Employers National Insurance Increase - Arguments Hot Up Over Public Sector Employees

26th November 2024

Mairi Spowage, the Director of the Fraser of Allander Institute has written about The impact of employer national insurance rise on the public sector in Scotland.

Ever since Budget day, there has been an ongoing conversation about the largest tax rise announced by the Chancellor on 30th October. Many sectors of the economy have been calculating the cost of this employer national insurance increase, in many cases warning about the impact this may have on the sustainability of their organisations and perhaps limiting their ability to create new jobs or offer pay increases.

As a reminder, the Chancellor increased both the rate of employer NICS (from 13.8% to 15%) and lowered the threshold at which employers have to start paying NICs from £9,100 to £5,000. IT depends on the level of pay, of course, but for the vast majority of workers the threshold change will have a bigger impact than the rate change.

From the public sector point of view, the UK Government said they would compensate public sector employers "for higher tax costs due to the measure" through higher budgets. It was confirmed by the Treasury on the day of the budget that compensation for the devolved administrations for these increased costs would be in addition to the uplifts in funding already announced. What has not been clear is how the amount of compensation was going to be worked out.

There are a few different ways that this could be approached.

Read the full article HERE

Reference is made to a BBC article published on 25 November 2024 and that article can be found HERE
Scottish Finance Secretary Shona Robison has warned a £300m increase in UK government funding is "simply not good enough" and will not cover a planned rise in employer National Insurance contributions.

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

A UK government source told BBC Scotland News there is "hundreds of millions of pounds" heading to Holyrood.

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

The Scottish Budget
Finance Secretary Shona Robison will announce her plans for income tax, welfare benefits and more in the Scottish Budget.
Her proposals will be set out in a speech to the Scottish Parliament on 4 December 2024.
The speech is expected to start shortly before 15:00 and last for about 30 minutes. It will be broadcast live on the BBC Scotland News website.

This year, the Scottish government cut £500m from its spending plans to fund higher than expected public sector pay deals, with ministers also citing inflation.

For the coming year the UK government says it will provide a block grant of £47.7bn, external, an increase of £3.4bn on 2024-25.

Economists at the Fraser of Allander Institute says that is "likely to make the Scottish government's job of balancing its budget significantly easier".