THE SNPS 7.6 BILLION BOMBSHELL FOR SCOTLAND

FULL FISCAL

AUSTERITY

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Contents Introduction .......................................................................................................................................... 3

The SNPs plans for full fiscal autonomy ......................................................................................... 4

What these plans will leave Scotland with according to independent experts ........................... 5

Scottish Labour has a better plan ................................................................................................... 10

The challenge for Nicola Sturgeon to come clean ....................................................................... 11

A note on methodology Wherever possible, our analysis has been charitable to the SNP. We have used their own definitions and descriptions of their plans. Our sources consist of: official Scottish Government documents, UK Government documents, research and analysis by independent experts such as the Institute for Fiscal Studies and the National Institute for Economic and Social Research, and statements and announcements by the SNP.

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Introduction

A vote for the SNP is a vote for austerity for three reasons:

1) The SNP do not back Scottish Labours fully funded plan for social justice;

2) The SNP are planning deep cuts to public spending in Scotland;

3) A vote for the SNP is a vote for more austerity, because a vote for the SNP makes it more likely David Cameron stays in Downing Street.

This document will focus on the second reason: under the SNP Scotland would be worse off.

They claim to be the anti-austerity party, but the truth is very different. Their policy for full fiscal autonomy may be a nice advertising slogan but it masks a nasty reality: there is a 7.6 billion black hole in their plans a bombshell of cuts which would be hugely damaging.

The SNP are offering Scotland full fiscal austerity.

This analysis of their plans reveals the true implication of what the SNP are offering:

A bombshell of 7.6 billion of spending cuts and tax rises for Scotland. A 12 per cent cut in all Scottish spending, including pensions and benefits. A threat to the future of the State Pension in Scotland.

Their extreme plans give the lie to SNP claims that they are standing up for Scotland. Just as the Tories have extreme plans for cuts after the election so do the SNP. If implemented they would have a hugely damaging impact on living standards and public services, including Scottish schools and the Scottish NHS.

Scottish Labour opposes this SNP austerity by the back door, just as we oppose Tory austerity by the front door.

Scottish Labour will take a balanced approach not Tory and SNP austerity but an approach which will balance the books in a fair way through fairer choices on tax and, crucially, through an economic plan that delivers the rising living standards needed to boost tax revenues and protect vital public services.

We already knew that only Scottish Labour can prevent another Conservative Government. Now we know that only Scottish Labour can prevent the austerity offered by both the Tories and the SNP.

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The SNPs plans for full fiscal autonomy

The SNP policy of full fiscal autonomy would lead to Scotland being left with a black hole of 7.6 billion of spending cuts and tax rises. This would mean a 12 per cent cut in all Scottish spending, including pensions and benefits.

These cuts are over and above any Tory plans to reduce the deficit in the next parliament.

On 10 October 2014, Nicola Sturgeon published proposals to the Smith Commission from the Scottish Government for more powers for the Scottish Parliament. The proposals include:

Full fiscal responsibility for the Scottish Parliament: all tax revenues should be retained in Scotland. The Scottish Parliament should have policy responsibility for all taxes unless there is a specific reason for a continued reservation.

More Powers for the Scottish Parliament: Scottish Government Proposals, October 2014, p.2

http://www.gov.scot/Publications/2014/10/2806/downloads

Since then the SNP have opposed the findings of the Smith Commission and renewed their push for full fiscal autonomy. On 7 December 2014, Alex Salmond launched his campaign to return to the House of Commons with a promise to fight for fiscal autonomy. Salmond said:

"Firstly, the Smith Commission has now reported, and as we suspected, has not lived up to what was promised. This is not fiscal autonomy.

STV, 'Impossible to stand on sidelines': Salmond to run to be MP, 7 December 2014

http://news.stv.tv/scotland-decides/302585-alex-salmond-says-he-will-step-up-the-plate-and-stand-as-mp/

It is now clear that the SNPs key platform in this general election is full fiscal autonomy. Their campaign has made clear that their policy is for Scotland to have full control over its taxes and spending. On 25 January 2015, Nicola Sturgeon said on the Andrew Marr Show:

Well I want full fiscal autonomy for the Scottish government. I want us to be responsible for raising our own revenues and deciding how those revenues are spent.

The Andrew Marr Show Interview: Nicola Sturgeon MSP, First Minister of Scotland, 25 January 2015

http://news.bbc.co.uk/1/shared/bsp/hi/pdfs/25011502.pdf

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This week, in the Scottish leaders debate, Nicola Sturgeon made clear that she would seek to impose full fiscal autonomy on Scotland immediately if given the chance:

Sturgeon: As Scotlands voice in the next House of Commons if the SNP is there in numbers well be arguing for as many powers to come to Scotland as quickly as possible.

James Cook: Just on the specific point of what you call full fiscal autonomy, when do you want that to come?

Sturgeon: I would like it as quickly as the other parties agree to give it. Youd probably better ask them when theyre going to support it.

Murphy: Would you vote for it, would your MPs vote for it next year, for full fiscal autonomy?

Sturgeon: Yes, I would vote for it, would you support it?

Murphy: No, I wouldnt. Absolutely not.

BBC Scottish leaders debate, 8 April 2015

What these plans will leave Scotland with according to independent experts

Scotlands deficit

Scotland has a large deficit. The SNP Government have failed to understand this because they have consistently over-estimated oil prices and the North Sea Oil revenues resulting from them.

The OBR have revised down revenue forecasts as the oil price fell. SNP have refused to. They have now promised a revised oil and gas bulletin, but they havent said when and a fair conclusion would be they are waiting until after the election.

The SNP are now out by a factor of 10 in their projections. How wrong do they have to be before they change their mind?

Over 5 years, OBR projections for oil and gas revenue are over 10 billion less than the SNPs most pessimistic projections, and almost 30 billion less than the SNPs preferred projection.

But now the scale of the problem is clear. Independent analysis published last month by the Institute for Fiscal Studies has revealed the true extent of Scotlands deficit.

The IFS analysis of the latest figures from the Scottish Governments own annual Government Expenditure and Revenues Scotland (GERS) show that this year (2015-16) Scotland will have a budget deficit of 8.6% of Scottish GDP.

This is more than twice the size of the UK deficit of 4% of GDP.

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As the independent Institute for Fiscal Studies has made clear:

This reflects the fact that disproportionately high oil revenues in Scotland are not sufficient to pay for higher public spending in Scotland.

Institute for Fiscal Studies, Scotlands fiscal position improves in 201314 but this is set to stall as oil price falls bite, 11 March 2015

http://www.ifs.org.uk/publications/7637

The IFS have also made clear that this means for Scotland a gap of 7.6 billion:

Scotlands projected deficit in 201516 is now 4.6% of GDP higher than that for the UK as a whole. In cash terms this is equivalent to a gap of 7.6 billion.

Institute for Fiscal Studies, Scotlands fiscal position: an update in light of the OBRs March Forecasts, 19 March 2015

http://www.ifs.org.uk/publications/7652

But even before the fall in oil prices, Scotland had a large deficit. The latest figures for 2013-14 from GERS show again that Scotland ran a deficit which was higher than the UKs.

The leading independent expert on Scotlands public finances, Professor Brian Ashcroft has commented on the scale of the latest GERS gap in 2013-14:

The absolute size of Scotland's estimated net fiscal deficit in 2013-14, at a time when oil prices - the principal driver of oil revenues - were almost twice as high as they are now, was 12.4 billion. This means that if Scotland had 'enjoyed' full-fiscal autonomy (FFA) in 2013-14 the Scottish Government would have had to fund that deficit by a mix of borrowing, higher taxes and lower public spending.

http://www.scottisheconomywatch.com/brian-ashcrofts-scottish/2015/03/what-gers-2013-14-tells-us.html

Historic analysis of GERS shows that since 1990, Scotland has only been in surplus for one year and in deficit for 23 out of 24 years.

What would Full Fiscal Autonomy mean: The SNPs plan for 7.6 billion of cuts

At the moment, the Barnett formula and being part of the UK ensures that spending in Scotland is 1,200 higher per person than it is across the UK.

This formula makes sure that Scotland gets its fair share of taxes which are raised across the UK.

Full fiscal autonomy means that Scotland would no longer benefit from these taxes which are raised across the UK. The Block Grant would no longer exist and Scotland instead would need to pay for the entirety of its spending out of tax revenues raised in Scotland.

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To plug the gap of 7.6 billion which the IFS have identified Scotland would be left with, the SNP will have to make cuts of 7.6 billion to spending in Scotland. Only this can bring Scotlands deficit in line with the UKs.

The IFS have confirmed the scale of the cuts which the SNP would need to make under their plans. The Director of the IFS, Paul Johnson said:

Every individual in Scotland pays about the same in tax as every individual in the rest of the UK but the amount thats spent is a lot higher and the difference is around 7bn in terms of the additional difference between tax revenues and spending.

BBC Radio 4, Today, Paul Johnson interview, Thursday 9 April 2015

The IFS have also confirmed that what the end of the Barnett formula would mean for Scotland. 7.6 billion of cuts would be equivalent to cuts of 70 billion in the UK context:

If you moved away from that [the Barnett formula] then you would leave Scotland with a much more substantial fiscal deficit and its worth putting that in context, 7bn in the Scottish context is very substantial indeed, the Scottish economy is roughly speaking a tenth the size of the UK economy, so in the UK context 7bn would translate into about 70bn, so it really is quite a substantial number.

BBC Radio 4, Today, Paul Johnson interview, Thursday 9 April 2015

To give a sense of scale, this is more than twice the size of the Tories spending cuts across the UK so far. Between 2010-11 and 2015-16, total UK spending fell by 29 billion in real terms.

The SNP plan to cut 1 billion from the State Pension in Scotland

As well as losing the block grant and the Barnett formula, the SNP will also end all non-Barnett transfers, such as UK social security and pensions spending in Scotland.

At the moment all Scottish pensioners state pensions are funded by UK taxation. If the SNP have their way, full fiscal autonomy would mean the funds for this entitlement are from Scottish tax. This is because State Pensions are paid for from UK tax revenue, on a pay-as-you-go basis. Scottish taxpayers cannot stop paying for a UK system of pensions and expect English Welsh and Northern Irish pensioners to still pay for Scottish pensions.

Given that Scottish tax revenues do not cover all Scottish spending and there would need to be cuts to spending, the SNPs plans threaten the future of State Pensions in Scotland.

There are already significant pressures on pensions spending in Scotland:

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Spending on pensions is higher in Scotland than the rest of the UK. 1400 per head in Scotland compared to 1300 in the rest of the UK. The pensions of 1 million Scots are guaranteed by the UK welfare system.

As part of the UK, Scotland receives 425 million a year above our population-weighted share in spending on pensions. This figure is set to rise to 700 million a year over the next two decades.

Demographic change and policy commitments by the current Scottish Government would mean that over the next 20 years extra expenditure on pensioners would rise to around 1.4 billion higher per year in todays terms.

Scotlands dependency ratio will rise much faster than the UKs, rising by 40% over the next two decades against 30% across the UK as a whole.

Pensioners currently make up 19.8% of Scotlands population compared to 19.2% in the rest of the UK. By 2032, this gap will have almost doubled. This rapidly ageing population would cost every working age person in Scotland 410 a year.

The SNPs 7.6 billion of cuts pose a grave threat to the State Pension in Scotland.

It would mean that spending on State Pension would be cut by 1 billion. This means Scottish pensioners will on average be 18 worse off a week or 940 a year.

The SNP have been trying to hide their cuts by making unfunded commitments instead. Given the scale of the cuts being planned, these unfunded commitments further threaten the State Pension in Scotland.

The SNP this week promised changes to the pension age:

A guarantee that there should be no further increase in the state pension age in Scotland while life expectancy still lags behind the rest of the UK and Europe.

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http://www.snp.org/media-centre/news/2015/apr/sturgeon-launches-pensioners-plan

These are completely unfunded spending commitments.

These policies would continue under the SNPs plan for full fiscal autonomy within the UK.

The IFS have confirmed the SNPs sums on welfare and pensions spending simply do not add up:

Gemma Tetlow, a senior IFS analyst, said that if that was the case, it still raised significant questions about how much money would be available for everyday budgeting. We know how much they want across total spending relative to the UK governments plans. However, they have also made some new commitments about benefits.

Therefore, unless theyre planning to raise taxes to pay for all these things, that means the money available for government departments will be less than their illustrative numbers would suggest.

The Guardian, SNP fails to account for billions in welfare and pensions pledge, says IFS, 9 April 2015

http://www.theguardian.com/uk-news/2015/apr/09/snp-fails-to-account-for-billions-in-welfare-and-pensions-pledges

The SNPs denials dont stack up

Nicola Sturgeon claims that the Scottish economy could grow to plug this gap without the need for the deep spending cuts that she is planning:

Well, but for more fiscal autonomy is about giving us the power to grow our economy faster, to create more jobs and to grow our revenues, I dont want us to be a position in Scotland where we simply have to sit meekly and accept whatever cuts Westminster throws at us and accepts that deficits are inevitable, the way out of deficit is to grow your economy and the more powers you have over your economy the faster and better you are able achieve that.

Nicola Sturgeon, Good Morning Scotland, Radio Scotland, 31 March 2015

But independent analysis conducted by the Scottish Parliaments Information Centre shows clearly that the SNPs sums dont add up.

Currently, the OBR assumes that the UK will have an average GDP growth rate of around 2.4% between 2015 and 2019.

An economic expansion of 15% in Scotland would be needed to provide an increase in revenue to avoid the SNPs 7.6 billion of cuts. Scotland would therefore need to

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grow by an additional 2.9% a year, more than doubling its growth rate to 5.3% a year for 5 years. This is:

More than double the predicted OBRs UK rate of average GDP growth of around 2.4%.

More than double the IMFs predicted growth for Advanced Economies (2.4%) Higher than the IMF growth rate for Emerging Market and Developing

Economies in 2016 (4.7%)

This is not going to happen because no advanced economy has achieved this from a standing start, and the SNP have no plan to make it happen.

Scottish Labour has a better plan

Unlike the SNP, Scottish Labour will end Tory austerity in Scotland. Tory austerity has hurt the poorest in our society but it has also failed its own test paying off the deficit.

We will not only end Tory austerity. We will take a different approach with a fully-funded plan to safeguard vital public services and deliver social justice in Scotland.

We will not increase borrowing to pay for new measures. Instead we will achieve this plan with fair tax increases for the wealthy across the UK.

We will have a mansion tax on properties over 2 million, a tax on bank bonuses, changes to pension tax relief for the very highest earners and action to tackle tax avoidance too.

These are UK taxes and will mean those with the broadest shoulders paying more. They will mean 800 million of additional spending in Scotland to support young people, education and the NHS:

A bank bonus tax, of which 150 million will help people back to work in Scotland

A mansion tax and tax avoidance measures will support the NHS in all parts of the UK, including 200 million for Scotland

Reforms of corporation tax for Scottish and UK firms and action on false self-employment which will fund 150m in additional funding to Scotland, including the scrapping of the Bedroom Tax

An increase to the Bank Levy which will bring 100 million to Scotland Changes to Pensions Tax relief for the highest earners, which will see at least

200 million of additional funding for Scotland

Scottish Labour will also protect the Barnett formula. Most of the wealthy people paying these taxes will be in London and the South East, but because of the Barnett Formula, Scotland will get its fair share of the new money.

This is money that the Tories would never deliver because they believe in cutting taxes for millionaires.

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This is also money which the SNP do not want for Scotland because they only want money from Scottish taxpayers paying for public services in Scotland.

The challenge for Nicola Sturgeon to come clean

Nicola Sturgeon needs to cut the rhetoric and come clean on her extreme plans for more austerity in Scotland. Her plans mean deep cuts in Scotland which will devastate public services and pensions.

A vote for the SNP is a vote for austerity for three reasons.

1) The SNP do no back Scottish Labours fully funded plan for social justice

The SNP have failed to back Scottish Labours fair tax changes across the UK which means we can have extra investment for the NHS, education and young people, as a result of the Bank Levy, the Bank Bonus Tax, and changes to Pensions Tax relief for the highest earners.

Until they were dragged there kicking and screaming, they even opposed our plan to reverse the Tories tax cut for millionaires.

The SNP voted against the living wage, the SNP cut college places, and the SNP plan to scrap the block grant.

Working people in Scotland should judge the SNP by their record, not their rhetoric.

2) The SNP are planning deep cuts to public spending in Scotland

The SNP do not just want to scrap the Barnett formula. Full fiscal autonomy makes it impossible for Scotland to end Tory austerity.

The SNPs proposals would mean 7.6 billion of spending cuts to Scotland.

This would have a hugely damaging impact on living standards and public services, and mean a cut of 1 billion to the State Pension in Scotland.

When Nicola Sturgeon made her speech in London she made great play of opposing austerity and calling for more spending. But the extra austerity that would be required if Alex Salmond and Nicola Sturgeon get their way and fiscal autonomy is imposed on Scotland would swamp any benefit from an increase in spending.

Quite simply Nicola Sturgeons numbers dont add up and if they got their way the SNP plans would mean more, not less austerity, with a 12 per cent cut in all Scottish spending, including pensions and benefits.

Scottish Labour will produce new analysis in the next few days and weeks setting out not just what the SNPs plan for cuts means for State Pensions in Scotland, but also what will be the impact on public services across different areas, particularly Scottish schools and the Scottish NHS.

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3) A vote for the SNP is a vote for more austerity is because a vote for the SNP makes it more likely David Cameron stays in Downing Street

This is the choice Scottish voters face: Every vote in this election for the SNP that might allow the Tories to be the largest party is a vote for Tory austerity to continue.

Based on what has happened in this Parliament more than 1.5 billion per year will be cut from the Scottish Government grant in the coming years under the extreme Tory austerity plans.

Reproduced from electronic media, promoted by Brian Roy, Scottish General Secretary, on behalf of the Scottish Labour Party both at 290 Bath Street, Glasgow, G2 4RE.