£25m tax hike
for force

Row erupts between the UK and Scottish governments over police funding

By 1919 staff

£25m tax hike for force

Row erupts between the UK and Scottish governments over police funding

By 1919 staff

Police Scotland is facing a £25 million bill for a looming hike in employer National Insurance contributions.

The Scottish Government has claimed that “anything short of full funding” from Westminster will have a “damaging impact” on public services such as policing.

Writing in this month’s edition of 1919, Chief Constable Jo Farrell has also warned that the “crucial issue of additional National Insurance costs must be addressed”.

But the UK Government has pointed out there will be a top-up through the ‘Barnett formula’ for National Insurance contributions (NICs), as well as a record overall budget.

The row stems from the UK budget unveiled by Chancellor Rachel Reeves (pictured above) in the autumn, which will raise employer NICs to 15 per cent from April 2025 – generating nearly £24 billion for the Treasury.

The tax hike applies to all employers, but the Treasury has put aside £4.7 billion to compensate public sector organisations.

Holyrood’s share of this has been calculated at between £295 million and £330 million under the Barnett formula, the Treasury mechanism used to determine how much the devolved nations should receive due to Westminster spending decisions.

But the SNP government claims the total extra bill for Scotland’s public sector will actually be around £550 million – leaving a massive black hole.

That is because the size of the public sector as a proportion of the workforce north of the border is considerably higher than in England.

“The crucial issue of additional National Insurance costs must be addressed”

Chief Constable Jo Farrell

For Police Scotland, the bill for the tax increase has been calculated at £25.3 million, while it is £6 million for prison staff and £5 million for the fire and rescue service.

When the Scottish Government’s draft spending plans for 2025/26 were unveiled in December, the Chief Constable said: “It remains vital [that] additional £25.3 million National Insurance costs are fully funded.”

Writing for this magazine, she added: “We’ll monitor progress on the budget closely and the crucial issue of additional National Insurance costs must be addressed.

“However, the proposals allow us to progress our plans and maintain a maximum of 16,600 officers in the year ahead.”

The total policing budget from the Scottish Government has been set at £1.621 billion, which is up £69.5 million (4.48 per cent) on 2024/25.

That means the force is in line for a spending increase in cash terms, even when the tax bill is taken into account.

The bulk of this is for day-to-day revenue spending, up by £56.5 million from £1.419 billion to £1.476 billion.

Capital spending for equipment and buildings has also increased significantly in percentage terms from £64.6 million to £75 million – up £10.4 million.

This has been made possible because Reeves handed Holyrood a record settlement, giving ministers an extra £3.4 billion to spend.

A UK Government spokesperson said: “The [UK] budget delivered more money than ever before for Scottish public services and the Scottish Government receives over 20 per cent more funding per person than equivalent UK Government spending.

“It is for the Scottish Government to allocate this across its own public sector and meet the priorities of people in Scotland.

“It will also receive additional Barnett funding on top of this record £47.7 billion settlement as part of support provided in relation to changes to employer National Insurance.”

A spokesperson for the Scottish Government said: “The Finance Secretary [Shona Robison] has urged the Chancellor for full funding of the additional costs of employer National Insurance contributions faced by the full range of organisations delivering public services in Scotland, including public bodies such as Police Scotland.

“Anything short of full funding would have a damaging impact on the delivery of public services, to the detriment of our communities, which is why ministers are urging the UK Government to fully fund this tax increase.”

The draft Scottish budget will be scrutinised in Holyrood in the coming weeks.

Scottish Labour has signalled it will abstain in the vote, meaning the SNP minority administration should be able to get its spending plans passed.

 

Read more from Jo Farrell 

Analysis: behind the numbers

By Alan Roden

Scotland’s public sector makes up more than 22 per cent of the country’s workforce.

That is significantly higher than the UK-wide figure of just 17.5 per cent.

Yet, as Scotland’s chief economist confirmed last year, public sector productivity north of the border has been “broadly flat” for two decades now.

And when calculated as GVA (gross valued added) per person, the annual growth rate of 0.27 per cent since 1998 among the state workforce compares to 1.04 across the wider economy.

So there is no evidence that a larger public sector has led to a stronger economy.

The average worker isn’t likely to care about such macroeconomics; what matters more is their pay packet. And public sector staff not only earn more than their counterparts in the private sector, but the median pay in Scotland is around £1,500 higher than across the UK.

A series of more generous agreements has ensured that SNP ministers can make boasts such as Scottish police officers being the highest paid in the UK.

However, one of the consequences of building a larger and better-paid workforce has been demonstrated in the row which has erupted about employer National Insurance contributions (NICs).

Scotland’s share of the Treasury’s compensation pot for the Chancellor’s tax hike is likely to fall at least £200 million short of what is needed to fully offset the increase.

And that could leave Scotland’s public bodies – notably Police Scotland – with a larger tax bill, with a knock-on impact on the services they deliver (although the force is in line for an extra £70 million in funding overall, so will still be better off this coming year regardless).

It is, as the UK Government has pointed out, in the Scottish Government’s gift to prevent this.

Finance Secretary Shona Robison has received the largest settlement from Westminster in real terms in the history of devolution – and how she spends the billions in extra cash is up to her.

There is also an argument that it was the SNP’s choice to build such a large public sector in the first place, and agree to the higher pay deals than in other parts of the UK.

But SNP ministers can argue back that increasing employer NICs was not their decision, so why should they have to fix a problem created by a Labour Chancellor?

Labour, meanwhile, can point the finger at the Tories, claiming the new government has been saddled with a £22 billion black hole in the country’s finances.

When the post-referendum deal to deliver more Holyrood powers was enacted in 2016, there was a naïve hope that it would lead to greater financial accountability.

If ministers grow the economy they have more to spend, and if they fail then there are consequences – just as there are for governments around the world.

But Scottish politics isn’t as simple as that. The blame game continues.

So if Police Scotland ends up with a £25 million tax bill next year, is it the consequence of the SNP’s decision to build such a large public sector workforce over two decades, the new Labour Chancellor’s fault for imposing an unexpected tax rise, or are the Tories to blame for mismanaging the UK’s finances since 2010?

Choose your politics and take your pick.