IFS: Initial response to the Scottish Labour manifesto

A focus on improving existing services rather than new entitlements or tax cuts

David Phillips, head of devolved and local government finance at the IFS, said:

‘While the Scottish Labour manifesto comes in at a beefy 98 pages, the big tax cuts or expansions in service provision and entitlements that other parties have pledged are absent. Particularly given the fiscal situation, the lack of big unfunded new commitments is welcome. Instead, the focus is mainly on improving and reforming existing services, albeit with the aim of bigger changes – including tax cuts – in future if economic and fiscal conditions allow. Most of the spending that is pledged is from within existing budgets – and in many cases represents only small changes to how that money is already planned to be spent.

Scottish Labour aims for some big improvements to existing services. It says it would significantly reduce long A&E waiting times, speed up access to GPs and improve access to diagnostic tests and mental health support. It says existing childcare provision would be made more flexible and schoolchildren would be given more individualised support and opportunities for extra-curricular activities such as swimming and music tuition. And it says there would be a bigger police presence in local areas, with a named ‘community and crime prevention officer' for every neighbourhood.

However, the challenges in improving performance in the NHS, schools and other public services, in the context of highly constrained funding, should not be underestimated. Indeed, just maintaining existing health and social care services would be very likely to require cuts to some unprotected services in the coming parliament. Police funding, for example, is currently planned to fall 2% a year in real-terms in 2027–28 and 2028–29.

Thus, while Scottish Labour has been relatively restrained in its proposed giveaways, meeting its ambitions for priority services would still probably require some combination of cuts to other services, increases in taxes, or improvements in public sector productivity – above those already baked into existing spending plans. These would not need to be on the scale required by the plans of most of Scotland's other parties, which are planning bigger giveaways. But a Scottish Labour government would still face tough choices on tax and spending after the election.'

Taxation

The manifesto commits to no further income tax rises over the next parliament – though it does not commit to cancelling income tax rises already pencilled in, in the form of freezes to the higher-, advanced- and top-rate thresholds until 2028–29. Scottish Labour has also signalled a desire to cut income tax – a change from the direction of travel over the past decade, with a focus on the highest marginal rates created by the interaction of Scottish and UK taxes. There is a strong case for focusing tax cuts there. The combination of Scottish and UK income tax policies does create bizarre rises and falls in marginal tax rates at particular income levels – for example, between the (Scottish-set) £43,663 higher-rate threshold in income tax and the (Westminster-set) £50,270 upper earnings limit in National Insurance – though the manifesto does not say which specific income ranges Labour has in mind. And the highest marginal rates are likely to be the most damaging to work incentives and economic performance, so cutting them could help boost growth. But it also means tax cuts would be mostly targeted at under a million Scots with the highest incomes: Scottish taxpayers begin paying meaningfully more income tax above the higher-rate threshold (£43,663), with larger divergences for those with higher incomes.

These income tax cuts are not committed to, however, and would be contingent on economic performance and fiscal conditions. The 0.4% percentage point boost to growth that the party is aiming for is actually quite substantial, and Scotland's fiscal situation very challenging, so turning the aim of tax cuts into reality would be difficult.

Turning to property taxes, Scottish Labour proposes to replace business rates with a new tax that would raise the same revenue. The manifesto says this would be something that ‘incentivises local investment, supports vibrant town centres, tackles empty properties, and encourages entrepreneurship' while ‘ensuring online retailers and large distribution warehouses pay their fair share'. But Labour has not yet worked out how it would actually achieve all this: just that it would ‘work with the business sector and local authorities to develop' the replacement tax. Improvements are certainly available, particularly in terms of reducing disincentives to invest and tackling empty properties. But the case for cutting taxes on town-centres retail and hospitality properties and increasing it elsewhere is not clear. Theory and evidence suggest that business rates affect demand for properties and therefore rent levels; in the long run, gains and losses from the redistribution of bills would be felt primarily by landlords rather than tenants.

The manifesto also proposes a modest increase in the generosity of first-time buyers' relief in land and buildings transaction tax (LBTT), a giveaway of up to £500 for qualifying first-time buyers (the £1,100 figure given in the manifesto includes the existing relief), paid for in part by increasing LBTT for buyers outside the UK.

On council tax, the Scottish Labour manifesto says that ‘progressive reforms are required' and rightly criticises the SNP-led governments of the past 19 years for failing to deliver on their commitments to reform council tax. But in terms of its own plans, it merely says that ‘any transition will need buy-in from across the Parliament' and that ‘a Scottish Labour government will work cross-party to build political and public consensus on how reforms can be fairly designed and implemented' – essentially the same position that the SNP government takes. There is no firm promise of reform here; and requiring a consensus – not just a parliamentary majority – before reform can proceed risks it never happening.

Support for families with children

In common with other parties in both Scotland and Wales, Scottish Labour has identified childcare as an area of focus. But its main policies – increasing the generosity of ‘tax-free childcare' and providing two weeks of funded holiday clubs during summer holidays – encompass a slightly older group of children than other parties, which have focused on expanding fully-funded entitlements to younger age groups.  

The manifesto's main childcare proposal is for a Scottish Government top-up to the UK government's ‘tax-free childcare' scheme, similar to a policy already in place in Northern Ireland. Working families (where parents earn less than £100,000 each and do not receive means-tested benefits) can currently put up to £8,000 per child in a designated tax-free childcare account to pay for childcare expenses, with a government top-up of 25p per £1 contributed (a maximum subsidy of £2,000 per child per year). Scottish Labour proposes to increase this subsidy to 37.5p per £1, for a maximum total subsidy of £3,000 per child per year.

Unlike the funded hours offers that other parties have proposed, tax-free childcare benefits a wider age range of children (up to age 11, or age 16 if disabled), so it can be used for holiday and wrap-around care during the schooling years. It also operates more explicitly as a partial subsidy rather than a fully-funded entitlement, with parents still paying the majority of the cost of their chosen childcare. This means that the government does not need to decide on the overall level of funding for each hour of care, and gives parents more choice to seek out less (or more) expensive providers. But it also blunts the cost-of-living benefits of the policy, and won't benefit families (including those on universal credit) who aren't eligible for tax-free childcare at all.

Scottish Labour has told us it has budgeted up to £50 million a year for this policy, including a potential increase in take-up of tax-free childcare (currently around 10% of all 0- to 11-year-olds, though not all will be eligible). It has also budgeted £40 to 60 million a year for the two week ‘summer holiday clubs'. In both cases, the party has said that this money would be found within existing childcare funding, by ensuring more goes to front-line services. This may be easier said than done.  

Despite signalling that Scottish Labour wants to see falls in child poverty, the manifesto proposes little new cash support for families with children beyond additional support for childcare. The policy to increase the Scottish child payment to £40 a week for children under one is already planned by the outgoing government for 2027–28, as is the plan for breakfast clubs in primary schools. Whilst there is a plan to ‘review' the earnings threshold for free school meals in secondary schools, there is no firm commitment here. Substantial increases in benefits of the scale likely needed to achieve the ambitious statutory child poverty targets in Scotland are lacking.

Public services

For health and social care, the manifesto commits to spending at least £25 billion by 2030–31. This implies an average real-terms growth rate of 1.4% per year between 2026–27 and 2030–31. Current Spending Review plans imply a 2.4% average real growth rate for the first two years of that period, between 2026–27 and 2028–29, so if Scottish Labour stuck to those existing plans, health spending growth would barely increase at all in real terms from 2028–29 to 2030–31. If it instead decided to maintain the growth rate over those last two years, health and social care spending would need to reach £26 billion by 2030–31.

The manifesto also commits to a relatively wide-ranging set of improvements to health and social care services. Alongside cutting waiting times for ambulances and elective care and meeting the 4-hour A&E target, there are plans to establish a new mental health emergency service, expand community health services, fund more places in social care and substantially reduce the number of health boards. The challenge of improving NHS performance should not be underestimated – and given these relatively tight spending plans, delivering large improvements to services is likely to prove difficult, even with improvements to NHS productivity.  

For schools, the headline pledges are to increase the numbers of classroom assistants and teachers to aid ‘education recovery'. 2,000 teachers would be employed to support pupils that have fallen behind with reading and numeracy, and 1,500 classroom assistants recruited to allow more one-to-one support for some pupils (with 300 of these being based in special units for pupils with additional support needs). Scottish Labour has told us that £417 million has been budgeted for the additional teachers between 2026–27 and 2028–29, with £200 million budgeted for the classroom assistants over the same period. Scottish Labour plans for this money to come from as-yet-unallocated money that the Scottish Government is receiving as a result of reforms to special educational needs funding in England. However, as we have discussed recently, it seems likely that most, if not all, of this funding will need to be allocated to the Scottish NHS given that the current Scottish Government's spending plans imply a cut to NHS spending this year. If that were the case, Scottish Labour would need to look elsewhere for funding to boost school staffing.

Other policies, such as reforming the curriculum to focus more on specific knowledge, and several initiatives focused on behaviour, will have lower financial costs but could support educational improvement in Scotland. Of course, delivering curriculum and culture change is often easier said than done.

Scottish Labour also proposes a raft of changes to other areas of spending, including universities, colleges, police, local transport and local government. In the latter case, a new funding formula is proposed that would account for ‘local levies and the services that councils deliver'. Depending on the nature of the funding formula, this could lead to a substantial redistribution of local government funding between Scottish councils.

The bottom line

Compared with the other manifestos published so far – and the plans already announced by parties whose manifestos are still to come – the Scottish Labour manifesto is a restrained affair. It promises neither a big expansion in entitlements under the welfare state, nor a cut in Scotland's taxes – although it is notable that if economic and fiscal conditions improved, the aim would be to reduce taxes rather than increase spending.

This somewhat pared-back offering means it is harder to point to obvious big ‘winners' if the plans were implemented. But it also means fewer losers from measures needed to pay for ‘giveaways' than the other parties. And it means more of the Scottish Government's constrained funding would be available for existing services.

Different people will view this more cautious approach differently. But from a purely fiscal perspective it is clearly less risky than big tax cuts or spending increases funded by, at best, uncertain savings elsewhere.

That does not mean delivering the improvements to public services targeted would be easy: it would not. Some of the new measures are supposed to be funded by recurrent underspends on existing budgets, but that money is not currently left unspent: it is usually used to top up spending on other services such as the NHS. And health and social care spending would almost certainly need to increase above the £25 billion planned for 2030–31 – by perhaps £1 billion – to maintain, let alone improve, services. That would necessitate continued cuts to other spending, on average, in the second half of the coming parliament. But that would be true under any party, and is indeed what the current Scottish Government's plans imply for the first half of the parliament.

Despite Scottish Labour's pitching its proposals as a manifesto for change, on tax and spending the changes proposed are relatively small. Fiscally, that's not necessarily a bad thing in the current environment. Whether Scottish Labour would be able to deliver the changes to public service quality and economic performance that voters desire is less clear.