The £200m Scottish Budget headache as SNP ministers short on options to plug National Insurance gap

But this is well short of the £500m Scottish ministers say they need to cover the increases to employer National Insurance contributions.

Scottish councils alone have asked for £265m, with an extra £85m associated with adult social care, which clearly they will not be getting.

With just over a week to go until Finance Secretary Shona Robison sets out her Budget for 2025/26, it is not a great start.

Firstly, a quick recap. In the UK Autumn Budget, Chancellor Rachel Reeves increased employer National Insurance contributions to 15 per cent, which will raise around £25 billion.

The decision sparked widespread concerns in Holyrood about how the Scottish Government would pay for this, particularly as the public sector north of the Border is bigger than it is in the rest of the UK.

There are around 600,000 people employed in the public sector in Scotland, which is around 22 per cent. The figure is only 17 per cent in the rest of the UK.

The £500m estimate from the Scottish Government includes £191m for the NHS, £37m for Police Scotland, the Scottish Fire and Rescue Service and the Scottish Prison Service, and £265m for local government and teachers.

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It does not, however, include the £45m needed for universities, the £20m requested for colleges, the £40m for NHS contractors such as GPs, dentists and pharmacists, and £84m for adult social care.

Understandably, this has fuelled concerns Scotland will be short changed by the compensation to fund the tax hike, particularly as public sector pay costs the Scottish Government around half its resource budget every single year.

The Fraser of Allander Institute seems to think this could end up being the case, claiming Scottish ministers would need to come up with an extra £200m.

The UK Treasury says the Scottish Government should receive between £295m and £330m to cover the National Insurance tax hike, but this figure matches what is going to be spent in England and Wales, as opposed to taking into account the fact there are more public sector workers north of the Border.

Given all the cuts in public spending over the past few months, this is a tall order. It also just gives the SNP an easy opening to attack the UK Labour government.

The new Labour government in Westminster has spent much time talking about resetting the relationship between the UK and Scottish governments. We can expect that mantra to be pretty much dead in the water when Ms Robison sets out her Budget next week.

For years now the SNP have used their Budget to attack the Conservatives in Westminster. And with the discrepancy between how much they want and how much they are getting here, expect that to continue with Labour.

There are already warnings about just how dire this Budget could be if the tax hike compensation is £200m short.

Health Secretary Neil Gray posted on X: “If this transpires, [it] will leave us hundreds of millions short of the £500m cost for directly employed public services.

“[It] means Scottish public services will be paying the UK Treasury for [a] UK tax rise. [It] also doesn’t cover contractors - GPs, pharmacists, social care and the third sector. So damaging.”

So expect to see more cuts to public spending, and for Scottish ministers to point the finger at the Labour benches in the House of Commons.

If we are to believe the warnings from both the Scottish Government and the Fraser of Allander Institute, the public should be braced for difficult decisions in this Budget. Ministers will have to pick and choose what gets prioritised to make sure the £200m bill for public sector taxes is covered.

It is likely the NHS will be at the top of the pile for spending, and you will be hard pressed to find someone who will disagree. NHS waiting lists have reached record levels, and around one in seven Scots are stuck on these never-ending backlogs.

Scottish Labour will certainly agree. In fact, only minutes before the Chancellor set out her UK Budget, two Scottish Labour MPs brought up funding for the NHS in the House of Commons.

The other portfolio likely to get a look in here is the housing budget. In the 2024/25 Scottish Budget, housing was one of the hardest hit departments, with funding for affordable housing being decimated.

At the time, the finance secretary said any extra money would be spent there and she should be held to account on this claim.

But when it comes to other departments, it looks as if none will be spared from the butchering block.

However, there probably will not be much sympathy from opposition parties when the SNP inevitably launches its attacks on Westminster next week.

An extra £3.4bn is coming Holyrood’s way in 2025/26, on top of the £300m for the National Insurance tax rises. The UK government says “there are no more excuses” and it was a political decision for the SNP to create a bigger public sector north of the Border.

Put simply, this is the price of devolution.

If there are any further complaints, the UK government will merely say it is enough money by its calculations, and probably point to a recent report by the Scottish Fiscal Commission suggesting that much of the SNP Government’s financial woes are due to their own mismanagement.

Regardless the employer National Insurance contribution row will continue, and probably feature heavily in the finance secretary’s assessment on the state of the public finances next week.