Meeting of the Parliament 20 November 2024
I agree with Alex Cole-Hamilton about the impact that the changes will have. This morning at Leith surgery, I heard the exact point that he was referencing about lower-paid workers being brought into that category, which will have a disproportionate impact on those who employ lower-paid workers. The point that he makes is absolutely right, which is why I hope that we can count on the support of the Liberal Democrats for our motion at decision time.
The decision to increase employer national insurance contributions will increase the direct costs that are faced by the Scottish public sector by well in excess of £500 million in 2025-26—costs that could not be foreseen prior to the budget just a few weeks ago. In the days that followed the announcement, it was evident that neither the chancellor nor her colleagues seemed to understand the impact of the decision, with the chancellor saying one thing and the Chief Secretary to the Treasury saying another. We heard that the costs had been reimbursed and also that the costs had not yet been reimbursed. At one point, the chief secretary claimed that many primary and social care providers would benefit from the more generous employment allowance introduced by the budget, but the employment allowance is not available to any contractor that does more than half their work in the public sector.
Now, just two weeks before our budget, we still do not know how much funding we will receive. In fact, we will not get formal confirmation until after the coming budget process has been concluded—perhaps as late as May.
Today, the Scottish Government has published its estimates of the direct costs to the Scottish public sector from that change, looking across our health and social care services, education providers, the third sector and others. We have shared those costs with the Treasury and have asked it for urgent clarification on the level of compensation that Scotland will receive. If the chancellor does not fund that in full and instead relies on the Barnett formula, it could be that, with costs of more than £500 million, at best £380 million would be forthcoming. Depending on what is reimbursed, that could be a cost to services of around £140 million to £200 million. If the reimbursement is less than £380 million, that will put the Scottish budget in an extremely difficult position.