Treasury to give Scotland £300m as tax hike compensation

The Scottish government should receive an extra £300m to cover the planned increase to employer National Insurance contributions, the BBC has learned.

Last week, Treasury officials are said to have told their counterparts in Edinburgh that they should receive in the range of between £295m and £330m extra – though the Scottish government has said the tax hike would cost them £500m.

The chancellor announced the change in the UK Budget last month to boost public service funding.

A UK government source has now told the BBC there is “hundreds of millions of pounds” heading to Holyrood.

They said: “In total Holyrood will have more than £5bn extra to spend as a result of the UK budget.

“There are no more excuses, Scots expect delivery from the SNP and to use this money to reduce NHS waiting times and raise attainment in our schools, not fill in a budget black hole created by years of financial mismanagement and waste.”

Chancellor Rachel Reeves said Scotland will receive £3.4bn in additional funding in 2025-26 when she laid out her Budget plans – though she suggested this did not include compensation for National Insurance as she urged Holyrood ministers to spend the money “wisely”.

The UK government said that extra funds would be provided on top of the £3.4bn to make up for the extra staff costs.

The Scottish government is also set to receive an additional £1.5bn for this financial year, 2024-25 – though it said this was in line with its budget expectations.

National Insurance contributions are the UK’s second-largest revenue stream behind income tax.

It is paid by workers and the self-employed on earnings and profits, and by employers on top of the wages they pay out.

This, of course, affects public sector employees who work for the Scottish government.

About 600,000 people are employed in Scotland’s public sector, making up 22% of the total workforce – compared to about 17% in the UK as a whole.

That has fuelled concerns at Holyrood that Scotland could be short changed if compensation for the National Insurance increase is not proportional to its public sector.

The Scottish Finance Secretary Shona Robison had urged the Treasury to provide what she called “clarity” on how any mitigation might work.

Speaking earlier this month, Ms Robison said: “The UK government’s employer National Insurance hike could hamper services in Scotland to the tune of around £500m – and the more we look at this announcement, the more concerned we are by it.

“With the Treasury failing to provide clarity about any mitigation process at the time of the budget’s publication, services across Scotland are feeling growing confusion and alarm at the very time where they need to be able to plan ahead.”

A Scottish government spokesperson said the Scottish Parliament had agreed the UK government should reimburse the cost of the change – “over £500m”.

They said: “This UK government policy risks hampering economic growth and damaging public services and whilst discussions with the Treasury are ongoing, we still do not have certainty ahead of the Scottish budget.”