The Scottish government is set to receive an additional £300 million in compensation to cover the impact of the UK government’s planned increase in employer National Insurance (NI) contributions. This is in response to concerns that the tax rise, announced in last month’s UK Budget, would significantly strain public sector budgets in Scotland.
Treasury officials reportedly informed their counterparts in Edinburgh last week that the compensation would be in the range of £295 million to £330 million. However, the Scottish government has estimated the actual cost to be closer to £500 million, due to the significant portion of public sector employees in Scotland. Public sector workers account for 22% of Scotland’s workforce, compared to 17% in the UK as a whole. This increase in NI contributions will affect the public sector employees, further fueling concerns in Edinburgh about the adequacy of the proposed compensation.
Despite the disagreement over the figures, a UK government source confirmed that the Scottish government will receive additional funds, bringing the total extra spending capacity for Holyrood to more than £5 billion as a result of the UK Budget. The source emphasized that this additional funding should be used wisely, including to reduce NHS waiting times and improve education outcomes. They also indicated that there would be no excuse for the Scottish government not to deliver on these priorities.
Chancellor Rachel Reeves had previously announced that Scotland would receive £3.4 billion in additional funding for the financial year 2025-26. However, she indicated that this amount did not account for compensation for the National Insurance increase, urging Holyrood ministers to be prudent in their spending. The Treasury has since confirmed that extra funding will be provided to cover the additional staff costs due to the NI hike.
The Scottish government also stands to receive an additional £1.5 billion for the 2024-25 financial year, which is in line with the expectations set in its budget. However, concerns remain about how these changes will affect Scotland’s public services, and Finance Secretary Shona Robison has urged the UK Treasury to provide clearer guidelines on how the mitigation process will work.
Robison expressed particular concern earlier this month, stating that the £500 million hit to services from the employer NI hike could have a detrimental effect, and that confusion was growing in Scotland due to the lack of clarity from the Treasury. She called for a reimbursement mechanism to be put in place to ensure that Scotland’s public services are not short-changed due to the tax increase.
A spokesperson for the Scottish government reiterated that the Scottish Parliament had agreed that the UK government should reimburse the cost of the National Insurance rise, which they estimate at over £500 million. They also warned that without proper mitigation, the tax change could harm economic growth and public services in Scotland. Discussions with the Treasury are ongoing, but the Scottish government has expressed frustration at the lack of certainty ahead of the Scottish Budget.