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The Scottish Conservatives manifesto - an initial response from IFS researchers

Observation

The Scottish Conservatives offer extra spending on the NHS and a range of targeted measures – but an ambition to cut income tax looks unlikely to be realised without cuts to at least some services.

The Scottish Conservatives’ manifesto contains a range of pledges that would expand service provision for/and or boost income for a number of groups in Scotland. This includes a doubling of the Scottish child payment, an expansion of free childcare and universal free lunches and breakfasts for primary school aged children, as well as increases in the generosity of carer’s allowance.

The Conservatives’ health spending pledge is at least as generous as the SNP’s, despite the headline figure they cite being lower than that cited by the SNP. This is because the Conservatives’ £2 billion figure relates to 2025-26, the last full year of the coming parliament, while the SNP’s refers to the following year, 2026-27 (which is mostly in the next parliament). Importantly, though, an extra £2 billion would not be sufficient to deliver on the Conservatives’ promise of a ‘double lock’ for the Scottish NHS. We estimate that the total increase required by 2025-26 would be at least £2.6 billion, and closer to £3 billion if NHS spending in England continues to increase in line with recent trends - which both the Conservatives and the SNP pledge they would match. In other words, given likely continued growth in NHS spending in England, spending on the NHS in Scotland is likely to grow by more than either the headline Conservative or SNP numbers suggest.

The Scottish Conservatives say more on tax than the SNP - with welcome reductions to land and buildings transactions tax and reforms of small business rates relief proposed. The funding environment may mean that an ambition to cut income tax to slightly below the levels of the rest of the UK may need to remain just that: an ambition.

Alongside the manifesto, a costing document has been provided, which is to be welcomed. However, as well as under-estimating the cost of the NHS double lock, the cost of a rigid funding guarantee for local government, and any cost of cutting income tax, are omitted. While the precise details of the first of this is to be agreed with councils, and the cuts to income tax are an ambition rather than a firm commitment, their omission means that will actually be less headroom against the overall funding increase than the policy costings document suggests. Indeed, as with the SNP, the Conservatives’ plans could necessitate cuts to some non-priority areas.

Ben Zaranko, a research economist at the IFS who works on public spending, said

“The Scottish Conservatives’ manifesto reflects the seeming consensus in Scottish politics on a range of issues - increases to carer’s allowance, doubling the Scottish child payment, universal free school meals for primary school aged children, and more generous childcare, to name a few.

The Conservatives’ NHS spending pledge of £2 billion extra by 2025-26 is at least as generous as the SNP’s, despite the headline figure they cite being lower than that cited by the SNP. Importantly, though, an extra £2 billion would not be sufficient to deliver on the Conservatives’ promise of a ‘double lock’ for the Scottish NHS. We estimate that the total increase required by 2025-26 would be at least £2.6 billion, and closer to £3 billion if NHS spending in England continues to increase in line with recent trends - which both the Conservatives and the SNP pledge they would match. In other words, given likely continued growth in NHS spending in England, spending on the NHS in Scotland is likely to grow by more than either the headline Conservative or SNP numbers suggest.

Alongside other commitments, including a funding guarantee for councils, this increase in NHS spending means that without a substantial increase in UK government funding, the ambition to cut income tax to slightly below the levels in the rest of the UK may have to remain only an ambition.”  

Health and social care spending

By far the largest policy commitment in the Scottish Conservatives’ manifesto is the promise of an extra £2 billion for the NHS by 2025-26. On the face of it, this is similar to, but slightly more generous than, what was promised last week by the SNP (who promised an extra £2.5 billion by the following year, 2026-27). The Scottish Conservatives’ NHS funding plans are underpinned by a promise of a ‘double lock’, guaranteeing NHS budget increases of 2% more than inflation, or the Barnett consequentials from increases in funding for the NHS in England: whichever is highest. Crucially, the £2 billion included in the manifesto and associated costing document would not be enough to deliver on this pledge. This is because the Conservatives’ reported spending totals are based on increases of inflation (CPI) plus 2%. But this is almost certain to be the lower of the two, because of the large planned increases in NHS England spending over the next few years. To deliver on the ‘double lock’, spending on the Scottish NHS in 2023-24 would need to be some £500 million higher than what is set out in the manifesto. By 2025-26, the total increase would need to be at least £2.6 billion, rather than the £2 billion promised in the manifesto, and possibly as much as £3 billion if funding for NHS England continues to grow at a similar rate to the recent past. Meeting that additional cost would eat into the available fiscal headroom that appears to exist in the Scottish Conservatives’ plans.

The manifesto contains little on social care, and nothing in the way of additional funding specifically allocated for that purpose. However, the pledge to ensure that Scottish councils receive a set percentage of the total Scottish Government budget means that councils should see cash-terms increases in grant funding of around 4% each year. Based on recent trends we would expect social care to see a larger percentage increase than this, and other council services a smaller percentage increase. There is little promised in the way of wider reform − a clear point of difference with the SNP and Scottish Labour, both of whom have promised a National Care Service and the abolition of all non-residential charges.

Local government

Funding for Scottish councils has fallen relative to the overall Scottish Government’s budget over the last ten years, although not to the same extent as in England. The proposal to guarantee a fixed share of overall Scottish Government funding for local government would prevent a further fall. It may therefore be welcomed by councils - although that may depend on the extent to which new responsibilities (like extensions to free school meals and wraparound childcare) have to be funded from within this share.

There is a case for providing more generous funding to local government but this rigid funding rule is not a sensible mechanism. For example, suppose that - as is likely - the UK government decides to top-up NHS funding in England. The Conservatives ‘double lock’ proposed for health spending would mean that any consequentials had to be passed on to the Scottish health service. But the funding guarantee for Scottish councils would require them also to receive their share of the increase in the Scottish Government’s budget to maintain their share of overall funding. This would mean funding for non-NHS non-local government services has to be cut - because part of the Barnett consequentials have in effect been promised twice.

Avoiding such rigid rules does not preclude placing a higher priority on funding for local government. And it would be possible to set (cautious) multi-year settlements to provide councils with a guaranteed minimum funding level - that could be topped up down the line.   

Childcare

The Scottish Conservatives’ manifesto promises a wrap-around childcare system with five hours a week of free childcare for children in Primary 1-3. As opposed to the SNP’s plans for a wrap-around childcare system, under the Conservatives’ manifesto all families (not just the most disadvantaged) would receive these hours free of charge. This suggests that the SNP’s plan would cover more hours and potentially more children (though their manifesto did not specify which year groups would be included). But the Conservative plan would target support based only on age, not income or work status. The party costs the programme at about £1,000 per child. This offer would offer significant savings to parents of young school-aged children, but five funded hours a week will only meet part of the childcare needs of many families, especially where all adults work full-time.

Education and free school meals

The Conservative manifesto, like last week’s SNP manifesto, promises to make breakfasts and school lunches free to all children in Primary school and in special schools. And, like the SNP, they would make this provision available year-round for all primary pupils and for those eligible for means-tested free school meals in secondary school. These policies can support children’s health and development, and all pupils currently eligible for free school meals could benefit from the offer on breakfasts and school holiday provision. But it is worth reiterating that the biggest winners from a policy of universalising something that was previously means-tested will, by definition, be children who are not in the poorest families.

The Conservative party would also recruit an additional 3,000 teachers (versus the SNP, which promises 3,500 new staff split between teachers and teaching assistants). In either case, these promises will build on an education system that is already far better funded than in England, with per-pupil spending of over £7,000 in 2019-20, compared with less than £6,000 in England. This higher level of per-pupil funding is also reflected in smaller class sizes in Scotland going into this election: while the average English infant class had 27 pupils in 2019-20, the average Primary 1-3 class in Scotland had just over 23 pupils in the same year. For older primary school students, the numbers were 28 and 26 pupils for England and Scotland respectively.

Taxes

The Scottish Conservatives aspire to cut income tax for the higher-income half of Scottish income tax payers (the highest-income quarter of all Scots) – 1.2 million individuals – leaving it slightly lower than in the rest of the UK for all taxpayers. But this is not a firm commitment. It would cost around £400 million a year, and the Conservatives say they will only do this ‘when we can afford to do so’ and ‘in the event that tax revenue outstrips public spending demands’. They would seek to do it ‘by the end of the parliament’, but it is hard to see how this could be achieved given existing commitments - on the NHS, schools, local government and other taxes - without cuts to at least some areas of public spending.

The Conservatives are more definite about cutting business rates - but only temporarily. They propose a freeze in 2022-23 (at a cost of £72 million) and a further 25% discount in that year for the retail, hospitality and leisure sector in 2022-23 (costing £181 million). These would presumably be welcomed by the businesses that would benefit, but the Conservatives have not found money for these reductions to last beyond next year. From 2023-24 onwards, the only definite change proposed from what is currently planned is to remove ‘cliff edges’ in Scotland’s system of small business rates relief. Currently, properties with an estimated (2017) market rental value of below £15,000 are not liable for business rates; liability then jumps from zero to £3,675 for properties with a value just £1 higher, and it jumps sharply again (from £4,410 to £8,820) at rateable value of £18,000. The Scottish Conservatives propose to replace these sudden jumps with a gradual phase-in of bills as rateable value increases from £15,000 to £20,000. This gradual phase-in is the way relief for small businesses already works in England and Wales, and would be a much more sensible system for Scotland to adopt. But in the long term we could see much more radical reform: the Conservatives propose a wholesale review of the business rates system before the end of the parliament, to be informed by the ongoing review in England. It remains to be seen what the outcome of such a review might be.

The main permanent tax commitment in the manifesto is to increase the threshold for land and buildings transaction tax (LBTT) to £250,000, taking all purchases below that level out of tax and reducing the tax on purchases above that level by up to £2,100 (less for first-time buyers and non-residential properties, which are already subject to less tax below £250,000). LBTT is a particularly damaging tax, and any such reduction would make the tax system more efficient. But the tax cut will increase property prices, mainly benefiting existing owners rather than new buyers.

It is disappointing that the Conservatives oppose revaluing council tax during the next parliament. Council tax valuations are ridiculously already 30 years out of date; they will be 35 years out of date by the next election – and even more by the time any subsequent revaluation actually happened. There is no excuse for continuing such an absurd policy.

Benefits

Like all other major parties in Scotland the Scottish Conservatives propose to double Scottish child payments by the end of the parliament. This would cost about £180 million a year, and would equate to a giveaway averaging about £60 per year (0.2% of income) across all Scottish households. The gains would be highly concentrated among low-income households, peaking at £180 per year on average (1.1% of income) for the second-lowest income decile group. Campaigners have estimated that this would lift a further 20,000 children out of relative income poverty but would not be enough to meet Scotland’s child poverty targets, unless there were increases in parental employment or wages.

The Scottish Conservatives propose a new benefit top-up for veterans in receipt of universal credit, costing £8 million a year. They also propose to spend £80 million a year on increasing carer’s allowance: extending entitlement to 6 months after bereavement and replacing the current ‘cliff-edge’ means test, which sees entitlement lost entirely if earnings exceed £128 per week, with a taper that gradually reduces entitlements as earnings increase. Removing the cliff edge would be economically sensible - making it easier financially to combine caring with paid work and ending the situation whereby claimants can be made worse off by earning slightly more - though it would make the means test for carer’s allowance more complicated. 

More on this topic

Press release
IFS researchers will be presenting a summary of their Scottish election analysis at 10am today at an online event in collaboration with the University of Glasgow and funded by the Scottish Policy Foundation. This press release highlights their key conclusions.
Observation
Scottish Labour set out a vision for big expansion of the welfare state - with no sense of how much this would eventually cost or how it would be paid for