It is possible an independent Scotland would develop a stronger economy, but times would be tough in its first decade, which may explain why the SNP’s general election manifesto – which pledges tax cuts and increases in public spending – is not fully costed, writes David Phillips of the Institute of Fiscal Studies (IFS).
The SNP’s general election manifesto is not short of policy proposals.
The most commented upon is additional money for the English NHS – around £4 billion more than Labour and £7 billion more than the Conservatives by 2023-24 – which could mean several hundred million pounds extra for the Scottish Government’s budget via the Barnett Formula.
Other spending measures include abolition of the so-called “bedroom tax” and ending the two-child cap on means-tested benefits, and a number of other increases to the generosity of Universal Credit, all of which would be of most benefit to low-income, working-age families. For pensioners, it proposes keeping universal free TV licenses for the over-75s; supports “compensation” for the so-called Waspi women; and opposes further increases in the state pension age – costly, and rather less progressive policies given that pensioners are now less likely to be in poverty than the rest of the population.
Combined with increases in the National Living Wage and increases in maternity and paternity leave and pay, this looks rather a lot like many of Labour’s plans – which is probably more than just a coincidence.
On the tax side though, unlike the Labour manifesto, the SNP manifesto sets out a list of tax-cutting measures. This includes reducing VAT on e-books, bikes, solar panels, energy efficiency measures, and potentially the hospitality sector. It also says that National Insurance thresholds should “fit devolved income tax rates”, which could mean changes that reduce revenues by billions of pounds across the UK as a whole.
Moreover, in contrast to not only Labour, but also the Liberal Democrats and the Conservatives, the manifesto omits putting a cost to these measures. Nor does it set out plans for overall tax, spending and borrowing, which the other parties do and the SNP’s own manifestos did in 2015 and 2017.
First steps to independence
Why not? It may reflect the fact that such a package of spending increases and tax cuts would mean the UK Government having to borrow to cover day-to-day spending – something the other main parties have claimed they would not do. (Although it’s worth noting that Labour’s pledge to the Waspis means they look to have broken this ‘fiscal rule’ already).
But it may also reflect the fact that the SNP’s manifesto isn’t really about a plan of action for five years of governing the UK. Rather it is about starting the process of leaving the UK in the next year. It’s about contrasting a near-decade of austerity and years of divisive debate over Brexit in the UK, with a positive-sounding vision of independence.
The manifesto therefore focuses on the SNP’s claimed record of government in Scotland, and a series of appealing tax and spending measures it says the SNP would push for while Scotland remains part of the UK, framed as first steps towards the more comprehensive measures that could be taken as an independent country.
In this context, a focus on the cost of the measures proposed could be problematic.
That’s because, as recognised by the SNP’s Sustainable Growth Commission, an independent Scotland would start life with a significant budget deficit. This reflects the fact that government spending in, and on behalf of, Scotland is in per capita terms significantly higher than the UK average, while tax revenues are a little bit below the UK average.
SNP deserve some credit
As I argued last year, the SNP should be commended for tackling rather than ducking this issue – setting out a plan to reduce the budget deficit significantly over the course of a decade.
This would involve holding down the growth in public spending to one per cent below growth in the economy, so if the economy were to grow by 1.5 per cent a year, total public spending could grow by only 0.5 per cent a year. The SNP has claimed that this would not be austerity as spending would be growing. But keeping spending growth to such a low level in the context of an ageing population pushing up demands for healthcare, social care and pensions would – unless these demands were not met – mean cuts to many other areas of public spending. So the Growth Commission’s plans would imply austerity for some parts of government. And pursuing the types of policies suggested in the SNP manifesto in an independent Scotland would mean either those cuts would have to be even bigger, or other taxes would have to be increased to pay for the proposed net giveaways.
It is also inconsistent to claim that the Growth Commission’s plans wouldn’t be austerity but at the same time contend that the UK Government has been pursuing austerity in recent years: UK Government spending is set to grow by an average of 0.7 per cent a year between 2015-16 and 2019-20. Of course this has been a period which has seen cuts to the budgets of many government departments – showing that some areas can face austerity even when total spending is rising.
Looking to the future though, even the Conservative’s modest proposals for the coming parliament would see spending grow by around 1.8 per cent a year, slightly ahead of forecast economic growth.
Therefore, in the short-term at least, independence would likely necessitate more not less austerity.
Of course, that does not mean Scotland could not afford to be independent, or even that in the longer term better governance and better policymaking as an independent country could mean a stronger economy and more to spend on public services. That is possible – although far from guaranteed.
It just means that an independent Scotland would have to count its pennies and pounds in at least its first decade of life. It might therefore be understandable that the SNP manifesto does not draw quite the same attention to the price tag of its proposals as Labour and the Liberal Democrats, in particular, do.
David Phillips is associate director at the Institute of Fiscal Studies