30,318 already pays more income tax in Scotland than if they lived south of the Border.

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Could SNP ministers really stomach making cuts to public spending instead of increasing taxes?

There may be a further complication, too. If the UK government cuts the primary rate of employee National Insurance contributions by 2p, which has also been suggested, this would benefit Scottish workers, as this is reserved.

In short, things could get very interesting indeed.

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