What Do The UK Announcements Mean For Scotland, Wales And Northern Ireland?

7th September 2021

From the Institute For Fiscal Studies Today (7 September 2021)

The short-term increases in NICs and longer-term new health and social care levy will apply in Scotland, Wales and Northern Ireland, as well as England, contributing around £1.9 billion a year to the £14 billion a year raised across the UK. The devolved governments will also receive additional funding via the Barnett formula as a result of the higher funding for health and social care in England - between £1.7 and £2.1 billion a year over the next 3 years. Together with their share of the UK-wide health spending on things such as vaccines, the UK government estimates that around £2.2 billion a year of spending funded by the tax rises will go to Scotland, Wales and Northern Ireland. The fact that they are set to receive more in funding than their residents pay in tax reflects the fact that earnings in the devolved nations, and particularly Wales and Northern Ireland, are lower than in England.

Scotland, Wales and Northern Ireland operate their own health and - more generous - social care systems. Ordinarily, they would be free to spend any funding they receive via the Barnett formula as they see fit, no matter how it is spent in England. However, the Prime Minister said that "we will direct money raised through the levy to their [i.e. Scotland, Wales and Northern Ireland's] health and social care services".

To do this, the devolved governments will be required to allocate the funding they receive as a result of the levy to the NHS in the same way that they are currently required to allocate funding they receive that is formally from the part of the National Insurance contributions earmarked for the NHS. However, the levy will fund only a small proportion of health and social care spending in the devolved nations - around 6%. This means that the devolved governments could cut how much of their other non-ringfenced funding that they allocate to health and social care if they so wished, to use some of the proceeds of the levy to fund other services or to cut devolved taxes.

The only way the UK government could stop this is if it were to take control of how much of their other funding that the devolved governments allocate to health and social care services. This would be a big change to existing devolution arrangements, significantly reducing the budgetary autonomy of the devolved governments, given that taken together, health and social care amount to more than half of their spending.

David Phillips, an associate director at the IFS said: "The prime minister has said that the funding the devolved governments in Scotland, Wales and Northern Ireland receive as a result of the health and social care levy will be "directed" by the UK government to health and social care services. However, the devolved governments will still be able to control how they allocate their other funding Therefore they could shift some of this to other services if they so wish - which they might do given that their social care systems are currently more generous than that in England. The only way the UK government could ensure the proceeds of the health and social care levy were used in full to fund increased health and social care spending outside England would be to take much greater control of the devolved governments' budgets - something the devolved governments would be fiercely critical of."

Read the full article HERE