SNP plans ‘ignore economic hit from leaving UK’ – Daily Business

SNP leader John Swinney’s insistence that independence would improve Scotland’s prospects ignores the potential hit to economic growth from leaving the UK, says a leading think tank.

The SNP’s general election manifesto, which Mr Swinney launched yesterday, sets out what the party calls a “progressive alternative to the Labour-Conservative consensus on cuts to public spending.”

It explicitly argues for a new fiscal approach to will oppose the spending cuts which the next government is likely to impose.

“It is through independence therefore that we believe we can build the fairer country and the more prosperous economy we know is possible,” said Mr Swinney.

“Not independence for its own sake – independence for the powers to protect our NHS and to help people through tough times. Independence for a stronger economy, and happier, healthier lives. And independence for a better future for Scotland – made in Scotland – for Scotland.”

He urged those thinking of voting Labour to “be careful what you wish for”, saying Labour will continue with austerity measures.

However, David Phillips, an associate director at the Institute for Fiscal Studies, says the party’s plan for pulling out of the union does not face up to the big fiscal challenges an independent Scotland would face.

“The SNP manifesto calls for UK-wide spending plans to be topped up. This is to avoid the need to cut spending on unprotected areas, and to increase spending on, in particular, the NHS, working-age benefits, overseas aid and green investment,” said Mr Philips in an assessment of the SNP’s general election manifesto.

“They argue that the cost of this could be met by UK-wide tax rises, additional economic growth from the UK rejoining the EU in the coming parliament, and additional borrowing.

“However, in its call for Scottish independence, the SNP ignores the potential hit to economic growth from leaving the UK, and the big fiscal challenges an independent Scotland would immediately have to confront.”

The SNP says an additional £18 billion is required for ‘unprotected’ UK government departmental budgets by 2028-29, to prevent real-terms cuts. This is within the £10bn to £20bn that the IFS has previously warned such departments would need to avoid cuts under existing spending totals. 

Mr Philips notes that the SNP wants a significant rise in spending on the NHS by the UK government which would generate an extra £1.6bn for the Scottish Government to invest in health services.

“But because some of the increases in spending in the rest of the UK would be funded by income tax rises that wouldn’t apply in Scotland, the Scottish Government’s own funding would not increase by as much as the SNP appears to assume,” he says.

The SNP also wants the next UK government to cancel the real-terms cuts to capital investment planned by the Chancellor, Jeremy Hunt, and immediately invest at least £28 billion a year in the green economy.

It wants a £20bn boost to the benefit system, plus annual uplifts in support for housing costs and the abolition of the two-child limit in universal credit.

Mr Philips says: “To help fund all this, the SNP propose a range of tax rises at the UK level. The biggest would be big income tax increases for higher-income individuals to match Scotland’s system, raising an estimated £16.5 billion in 2028-29.

“This would see income tax for someone in England, Wales and Northern Ireland earning £50,000 a year rise by £1,600, while those earning £125,000 would see an increase of £5,200.

“By far the biggest revenue-raiser, though, is the proposal that the UK rejoin the EU. The SNP assumes that the resulting boost to economic growth would increase revenues by £30 billion a year. In the seemingly unlikely event that the UK did rejoin the EU within the next parliament, this would not be an unreasonably high figure for the eventual boost to revenues.”

However, Mr Philips says that on their own figures the SNP proposals “would involve higher borrowing and public sector net debt rising as a share of national income for longer.”

The SNP has called for significant further tax devolution to Scotland – including full powers over income tax, as well as the devolution of National Insurance, VAT and the power to levy windfall taxes on ‘excess’ profits.

Mr Philips says that devolving income tax on savings and dividends, as well as National Insurance contributions is a “sensible idea”, although it would add complexity for some taxpayers and the tax authorities.

“VAT is a particularly tricky tax to devolve, potentially creating trade barriers between Scotland and the rest of the UK, with reforms to VAT in Scotland also complicating the system.”