The Truth about the IFS
WHAT THE IFS REALLY SAID ABOUT THE SNP MANIFESTO
THIS week the anti-SNP media (including Aunty BBC) has been simply drooling over a purported critique of the SNP’s General Election manifesto spending plans by the Institute for Fiscal Studies (IFS). The Institute had already branded the Labour manifesto plans as unworkable without bigger (hidden) tax rises. Now it was the SNP’s turn.
We should note that IFS ‘analysis’ of the SNP is not a formal Institute paper but a short, rather puffy article in the virulently anti-Nat Scotsman newspaper, written by David Phillips. He is an Associate Director at the IFS and part of his on-going research is funded by… er, the Department for International Development. Just saying in case you think the IFS is without strings.
The headlines and spin attracted by the Phillips’ article thundered (to quote the BBC take): “SNP pledges ‘could mean more austerity’ – IFS”.
The Boris-loving Daily Telegraph was even more explicit: “Nicola Sturgeon ‘humiliated’ as IFS says SNP manifesto means more austerity for independent Scotland than under Tories”. Just note the clear implication that this supposed ‘austerity’ would apply in an independent Scotland.
Even the pro-Corbyn Morning Star got in on the act, saying: “SNP’s manifesto promises would make austerity worse, says IFS”. It wasn’t clear why the Star accepted that spending more money leads to austerity.
Here’s the truth: the original IFS article in The Scotsman did not refer to the fiscal situation in an independent Scotland run by the SNP. Rightly or wrongly, David Phillips’ article was about the proposals the SNP wanted a UK government (presumably led by Corbyn) to implement.
As Phillips’ records, these pan-UK spending plans 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…
[Note the sneering editorial comments by Phillips when referring to “compensation” for WASPI women (more a case of social justice) or “increases to the generosity of universal credit (UC is anything but generous, even if you increase it). Note also that the IFS party line is to criticise all universal benefits, as opposed to means-tested ones, on the grounds they are inefficient at ‘targeting’ need. Hence the implicit attack on ending the bedroom tax.]
Phillips records other, all-UK spending proposals in the SNP GE19 manifesto:
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. 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.
There you have it. The SNP manifesto refers to spending proposals set out as bargaining chips to force a Corbyn government further to the left. In fact, Labour’s supposed ‘radical’ agenda (if implemented) merely takes UK public spending as a share of GDP up to make normal European social democracies. Worthy but hardly revolutionary. Fortunately, a Corbyn administration would have the SNP nudging it further leftwards. No wonder the media kept quiet.
On taxation, the SNP manifesto – unlike Labour manifesto – sets out a list of tax-cutting measures. These includes reducing VAT on e-books, bikes, solar panels, and energy efficiency measures – again applied at a UK level. It also says that National Insurance thresholds should “fit devolved income tax rates”. Decoded, this means job-creating cuts to National Insurance.
Phillips gets a bit agitated that the SNP has not costed these tax cuts in detail. other parties do and the SNP’s own manifestos did in 2015 and 2017. But he explains this seeming omission merely reflects “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”.
Well said! The SNP manifesto lays out a more generalised vision of a fairer, social democratic Britain. As the IFS pointed out, the Labour manifesto actually avoids raising welfare spending, to remove the attacks on working class living standards resulting from a decade of austerity. Instead Labour concentrates on the usual ‘productivist’ agenda of expanding investment and GDP growth. But the SNP would force a Corbyn administration to increase welfare spending and the social wage immediately.
Actually, I think the IFS bean counters are correct to say that a properly social democratic Britain (or indy Scotland) will have to raise the percentage tax take out of National Income. But we need to pave the way for that by first boosting living standards, the NHS and pensions to give ordinary folk a stake in the economy to defend.
WHAT FISCAL RULES IN INDY SCOTLAND?
However, the Phillips’ article does have something to say about indy Scotland. In fact, it spends much more time on this than on GE19. For the IFS has become a devotee of Andrew Wilson’s Growth Commission report as a tool to ‘discipline’ SNP spending and borrowing after independence (the better to reassure the City).
In his article, Phillips reminds us that the main Growth Report fiscal rule is to hold any growth in public spending to 1 percentage point below growth in the overall economy (the rest going to pay down the supposed deficit. So if GDP grew by 1.5 per cent per annum, total public spending could grow by only 0.5 per cent.
But as Phillip rightly contends: “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.”
Phillips is also correct to draw unpleasant comparisons between the Growth Commission and – wait for it – future Tory spending plans. Chancellor Javid currently projects a modest increase in spending by around 1.8 per cent a year, which is a tad higher than forecast economic growth. But the Andrew Wilson Growth Commission rule would slash the increase in spending to less than 0.8 points per annum – less if GDP growth stalls (which it might post-Brexit, given that England would still be Scotland’s biggest external market after independence).
Philipps concludes that if post-indy Scotland sticks to the fiscal rules of the Growth Commission report then “in the short-term at least, independence would likely necessitate more not less austerity”.
This is a reasonable conclusion. Except, of course, that the SNP’s GE19 manifesto runs a coach and horses through Andrew Wilson’s fiscal conservatism. In short, the GE19 manifesto tears up the Growth Commission rules – without saying so. In fact, the SNP manifesto demands a Corbyn government borrow and spend in a fashion diametrically opposed to the Growth Report strictures (which, admittedly, are bonkers).
So, actually, the SNP GE19 manifesto says exactly the opposite of all those ‘austerity’ headlines. The manifesto advocates the very opposite of austerity – unless (of course) the party sticks with the fiscal conservatism of the Growth Report, which is the aim of the IFS. You have been warned.
Here is a quote from Phillips which (unaccountably) did not get quoted by the anti-SNP media:
“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.”