An additional £300 million to increase National Insurance is unacceptable

Scottish Chancellor of the Exchequer Shona Robison has warned that a £300 million increase in UK government funding is “simply not good enough” and will not cover a planned increase in employers’ national insurance contributions.

Treasury officials in London are said to have told their counterparts in Edinburgh that they would need to receive between £295m and £330m extra to pay for extra public sector staff costs.

A British government source told BBC Scotland News that “hundreds of millions of pounds” are going to Holyrood.

However, Robison said more than £500 million would be needed to cover the staff costs of those directly employed in the public sector, rising to £750 million if indirect workers such as those in childcare, colleges or social care are included.

She told BBC Scotland News: “This cannot stand.

“The UK Treasury will need to rethink this to ensure that Scotland’s public services are fully funded by employers’ National Insurance contributions, and we will be taking the Treasury very seriously on this issue.”

It is believed that the UK government used the Barnett formula – designed to give the devolved nations a proportionate share of spending in England – to reach the figure of £300 million.

However, Robison described that total as “unacceptable” and “very low” based on the Scottish Government projections using the same formula.

“We cannot have a situation where the British Labor government is on the one hand providing resources through (Barnett) consequential damages, but on the other hand taking resources away by not fully funding employers’ national insurance contributions,” she said.

The SNP had raised concerns that they could fall short because Scotland has a larger public sector compared to Britain as a whole.

The Chancellor said it should be seen as a positive that Scotland employs proportionately more teachers, nurses and police officers and should not be “punished” for this.

She has called on the UK government for clarity on the amount of compensation it will receive ahead of the Scottish budget, which will be announced next Wednesday.

Chancellor Rachel Reeves announced the change to National Insurance in the UK budget last month to boost funding for public services.

Reeves said Scotland would receive £3.4 billion in additional funding over 2025-26 as she set out its tax and spending plans – although this did not include National Insurance compensation.

The UK government source said the extra £300m would mean the Scottish Government had “no more excuses”.

They added: “Scots expect results from the SNP and will use this money to cut NHS waiting times and increase performance in our schools – not fill a budget black hole left by years of financial mismanagement and waste.”

The Scottish Government will also receive a further £1.5 billion for this financial year, 2024-25, although it says this is in line with its budget expectations.

National insurance contributions are the UK’s second largest income stream after income tax.

It is paid by employees and the self-employed on the basis of earnings and profits, and by employers in addition to the wages they pay.

This obviously applies to public sector employees working for the Scottish Government.

Around 600,000 people are employed in Scotland’s public sector, representing 22% of the total workforce – compared to around 17% in Britain as a whole.

That fueled concerns at Holyrood that Scotland would be left wanting if the compensation for the increase in national insurance was not proportionate to the public sector.

A Scottish Government spokesperson stressed that the Scottish Parliament had agreed in a vote last week that the UK Government should cover the cost of the change – “in excess of £500 million”.

They said: “These UK Government policies risk hampering economic growth and damaging public services, and although discussions with the Treasury are ongoing, we still have no certainty about Scotland’s budget.”

The Fraser of Allander Institute, an economics research unit at the University of Strathclyde, also estimates that the Scottish Government will be short of around £500 million as a result of the tax changes.

Chief executive Mairi Spowage said: “You could say that the larger public sector in Scotland, the fact that it is better paid, is more or less down to the decisions of the Scottish Government.”

But she warned it would be “difficult” for SNP ministers to cover a £200 million deficit.

Spowage added: “It will certainly be a challenge to incorporate that into other parts of the budget.”

Scottish Labor leader Anas Sarwar stressed that the Scottish Government will get an extra £1.5 billion in this year’s budget, and £3.4 billion in the 2025-2026 period.

He told BBC Scotland News: “Only an SNP government could pretend that £5 billion more money means £200 million less money.

“I think people would honestly laugh when confronted with a government trying to make such ridiculous claims.”

Scottish Conservative leader Russell Findlay described the increase in national insurance as ‘catastrophic’ and ‘counterproductive’.

He said it was “absolutely right” for the British government to offer compensation.

“It is now incumbent on the SNP government to ensure this is passed on,” he said.

“But that will protect the public sector affected by the rise of the NI, but what it won’t do is protect the private sector.”