IFS: None of Scotland’s parties has fully faced up to the fiscal reality facing the next Scottish Government

IFS researchers will be presenting a summary of their Scottish election analysis at 1:30pm today at an online event in collaboration with the Centre for Public Policy at the University of Glasgow, and funded by the Nuffield Foundation and the Robertson Trust. A new briefing highlights IFS researchers' key conclusions.

Read the full briefing here

David Phillips, Head of Devolved and Local Government Finance at IFS and one of the speakers at the online event, said:

‘Scottish voters have real choices on 7 May. While there are some similarities between the proposals set out in the major parties' manifestos, both the broad visions and the specific policies differ significantly.

‘The Scottish Conservatives and Reform UK offer a vision of a lower-tax Scotland. Income tax would be cut, particularly for the highest-income quarter of Scots – who currently pay substantially more income tax than in the rest of the UK. There would be cuts and reforms to business rates and land and buildings transaction tax too – some reforms beneficial, others wrong-headed. But this lower-tax state would supposedly also deliver more: a better NHS; more securely funded councils; and, in the Conservatives' case, an expansion of free childcare.

‘In contrast, the SNP and the Scottish Green Party put further expansions of the welfare state and a more activist state front and centre of their plans. Big expansions in free or subsidised childcare, plus free or cheaper buses, would be combined with more spending on existing services. The Greens' proposals are the most far-reaching, and they propose a range of tax rises and reforms – some beneficial, others deeply damaging – to help fund them. The SNP, in contrast, make few concrete pledges on taxation, with no revenue-raising measures suggested. However, if there was a ‘big state' rabbit in this election, it was pulled out of John Swinney's hat: price caps set by ministers for the cheapest varieties of 20 to 50 food items in large supermarkets.

‘Scottish Labour and the Scottish Liberal Democrats lie somewhere in between these ‘right' and ‘left' camps. Labour, like the SNP, make few concrete pledges on tax, but would like to cut income tax if economic and fiscal conditions allow. The Liberal Democrats say likewise, and make the case for replacing council tax and business rates with a land value tax. Both parties suggest spending more on certain areas, such as childcare, school staff, and social care. But their plans for new entitlements are pared back compared with the SNP's and especially the Greens', leaving more money for existing service provision.

‘Unfortunately, while differing in their visions, the major parties share a common shortcoming: a lack of realism regarding just how tough the fiscal challenges facing the next Scottish Government are.

‘The combination of a slowdown in increases in UK government funding, growing demands and costs for health and social care and devolved benefits, and a hangover from some bad budgeting habits of the last Scottish Government, will mean a Scottish budget under significant pressure. The outgoing government has already pencilled in cuts to funding for a range of services – including councils, the police, and further and higher education – in 2027–28 and 2028–29. And its plans bank on big efficiency savings – including a 20% reduction in overall administration costs and 3% recurrent savings each and every year in the NHS – to try to make constrained funding go further.

‘In this context, neither expansions of the Scottish welfare state without commensurate tax rises, nor definite tax cuts without similarly definite reductions in spending, are fiscally credible. In reality, there would need to be difficult decisions elsewhere in the Scottish budget to square the circle.

‘The fiscal holes the parties would need to fill differ. Reform UK's and the Conservatives' plans for tax cuts are feasible – but only with a cutback in frontline service provision, rather than just back-office ‘efficiencies'. Reform UK's claim that the proposed tax cuts would boost growth enough to pay for themselves does not stand up to scrutiny. On the other end of the political spectrum, the Greens' tax plans look like only paying for part of their big spending increases, while the SNP rely on efficiencies and extra growth paying for their spending increases. In contrast, Scottish Labour's and the Scottish Liberal Democrats' relatively pared-back plans would create the least additional pressure on the Scottish budget. But Labour's claims that its policies would increase the size of the economy by more than 2% in just five years is bullish at best, and more likely unrealistic.

‘One can have sympathy with the situation Scotland's political parties face. Politics is easier when fiscal conditions allow for spending increases or tax cuts without such difficult choices elsewhere in the budget. Voters, already unhappy after years of only slow economic growth, a rising cost of living, and public services that have failed to recover from the COVID-19 pandemic, may not warm to a dose of cold, hard fiscal reality. But the next Scottish Government will have to face up to it. And as the current UK government has found out, not preparing the public for difficult choices prior to an election can come back to bite you when the electoral dust has settled.'

ENDS

Notes to Editor

None of Scotland's parties has fully faced up to the fiscal reality facing the next Scottish Government is an IFS briefing by David Phillips.

The briefing is available to read here on the IFS website

The IFS's Scottish election analysis is funded by the Nuffield Foundation and Robertson Trust. The views expressed in this analysis are those of the authors and not necessarily the Foundation, Trust, or their trustees or staff. Co-funding from the Economic and Social Research Council (ESRC) through the Centre for the Microeconomic Analysis of Public Policy is also gratefully acknowledged.