Do SNP plans imply more austerity than Labour?

The SNP's positioning itself as the anti-austerity party has resonated with parts of the electorate. However, explains David Eiser, analysis of their spending commitments by the IFS suggests that that's not quite how things would work in practice.

In a speech in February, Nicola Sturgeon suggested she was in favour of a policy to increase departmental spending by 0.5% per year in real terms during the next Parliament. By making the case for a 0.5% real terms increase in departmental spending, at a time when the three main UK parties were all planning for real terms departmental spending freezes, Sturgeon could claim that the SNP was the only anti-austerity party.
Since then, two things have happened that appear to undermine this claim. First, since the end of 2014 the general outlook for the public finances has improved somewhat (falling inflation lowers the servicing costs of index-linked government bonds, whilst lower oil prices are believed by the Treasury to lift onshore tax revenues and growth prospects by more than the damage done to offshore revenues), enabling Labour (and other parties) to plan for more generous departmental spending increases in the next parliament while remaining within their fiscal targets. 
Second, it emerges that, although the SNP’s spending plans imply a rise in spending equivalent to a 0.5% per annum real increase in departmental spending, the SNP manifesto does not commit the party to spend this additional resource on departmental spending specifically (broadly, departmental spending is spending on public services, as opposed to social security spending). Given what the SNP has said about the tax changes it would make in the next parliament, combined with the spending commitments they have made on welfare, it emerges that the SNP would actually have relatively less resource available to support departmental spending relative to Labour. These are the findings of an excellent analysis of the parties’ post-election spending plans, published yesterday by the IFS. How so?
The SNP’s stated tax plans for the next parliament are broadly revenue neutral, whereas Labour’s stated tax plans would raise revenues by around 0.3% of GDP, around £6bn. But the SNP plans to spend more on social security than Labour. Both SNP and Labour plan to reverse the ‘bedroom tax’, while the SNP have also stated an intention to reverse planned cuts to disability living allowance, reintroduce pensions savings credit, increase carer’s allowance, and increase the work allowance in Universal Credit. Thus the IFS estimate that social security spending would be around £4bn per year higher under the SNP plans compared to Labour.
What about departmental spending, i.e. spending on public services? The IFS analysis assumes that spending on public services under the SNP is effectively what is left over once you deduct the cost of the SNP’s social security policy pledges, debt interest payments, and underlying social security spending commitments, from the SNPs target to raise total spending by an amount equivalent to a 0.5% per year increase in departmental spending. The result is that the SNP plans imply departmental spending remaining constant in real terms. In contrast, the Labour (and LibDem) plans imply departmental spending increases (of 5% and 3.6% respectively) over the period 2014/15 – 2019-20. 
As the IFS points out, a real terms freeze in departmental spending is – assuming the economy is growing – a form of austerity in that it implies that spending is falling as a proportion of national income. The implication for ‘unprotected departments’ (those other than aid, NHS and education) is a 5% real terms cut under the SNP, a 0.2% cut under the LibDems, and a 6% increase under Labour. 
It may seem counterintuitive that an original SNP commitment to raise departmental spending by 0.5% per year results in departmental spending remaining fixed in real terms in the IFS analysis. This result arises because of the specifics of the pledge: it turns out that the detail of the SNP pledge is to spend additional resources equivalent to a 0.5% per annum real increase in DEL spending, but not to be constrained to spend this additional resource on departmental spending specifically. As footnote 32 of the IFS report helpfully points out ‘we have corresponded with the SNP to check that our interpretation of their pledge [on spending], and thus the figures shown outlined in this briefing note, are correct.’
The differences between Labour and the SNP largely therefore seem to boil down to a different balance between departmental spending and social security spending increases. The plans of both parties are equivalent to a reduction in borrowing of 3.6% of national income, (although Labour’s tightening is complete by 2018/19, one year prior to the SNP’s). Ironically, the SNP plans would imply a lower grant to the Scottish Government than the Labour plans, given that the Barnett-determined block grant to Scotland is calculated on the basis of departmental spending.
Of course there is some uncertainty around all these numbers, as no party has fully spelt out all its policy targets and commitments. But it seems difficult for the SNP to argue that it is proposing a radically different approach to the public finances on the basis of these figures. The SNP might argue that it would be happy to borrow more than the IFS analysis assumes, but it did not commit to do so in its manifesto (and indeed, the tax and spending plans it does commit to in the manifesto, imply otherwise).  
In summary, and as noted by the IFS, the SNP’s ‘stated plans do not necessarily match their anti-austerity rhetoric’. However, the SNP has successfully entrenched itself in the public eye as the anti-austerity party, and it remains to be seen how responsive public attitudes are to these rather dry analyses. 

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David Eiser's picture
post by David Eiser
Fraser of Allander Institute
24th April 2015

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