28th September 2026
When the Chancellor increased employer National Insurance, it was presented primarily as a tax on employers.
But in Scotland, there is another side to the story.
The public sector is one of the country's biggest employers, and National Insurance has added hundreds of millions of pounds to the cost of providing public services.
That means the impact is not confined to private businesses.
It reaches councils, NHS boards, schools, social care providers and the many organisations that deliver services on behalf of the public sector.
And ultimately, it becomes a question about what taxpayers get for the money available.
A very large bill
The Scottish Government estimated that the changes to employer National Insurance would add around £535 million to the cost of directly employing staff across Scotland's devolved public sector.
That included an estimated £240 million for local government and £191 million for NHS boards.
But the wider cost is greater.
When organisations delivering public services through contracts are included, the Scottish Government has previously estimated the overall impact at more than £700 million, with later estimates putting the wider cost at around £750 million.
This is important because public services are not delivered entirely by people directly employed by governments.
A council employs its own staff, but it also buys services.
An NHS board employs doctors, nurses and other staff, but it also buys goods and services from outside organisations.
Social care provides an even clearer example. Much of the care is delivered by organisations outside direct council employment, but those organisations employ people too.
And those employees are subject to the same employer National Insurance system.
The money has to come from somewhere
The Scottish Government received £339 million of Barnett consequentials relating to the employer National Insurance increase.
But its own accounts show that this was not enough to cover the estimated cost, leaving a funding gap of more than £400 million. The Scottish Government says it has committed to centrally funding 60% of the anticipated pressure for directly employed staff, with the remaining shortfall having to be managed within existing budgets.
Its 2026-27 Budget puts the continuing pressure at approximately £400 million a year, or £1.6 billion over four years.
That is a remarkable amount of money.
It is money that cannot simply be spent twice.
If an NHS board has to spend more on employment costs, that money cannot simultaneously be spent on reducing waiting lists, maintaining buildings, buying equipment or providing another service.
If a council has to spend more on its workforce, the money cannot also be spent on roads, libraries, social care, housing or other priorities.
The Scottish Government has described this as a pressure on its budget. Others may take a different view about how the funding should have been calculated, but the underlying arithmetic is straightforward: higher employment costs require additional funding or savings elsewhere.
And then there is the supply chain
This is where National Insurance becomes even more interesting.
Imagine a council contracts a company to provide a service.
That company employs 50 people.
Its employer National Insurance bill rises.
The company has three broad choices. It can absorb the additional cost, reduce costs elsewhere or increase the price it charges the council.
If it increases its price, the council has to find the additional money.
The same principle applies to NHS contracts.
And the contractor itself may have suppliers.
A catering company buys food.
A transport company buys vehicles and maintenance.
A cleaning company buys equipment and supplies.
A care provider may use accountants, IT companies, maintenance firms and transport services.
All of these businesses have employment costs.
So the original tax can become embedded in the cost of delivering a public service.
It is not that National Insurance is literally charged repeatedly on the same transaction.
Rather, the higher cost of employing people can become part of the price at several stages of the supply chain.
Scotland is particularly exposed
The scale of public-sector employment in Scotland makes this especially significant.
There were around 551,500 people employed in Scotland's devolved public sector in December 2025, with the NHS and local government accounting for the largest parts.
The public-sector pay bill is consequently enormous.
The Scottish Government estimates the devolved public-sector pay bill, including local government, at around £27.3 billion in 2024-25.
A relatively small change in the cost of employing hundreds of thousands of people can therefore produce a very large financial number.
And that is before considering the people working for private and voluntary organisations that provide services funded by the public sector.
What does this mean in Caithness?
For Caithness, this is not simply a debate taking place in Edinburgh or Westminster.
NHS Highland is a major employer and purchaser of services.
Highland Council is a major employer and contracts for a wide range of goods and services.
Care homes and care-at-home providers employ large numbers of people.
Local businesses supply public bodies with everything from building work and transport to maintenance, catering and professional services.
When employment costs rise, the effect can therefore spread through the local economy.
The question eventually becomes very simple:
If the cost of providing a service rises but the budget does not rise by the same amount, where does the difference come from?
It has to come from somewhere.
Perhaps a service becomes more efficient.
Perhaps another service is reduced.
Perhaps investment is delayed.
Perhaps a contractor accepts a lower margin.
Perhaps prices rise.
Or perhaps the Government provides additional funding.
There is no magic sixth option.
The bigger question for the Chancellor[/b]
This brings us back to the wider argument about employer National Insurance.
For a private company, the additional cost can affect prices, profits, investment and employment.
For a public body, it can affect the cost of delivering services.
For a contractor, it can affect the price of a public contract.
And for the taxpayer, it can mean that more money is required to deliver the same service.
That is why the National Insurance debate is about considerably more than the tax bill faced by individual employers.
It is also about the cost of government itself.
The Chancellor has to raise money to pay for public services.
But if raising that money increases the cost of providing those same services, the Government needs to take that into account when considering the overall economic effect.
For Scotland, the figures suggest that the issue is already substantial.
Around £400 million a year is now being identified by the Scottish Government as an unfunded pressure resulting from the employer National Insurance increase.
Whatever view one takes of the tax itself, that is money which has to be found somewhere.
And ultimately the £400 million question is not simply who pays National Insurance?
It is:
Who pays for the higher cost of providing public services after National Insurance has been paid?