Official Report 1017KB pdf
The next item of business is a debate on motion S6M-16488, in the name of Tom Arthur, on employer national insurance contributions.
15:47
While debates in the chamber often reflect differing viewpoints, one fact remains undeniable: the United Kingdom Government’s planned changes to employer national insurance contributions will significantly raise the cost of delivering public services and deal a serious blow to Scotland’s economy.
Those changes were made in the largest tax-raising budget since at least 1993, which imposed a staggering £41 billion burden, with 60 per cent of that coming directly from increased employer national insurance contributions. We have been clear that the chancellor needs to look across the wide range of fiscal levers that are at her disposal in order to support investment in public services.
The UK Government has full control over tax and borrowing powers, and the chancellor had a range of options to raise revenue to fund vital public services in a fair way. Increasing employer national insurance contributions was not one of them. That decision should be reversed. The change to employer national insurance contributions places a higher tax burden on businesses, the public sector and the third sector and is, fundamentally, a tax on jobs that will impact Scotland’s economy.
Given that the minister raised the point about options, if it is not going to be employer national insurance contributions that are raised, what is it to be? Is it personal income tax, personal national insurance contributions or value added tax, or will he reject the £5.2 billion block grant increase that has resulted from that tax measure?
I appreciate that the halcyon days of 4 July might seem rather distant to the Scottish Labour Party now, given where it is standing in the polls. Let me refresh Mr Johnson’s memory and that of his colleagues. The Labour Party stood on a specific manifesto commitment not to raise national insurance.
Those are the choices.
That is the platform it stood on. We were told that Scottish Labour MPs would be at the heart of a UK Labour Government and that there would be no increases to national insurance. That is the simple reality, and Labour should not try to deflect from its own damaging decisions. The consequences of the policy for the economy are stark. [Interruption.]
Minister, please resume your seat for a second. It is always important for the tenor of a debate to set out from the beginning that we do not need sedentary commentary, if Mr Johnson does not mind. I am sure that the minister would be happy to take as many interventions—
On a point of order, Presiding Officer. I apologise for making sedentary interventions, but I point out that pointing at members in a slightly confrontational manner is not necessarily entirely parliamentary either. I seek your guidance on that point.
I was not actually pointing—
I was not talking about you.
Oh, not my pointing—somebody else’s pointing. Well, each of us is required to treat others with courtesy and respect. Having said all that, I think that we can now, I hope, have a good debate.
Please resume, minister.
I will try to restrain myself to a stern look.
As I was saying, the consequences of the policy for the economy are stark. It will create risk, jeopardise jobs, drive up prices and hamper economic growth. The UK Government’s economic impact assessment confirms that the changes will result in lower employment and higher costs for businesses, with more than a million employers across the UK being affected.
At the time of the UK budget, the Office for Budget Responsibility was clear on the economic effects. It said that the changes would not only increase prices in the economy but have
“a persistent negative effect on work incentives and both labour demand and labour supply”.
A recent Scottish business monitor survey found that three quarters of businesses expect the national insurance contribution changes to significantly impact their operations in 2025. The Bank of England’s latest intelligence from this month is that businesses are reporting a material increase in total labour costs, owing to the planned increases in national insurance contributions.
The Resolution Foundation has highlighted that lowering the threshold at which employer national insurance contributions are paid will disproportionately affect lower-paid jobs. That means that sectors such as hospitality, retail and social care—which are already grappling with significant financial pressures—and those with a large number of employees will bear the heaviest costs. The hospitality industry has warned that the changes are unsustainable and will lead to business closures and job losses.
A recent market insight survey by the Scottish Licensed Trade Association reported that 75 per cent of outlets expect new employer national insurance costs to impact their staffing levels, making it even more difficult for businesses to open for their full operating hours, remain competitive and get more people into venues.
The tax hike will compound the challenges that businesses are already facing. Across the UK, employer national insurance contributions account for approximately 15 per cent of all business taxation. With the increase, the tax burden on businesses will reach its highest level in decades, which will undermine Scotland’s confidence and competitiveness in key industries. The tax hike will fundamentally change conditions for businesses and will force many of them to make impossible choices to deal with the higher tax burden. The choice will be to cut jobs, reduce working hours, cut wages or pass the higher costs on to consumers through higher prices. Many businesses will try to absorb the costs but, when they cannot, they will have to consider letting staff go. That is why the policy is a tax on jobs.
The scale of the financial strain risks creating a drag on Scotland’s economic recovery at a time when businesses should be supported to be competitive. Since the UK budget, business optimism has weakened—the British Chambers of Commerce quarterly economic survey shows that business confidence has fallen since the UK budget. The business insights and conditions survey shows that 15.4 per cent of businesses in Scotland reported taxation as a concern in January 2025—the highest rate in the time series. When business confidence is high and uncertainty is low, businesses are more likely to invest. The tax has changed business conditions, forced businesses to review their cost base and will, consequently, deter investment.
We have heard directly from businesses about the challenges that are posed by the rising cost of doing business. We took proactive steps to mitigate those pressures wherever possible using the financial levers that are available to us. Those efforts are being undermined by the UK Government’s decision to increase national insurance contributions.
The lowering of payment thresholds for employer national insurance contributions further compounds the problem, disproportionately affecting small and medium-sized enterprises. The Confederation of British Industry has been unequivocal about the damage that those changes will cause. It states that
“the hike in National Insurance Contributions alongside other increases to the employer cost base will increase the burden on business and hit the ability to invest and ultimately make it more expensive to hire people or give pay rises.”
Other business voices across Scotland are raising the alarm. The Federation of Small Businesses has also warned that the increases will inevitably have a chilling effect on jobs, wages and consumer prices. With small businesses already grappling with high energy costs, supply chain disruptions and inflationary pressures, the tax increase is another blow at the very worst possible time.
The success of our businesses—large and small—underpins our economy. Their ability to grow, create jobs and provide opportunities is what sustains our communities. We cannot and will not tolerate our efforts to support Scottish businesses being consistently undermined by short-sighted decisions that are taken in London. Our approach to economic growth is long-term investment, not short-term tax grabs. We remain committed to fostering a business environment that encourages investment, innovation and expansion. The national insurance changes create uncertainty, making it harder for businesses to plan, recruit and invest in their future. If the UK Government is serious about economic growth, it must reconsider the impact of those decisions before they cause lasting damage to Scotland’s economy.
Scotland’s third sector organisations, which play a critical role in working across communities to tackle social issues, are also being impacted. The Scottish Council for Voluntary Organisations has estimated that the third sector in Scotland will face additional costs of £75 million per year because of the changes to employer national insurance contributions. The First Minister’s letter to the Chancellor of the Exchequer on 3 January, which was supported by a range of voluntary organisations, made clear our serious concern about the impact of the tax change. We called on the UK Government to ensure that our public services, voluntary organisations and communities do not suffer as a result of the change to reserved UK taxation.
Despite the welcome elements of a reset in intergovernmental relations, on this occasion, the UK Government failed to engage with the Scottish Government before implementing the changes, denying us the opportunity to advocate for Scotland’s businesses, third sector and public services. The Cabinet Secretary for Finance and Local Government will raise the issue at the finance interministerial standing committee on 27 February, but we need urgent discussions now, not weeks or months down the line. That failure to engage continues a pattern of unilateral decision making by UK Governments that disregards the realities that are faced by devolved Administrations. If we are to have a genuine partnership, it must be built on mutual respect and engagement.
The tax increase has created avoidable uncertainty for businesses and service providers alike, but the UK Government has refused to engage with us in good faith. We will continue to press the UK Government to reverse the planned increase to employer national insurance contributions and to recognise its damaging implications. We will stand up for Scotland’s businesses, public services and communities, demanding the support that they deserve.
I move,
That the Parliament recognises the significant adverse impacts of the UK Government’s intended changes to employer national insurance contributions (ENICs) on Scotland’s businesses, third sector, public services and wider economy; believes that the impacts are likely to result in higher costs, job losses, increased prices and cause some charities and businesses to close altogether; notes the potential disproportionate impact of the changes on consumer-facing sectors of Scotland’s economy, such as retail, tourism and hospitality businesses, organisations providing social care and third sector organisations commissioned to provide public services; agrees with the significant concerns expressed by 50 organisations in Scotland, including COSLA and the STUC, who, along with the Scottish Government, wrote to the UK Government describing the risk to the vital services that they provide due to these additional costs, and calls on the UK Government to reverse this decision and not raise ENICs as planned in April 2025.
On a point of order, Presiding Officer. I apologise for interrupting the debate but I seek to move a motion without notice under rule 17.2 of standing orders, to make a variation in the standing orders for today only. Rule 13.8.1 states that an urgent question must be submitted by 10 am in order to be taken on that day. I propose to move that deadline for today only, following the vote earlier, which showed that at least 47 MSPs believe that there should be a full statement on the issue of single-sex spaces for public sector workers.
My colleagues have already correctly highlighted the lack of opportunity for this national news story to be debated in Scotland’s Parliament. The 47 MSPs who voted in favour of my colleague Tess White’s amendment included members from different parties, regions and constituencies all over Scotland. That, I believe, highlights the national significance of the issue. Moreover, the vote on the amendment specifically called for a statement today, which underlines the urgent nature and topicality of the issue.
I therefore seek your permission to move a motion without notice proposing that the 10 am deadline be removed for today only, which would allow for an urgent question to be submitted and taken on the issue. If you grant this request, I urge all members to support the motion.
I thank Mr Burnett for his contribution.
I am not minded to agree to a motion without notice at this point in the afternoon to vary the standing orders on the deadline for lodging an urgent question, as the member requests. The Parliament has already considered this issue, and it voted against a revision to the business to add a statement today on the matter to which the member refers.
The member has raised his request after we have commenced the afternoon’s debate; I am minded to allow the debate to continue, as, indeed, the Parliament has voted for it to take place.
Finally, the member will be well aware that there are many other opportunities this week that members may find, if they look, to raise the matter that they wish to raise.
16:01
It is refreshing to follow a Scottish National Party minister who is railing against a tax rise. It is just a pity that SNP members do not rail against their own tax rises.
Let me put on the record what Rachel Reeves said on 28 May last year. She said:
“For the duration of the next parliament there will be no increases in income tax and national insurance”.
However, in her very first budget she did precisely the opposite. She rode a coach and horses through Labour’s manifesto—and, with that, through Scottish Labour’s credibility—with a tax on jobs that will fall on the shoulders of millions of workers.
Now we know that Rachel Reeves does not play fast and loose just with her CV; she plays fast and loose with the electorate, and she plays fast and loose with business. In fact, the only thing that she is economical with is the truth.
It will be firms, workers and growth in the wider UK economy that will pay the price for Labour’s broken-promise budget. Judging by their faces, Scottish Labour members know only too well what impact the decision is having on their electoral prospects. Last summer, Anas Sarwar was all set for Labour’s honeymoon—he was measuring for curtains in Bute house and thought that Labour would coast to victory. He believed that Sir Keir Starmer and Rachel Reeves could walk on water, only to discover that they cannot even swim.
Through its budget, Labour has undermined growth and has put public services at risk by imposing the highest-ever tax increase in a single fiscal event. Far from it being a tax only on employers, the price will be paid by the working people whom Keir Starmer and Rachel Reeves promised to protect. Workers will receive lower wages, fewer people will be employed, more people will be laid off and many more will be offered reduced hours.
That is why business has quite rightly slammed Labour’s decision. People in the hospitality and retail sectors are at risk, and they warn that stores and pubs will close and that prices will rise. In a letter to the Cabinet Secretary for Finance and Local Government, nine retail bodies issued a plea for rates relief to offset the costs of Labour’s tax decisions. They warned that the sheer scale of the tax hike and the short timeframe for implementation would impose a £190 million additional cost burden on Scottish retailers each year. In a survey of chief financial officers in the retail sector, two thirds said that they would raise prices, half said that they would reduce workers’ hours and one third said that they would look at automating more functions.
Sean Cockburn, who is the chair of the Chartered Institute of Taxation’s Scottish technical committee, warned of what he described as a
“sting in the tail for Scottish based businesses”,
some of which have been offering job seekers higher salaries to cover the cost of higher Scottish income tax rates.
As the finance secretary and the business minister have been right to point out, the pain will be felt not only by the private sector. General practitioner services, care homes and educational institutions are all at risk as a result of Labour’s tax on jobs. Scottish councils are being forced to push up council tax further in order to make up for the shortfall. Colleges Scotland has issued a stark warning, noting that funding for colleges has dropped by 17 per cent in real terms since 2021-22 and that “resources are already diminished”. It also said that
“The increase in National Insurance Contributions comes at a time when the skills of college graduates are very much needed to boost economic growth and productivity in vital sectors”,
so the increase in national insurance will also undermine growth and skills.
However, the greatest risk that the increase poses is to the charitable and third sectors. As the minister said, the Scottish Council for Voluntary Organisations estimates that the tax hike could cost the sector about £75 million, amounting to its being
“the straw that breaks the camel’s back”,
as hospices and lifeline services are put at risk.
The Scottish Federation of Housing Associations warns that national insurance increases will result in £15 million in additional costs for registered social landlords in Scotland. The charity Turning Point Scotland, which delivers vital specialist public services, is also sounding alarm bells. Its chief executive, Neil Richardson, notes:
“It is ... confusing and fundamentally unfair that the NHS and general public service is exempt from the Employer National Insurance rise yet we are expected to absorb that cost.”
As our amendment makes clear, the UK Government decision is compounded by a number of bad budget decisions that have been made by the Scottish National Party. As the Institute for Fiscal Studies has warned today, the Scottish public sector is proportionally larger than that of the rest of the UK, and the cost to the taxpayer is heavier. However, the IFS warns that that is not—as the minister has intimated—assisting staff retention in the Scottish public sector, the wages for which now account for 53 per cent of the Government’s entire revenue budget.
The state employs 22 per cent of all Scottish workers, and we should not lose sight of the fact that, on average, they earn more now than people who work in the private sector earn. The Government has made a virtue of that without calculating how it is to be paid for. Perhaps the minister will tell us how he intends to pay for it.
The Government has managed to balance its budget every single year and will continue to do so in the future. Our ability to pay for a larger public sector is well evidenced.
Does Craig Hoy think that it is a bad idea that we have more front-line workers—more doctors, nurses, midwives, police officers and prison officers—in Scotland, and that they get paid more?
I will make two points to the minister. One is that that is to be welcomed, although productivity is not rising off the back of it. However, we also found out last week that there are more senior civil servants and more pen pushers in the Scottish public sector, which the minister has said he would address.
Secondly, there is a statutory obligation to balance the budget, but the SNP Government has done that by forcing councils to go down the route of an uber-austerity drive, which it has imposed on them year after year.
You will have to bring your remarks to a close.
This year, councils are having to contemplate increases that are way above inflation because of ring fencing and the policies of Ivan McKee’s Government.
Undoubtedly, Labour is to blame for the decision to raise national insurance, but the SNP must take responsibility for the consequences of its own choices. As the Parliament prepares to pass the SNP’s budget next week, I remind businesses and workers that there is a different model to the cosy left-wing consensus that is doing so much damage to our economy and competitiveness. We should be looking to reduce the cost of Government, to reverse worrying trends in the size and scale of the social security system in Scotland and to reduce tax on ordinary hard-working people and businesses. Sadly, the Labour Party and the SNP have united to create a big state—a high-tax, low-growth Scotland—in which jobs are lost and businesses go to the wall. When prices rise, it will be increasingly clear that they are both failing to deliver for the people of Scotland.
I move, as an amendment to motion S6M-16488, to insert at end:
“; warns that the increase to ENICs is a tax on jobs that will negatively impact employers and employees; acknowledges that, as a direct consequence of Scottish Government policy, the Scottish public sector is disproportionately exposed to increases in labour costs because the Scottish public sector is proportionately larger than in the rest of the UK and its salary costs impose a heavier burden on taxpayers; considers, therefore, that budget decisions by both the Scottish and UK governments will hurt taxpayers, consumers and workers in Scotland and will negatively impact growth, and supports common-sense Scottish Conservative and Unionist Party proposals for tax cuts to grow Scotland’s economy and give workers and businesses much-needed relief.”
16:09
If we listen to Craig Hoy, it is as though the previous 14 years did not happen. Therefore, I will start where, I hope, there is some agreement with members on the Government benches. The fiscal inheritance that was left by the previous UK Conservative Government was nothing short of a disaster—debt at 100 per cent of gross domestic product, a £20 billion fiscal black hole and record low investment. After 14 years of chaos and division, the public realm was simply crumbling and public services were in urgent need of investment.
It was in that fiscal climate that Labour had to make a series of difficult decisions in the autumn budget, in order to end the era of austerity and provide billions of pounds of investment in public services. That budget included a record-breaking settlement for Scotland, with an additional £5.2 billion both this year and next, which is the largest settlement for the Scottish Government in the history of devolution.
I remind Mr Johnson what the UK Labour Government’s manifesto said in 2024. It said that a UK Labour Government
“will not increase taxes on working people”
and
“will not increase National Insurance”.
How does that tie up with what he has just said?
The manifesto said, “taxes on working people”. The reality of the fiscal context was that there were difficult decisions to be made. This is not a magic bullet for public sector reform but, with one in six Scots on NHS waiting lists and with attainment falling in schools, we need additional public funds—although I also argue that we need reform and that we must modernise delivery of public services.
I am not going to stand here and say that the decisions were easy, because they were difficult. The choices that the Labour Government had to make to fix the foundations of the economy were not cost free. As someone who was an employer before coming to Parliament, I understand the difficulty that the measure will cause for employers who have to make payroll payments every month. I understand that, but the measure was necessary.
I also note that, although larger employers are being asked to contribute more, those who employ five people or fewer will benefit because the increased thresholds will remove altogether 57,000 SMEs from making national insurance contributions.
It is also important to note the international context. The rate of employer contributions puts us absolutely in the middle among countries in the Organisation for Economic Co-operation and Development. In Germany, employer contributions are 50 per cent higher than they are in this country and those in France are double what ours are.
The decision was not easy and was not one that the UK Labour Government wanted to make, but it was necessary—which brings me to the question about what SNP members are proposing as an alternative, because that is not clear. They reject the fiscal measure of increasing employer national insurance payments, but they also voted against the windfall tax and against changes to the loophole for people with non-domiciled status.
What would the SNP do differently? What fiscal measures would it take? This may be where we need to exchange stern looks. What would the SNP do? Would it increase personal income tax? That is not something that I would advise at this time, when people are struggling to make ends meet and to pay their monthly utility bills. Would SNP members increase employee national insurance contributions? That would have exactly the same effect. Would they put up VAT, which is the most regressive form of tax and the one that hits the poorest people hardest?
We have heard no alternatives from the SNP. The only contribution has been from the First Minister, who suggested that the UK Government should raise UK income tax to match levels in Scotland. It seems that the First Minister, who helped to negotiate the fiscal framework, has forgotten how it works. According to the Fraser of Allander Institute, that would reduce the amount of money that would be available to the Scottish Government by £636 million.
The SNP is not only calling for changes to national insurance contributions. In addition, SNP ministers and members have proposed almost £70 billion of additional public expenditure in the lead up to the budget without having a single idea about how to pay for that. There is no spending decision that the SNP is not in favour of, but it is without a single proposal about how it would pay for them. At the general election, the SNP called for an increase in borrowing to pay for additional public expenditure, but without any credible plan for how to deliver that.
There is a parallel with that—Trussonomics. Unplanned borrowing leads to financial chaos and to the instability that members on the Government benches are all too keen to criticise the Conservatives for.
Frankly, SNP members need to inject a little bit more honesty into their arguments. When it comes to passing their budget, they often charge members on the Opposition benches who have come forward with proposals for additional expenditure with saying how they would pay for it. Where would the money come from? What else would they cut? Those are the questions that I pose to them. If they do not want to increase employer national insurance contributions, what would they cut? They do not want to increase tax and, I presume, they do not want to increase borrowing. Are they saying that we should reject the £5.2 billion from the block grant that the measure delivers?
[Made a request to intervene.]
I am in my final minute.
The member is about to conclude.
In my view, honesty is a primary responsibility of the Government. This Government needs to be honest about what it is proposing, but I do not believe that it does that in the motion. The maths is simple: the £5.2 billion is considerably more than the additional costs that it is incurring through the national insurance increase. If it cannot do the maths, maybe the SNP is not fit to be in government, and maybe it should make way for people who are.
I move, as an amendment to motion S6M-16488, to leave out from “recognises” to end and insert:
“welcomes the record £5.2 billion of additional funding for Scotland delivered as a result of the UK Government’s Autumn Budget; agrees with the STUC that the additional positive measures that are set out in the draft Scottish Budget 2025-26 are ‘dependent on UK Government funding’; regrets that the fiscal changes called for by the Scottish Government would significantly reduce the level of funding available to Scotland’s public services; understands that the First Minister has publicly advocated for a cut to Scotland’s budget of £636 million; regrets that the Scottish National Party administration’s failure to grow Scotland’s economy has negatively impacted the level of funding available in the Scottish Budget over many years; understands that decisions around the level of staffing in Scotland’s public services are devolved to the Scottish Government, and calls on the Scottish Government to ensure that the record funding delivered by the UK Government reaches the frontline services that need it most.”
16:15
The legacy of 14 years of a Conservative Government at Westminster that believed that it was possible to cut its way to economic success is an increase in child poverty during that time, with more families struggling to house and feed their kids and keep them warm. At the same time, according to the Equality Trust, the wealthy in the UK increased their wealth, with the very richest pulling even further ahead. The Equality Trust says:
“The richest 100 families in Britain have seen their combined wealth increase by at least £55.5bn since 2010. An average increase in wealth of ... £2 million each per week.”
It also notes:
“Since the financial crash in 2008, the richest 100 families in Britain have seen their combined wealth increase by at least £12.57bn. An average increase in wealth of ... £364,052 per week.”
As Lorna Slater rails against the rich, does she not realise that they are the most portable taxpayers and those who can relocate the easiest?
That is why the Scottish Greens advocate a land value tax as an effective way of taxing wealth that cannot be packed up and moved to another country.
The United Nations report from 2018 says:
“The experience of the United Kingdom, especially since 2010, underscores the conclusion that poverty is a political choice. Austerity could easily have spared the poor, if the political will had existed to do so.”
Step forward the Labour Government that was elected last summer, which, according to Anas Sarwar, was going to end austerity. “Read my lips,” he said. However, instead of setting out a vision for a different future and having the courage of its socialist roots, the Labour Government has shied away from making real change because it is scared to tap into the enormous wealth that our country has generated but that has been hoarded by a few super-rich. The Labour Government, instead of looking seriously at real redistribution of wealth, prefers to continue to allow the filthy rich to get filthy richer—and, indeed, seeks to accelerate that through its focus on removing regulations that protect the environment, communities and workers. It names that ambition “growth”.
Having backed itself into a corner between ending Tory austerity and fear of taxation, the Labour Government has made the poor decision to increase employer national insurance contributions in order to raise funds. I, along with other members of this Parliament, have had an inbox full of messages from organisations that deliver important, front-line services in communities but will have to close their doors as a result of the rise in contributions.
I hear what the member is saying. I presume that she is arguing for a wealth tax, but does she not recognise that there is an in-year financial problem that needs to be addressed? If it is not going to be addressed through national insurance contributions from employers, what is her alternative proposal?
The UK Government has so many more levers than the Scottish Government has—for example, levers to reduce subsidies for the oil and gas sector and the aviation sector. No company in Scotland pays tax on its aviation fuel. There are immediate changes that could be made to the entire structure of the economy that do not require the specific intervention that we are debating. However, I am not clear that the Labour Government has set out any ambitious changes for the long term, either.
The inevitable knock-on effect of adding those employer national insurance contributions to local authority budgets is that the third sector organisations that deliver many public services on behalf of our local authorities will have to close their doors; they will have to reduce staff and reduce the services that they deliver. It is the people in our own communities who will be hurt by that—they will miss out on opportunities for better health, better skills and better inclusion in society.
The whole point of ending austerity is to improve public services, not to further damage them and not to put out of business the organisations that deliver them. If it cannot change course and if it lacks the courage to raise the money through taxation, the UK Labour Government must at the very least ensure that it covers the rise in cost for public services in Scotland, including the third sector organisations that deliver such services.
I know that all the members in the chamber are familiar with the devolution settlement, but for the benefit of people who might be watching, funding for Scottish public services comes substantially from the block grant—the money that is allocated to Scotland from Westminster and that is calculated by the Barnett formula. Scotland, as a devolved nation, has limited revenue-raising powers. Through negotiation with and participation in government, the Scottish Greens have ensured that those powers have been used.
As a result of that work by the Scottish Greens, more than £1 billion has been raised for public services in Scotland. That use of its limited revenue-raising powers sets Scotland apart from England, with the clear intention to pay public sector workers better and to ensure a more robust social safety net for Scottish people. The Scottish child payment is clear evidence of that, as is the higher pay for nurses in Scotland.
I am tired of us being told to eat our cereal while Keir Starmer and his team work to make the rich richer and show a callous disregard for on-the-ground funding of public services. As long as Scotland is merely a devolved nation rather than an independent nation, we will be held back in our ambitions to be a fairer country. We are forced to do what I am doing now, which is to beg the Government at Westminster to use the powers that it has and that we do not to tax the wealthy, to tax land value, to tax major polluters and to please, please, please provide the funding that it will not allow us to raise, so that the people of Scotland do not have to suffer the consequences. That is a humiliating position to be in.
Ms Slater, you need to conclude.
Certainly, Presiding Officer.
It demonstrates that it does not matter whether the Government at Westminster is red or blue—we cannot build a future that the people of Scotland deserve as a devolved nation—
Ms Slater, you are over your time by quite a bit.
We can do it only as an independent country.
Alex Cole-Hamilton will open on behalf of the Scottish Liberal Democrats.
16:23
I am happy to speak for the Liberal Democrats in this important debate. When the ballots were counted in July last year, it was unsurprising that the members on these benches were delighted with the result. We were delighted that it was the best result for Liberals in more than 100 years, trebling our number of seats in Scotland in the process. We were also very pleased to see the back of a Conservative Government that wreaked such havoc during its chaotic time in office. I had hoped that the new UK Labour Government might embark on a course that would move us, however slowly, in a more positive direction. I am disappointed that that has not been the case.
The chancellor promised to deliver growth but has chosen to raise the tax that all but guarantees that growth will remain stifled. The decision to increase employer national insurance contributions is the wrong one. I wonder whether the UK Government is aware of the damage that this could cause. It could result in increased prices and lead to job losses and capital flight, with fewer opportunities right across Scotland’s economy. It could even lead to many businesses and charities being forced to close their doors entirely. Take, for instance, our hospitality sector. Liberal Democrat research has revealed that the Scottish hospitality industry is facing a £369 million tax bombshell over the next five years due to the Government’s increase in employer national insurance contributions. Our data also shows that, in 2025-26, the additional tax burden for hospitality businesses is estimated to be around £71.8 million. That is an astonishing rise. Those local businesses—restaurants, pubs and hotels—are the beating heart of all our communities, and they are raising the alarm about the damage that this decision will likely do to their industry.
The industry has already had to overcome so much in the aftermath of the pandemic, and after years of Conservative economic vandalism and poor growth under the SNP. To get our economy growing, we should be helping our hospitality sector, not hurting it. That is why Scottish Liberal Democrats were absolutely wedded to securing substantial business rates relief for the hospitality sector in this year’s Scottish budget—it was a red line for us. We also want the UK Government to negotiate a youth mobility visa scheme with the European Union so that businesses can recruit the workers who they need to fill those vacancies. We know that such a scheme would be beneficial for exactly those sectors, such as hospitality, that typically employ a younger workforce and have struggled to find those staff since Brexit.
The rise in employer national insurance contributions will hurt not only businesses. GPs in my constituency have told me time and again just how up against it they are, and their patients feel it too. Not long ago, people used to be able to call their GP in the morning and get an appointment at the first time of asking. Nowadays, they will ring again and again, several dozen times, before their call is eventually answered, only to be offered an appointment weeks hence.
The extra national insurance contributions to be paid by employers and GPs mean that many GP practices will now be unable to follow through with their recruitment plans, which would have helped to ease the pressure and helped them to deliver a better service for their patients. GPs are being punished by a flaw at the heart of the rules: they are being treated as private contractors, but because their work is entirely within the public sector, they are not entitled to the employment allowance that would have reduced their national insurance liability by up to £5,000 per year.
It is not just GPs who are stuck between a rock and hard place; other care providers will be forced to make cutbacks, too. Many dental practices are struggling and might, as a result, be forced to reduce what already limited NHS provision they currently offer. That could, in turn, have serious consequences for already sparse patient access. We have talked many times in the chamber about dental deserts, and the NI increase will exacerbate that problem.
We know that the UK Government made no assessment of its tax hike on NHS dentists before making that change. Now that that industry is raising the alarm, the chancellor does not seem to be listening. The UK Government seems intent on pushing ahead with these damaging plans, even though the revenue that it is set to raise will likely be much lower than has been forecast. The Government claims that the rise will raise £25 billion each year, but the Office for Budget Responsibility is absolutely clear that, after employers change their behaviour in response to the tax, as we know that they do—for example, by reducing pay or employment opportunities—and once public sector employers are compensated, the Treasury will be left with revenue that is closer to £10 billion. Those are not my words—that is the calculation by the OBR.
The Government could have offset the need to bring in this rise by reversing the tax cuts that the Conservatives handed down to the big banks. It could have also increased the digital services tax, as the Liberal Democrats committed to do in our manifesto, or introduced a fair reform to capital gains tax so that the 0.1 per cent of ultra-wealthy individuals pay their fair share, as it is high time they did. Instead, the Government is pressing ahead with a regressive tax that will wreak havoc on Scotland’s economy and have a negative effect on people’s living standards, as it will be passed on to employees through salary cuts or reduced employment opportunities.
That is why Liberal Democrats are urging the Government to listen to the alarms that are being raised, do the right thing and scrap the tax before it is too late.
We move to the open debate. I advise members that there is no time in hand and any interventions should therefore be absorbed within the member’s agreed speaking allocation.
16:29
During the election campaign, Labour promised ordinary folk that their taxes would not go up, but, when it came to the crunch, Labour kept its promise to the richest and sacrificed ordinary folk on the altar of Westminster power.
Labour’s election pledge not to increase taxes on working people will go down in infamy as so sleekit that only the morally bankrupt would dare to stand up and defend it. Labour’s national insurance tax hike is a none-too-subtle stealth tax on working folk because, although it does not come out of their pay packet today, it comes out of the pay rise that they will not get tomorrow.
It is not only a stealth tax on wages but a tax on jobs and on work because, unlike with a tax on profits, big business can avoid national insurance simply by getting rid of workers. It is no surprise that half of businesses have said that they will cut jobs, and others have said that they will cut the hours of those who still have a job.
Labour did not need to do that. It could have raised taxes on big business and the wealthy—that is, certainly, what many folk out there thought that Labour stood for in the past.
Big business and millionaire donors, such as Lord Alli, own the Labour Party lock, stock and barrel. Millionaire donor Lord Alli paid for the shirt on Keir Starmer’s back, and some people would say that millionaires and billionaires get what they pay for.
It will surprise no one that it has just been revealed that venture capitalists in limited liability partnerships will not pay employer national insurance at all. It is no wonder that the British Private Equity and Venture Capital Association has welcomed the news of national insurance tax breaks for venture capitalists under Labour, but the other Keir—Keir Hardie—must be spinning in his grave at that new Labour direction.
Labour’s national insurance tax hike is not only a tax on work and jobs but a tax on Scotland herself. Labour is firmly refusing to refund increased employer national insurance for local councils, doctors, dentists and social care organisations.
All in all, £700 million is being drained from Scottish public services and going straight to Rachel Reeves in London. That is millions not getting spent on the NHS, schools, roads and a just transition.
Scottish councils are forced to send Scottish council tax straight to Rachel Reeves in London because of the employer national insurance tax rise. Millions are going straight from the Scottish purse to the chancellor in London. Let us be clear that we are not asking for Westminster’s money—we are asking for our own money back.
16:33
I declare an interest as a practising NHS GP.
We are here to address a critical issue that will have far-reaching consequences for everyone in Scotland—the devastating impact of the Labour Government’s decision to raise employer national insurance contributions and reduce the threshold for those payments.
That decision has serious consequences for Scotland’s health service, social care services and third sector organisations, which many people rely on from conception to grave. Families, children, the elderly, those who live with disabilities and Scots who struggle with addiction all depend on those services.
Let us be absolutely clear that the Labour Government’s tax hike, which is supported by Anas Sarwar and Scottish Labour, is a tax on vulnerable people who rely on those services for their health and wellbeing, even in their final days. It is also a tax on jobs and on hard-working individuals who keep Scotland’s vital services running.
The decision will hurt both employers and employees. As a direct consequence of Labour’s policies, Scotland’s public sector, which is already disproportionately large compared with the rest of the UK, is set to suffer even more. Higher labour costs, higher taxes and a shrinking capacity to deliver essential services will harm our communities. We have all heard the promises from the Labour Party: competence, fairness and prosperity. However, those are just slogans from another well-embellished CV.
Today, we see the harsh reality of Labour’s governance. The hikes to employer national insurance contributions may sound to some like a minor accounting change, but for our healthcare system and charities, and for people who rely on those services, the impact is severe.
Scotland’s third sector organisations, many of which provide essential health and social care services, will face devastating financial consequences. That includes charities such as the Thistle Foundation, which supports people with long-term health conditions and disabilities and which may face an additional £292,000 in costs per year. For a sector that is already operating on a thin margin, that is the difference between maintaining vital services and having to cut back or close entirely. Scottish Care has warned that nearly half of its members are considering cutting services or closing their doors due to increased costs.
The impact is also being felt by small businesses such as community pharmacies, which are often the first point of contact for many patients, particularly in deprived areas of Glasgow, worsening health inequalities.
As a practising NHS GP, I know at first hand that our surgeries are already under intense strain, and the increased national insurance contribution will worsen the financial instability for practices across Scotland. Many practices are struggling to recruit and retain staff, and this tax hike will make that harder, resulting in fewer appointments, longer waiting times and reduced hours. That means that patients will struggle even more to access care, worsening health inequalities.
The ripple effect of the policy is also being felt by Scotland’s dental practices. Many more are now at risk of closure due to the added financial burden from Labour’s tax hike. It will mean fewer people, especially in the most deprived areas, being able to afford dental care, worsening health inequalities.
It is clear that the Labour Government does not care about the consequences of the policy. If it did, it would not have pushed through a tax hike with such a devastating impact on our vital public services. The workers, charities, small businesses and the people who rely on them are not faceless entities; they are real families in our communities, struggling to access care and keep their jobs. Labour’s actions show that it is more interested in soundbites than the people who need those services the most.
I make this intervention with a lot of faith, trust and respect for the member and his contributions in the past. Does he not remember when people had mortgage offers withdrawn? Does he not remember when mortgages went through the roof because of choices made by his Government—the previous UK Government?
Perhaps the member should look at the decisions made by his Labour Government, which are putting health and the third sector at great risk. Perhaps the member should think about the fact that, when the Conservative Government came to power, there was a note saying “there is no money left”—and we halved the deficit. If it were not for Covid, we would be in a much better position than we are now.
Both the SNP and Labour Governments are making decisions that will hurt Scottish taxpayers, consumers and workers, and we are already seeing the impact on economic growth. So, what can we do? We cannot sit back and accept the dismantling of our healthcare services, the reduction of support for vulnerable people and the closure of charities that produce life-saving services. We must stand up for a Scotland where businesses thrive, where healthcare providers can afford to do their jobs and where services that support the most vulnerable among us are protected.
The Scottish Conservatives propose a commonsense solution: tax cuts that will help to grow Scotland’s economy, create jobs and provide much-needed relief to workers and businesses. It is time to stop penalising the very people who are trying to make Scotland a better and healthier place.
Labour may embellish its CVs, but the truth is clear: Labour does not care. In common with the tired and floundering SNP Government, Labour is not working for the people of Scotland.
16:29
We, in Parliament, know that policy making often results in unintended consequences. However, for this UK Government policy, we can be clear not only that the consequences can be predicted but that they have been planned. The UK Government knew that the rise in national insurance contributions would place a direct burden on the workers that it still wants to pretend that it supports.
As any competent economist will tell you, the legal assignment of national insurance contributions—which, in this case, is to employers—is irrelevant to who ends up bearing the cost of them. To be technical for a minute, what matters is the elasticity of labour supply and demand, or how sensitive the decisions of employers and workers are to wage changes and costs. Since firms’ demand for labour is generally more elastic than workers’ supply of labour, that suggests that most of the burden of employer NICs will be shifted on to employees through a drop in wage growth and a loss of jobs.
The member is quite correct—it combines both those aspects; that is why the OECD refers to it as the tax wedge. Will she also acknowledge that, at current levels, we are still competitive with other OECD countries—we are mid-table—when it comes to the tax burden and the tax wedge to which she refers?
I think that the crucial words are “at the moment.” I am setting out clearly how that position will shift as a direct consequence of the policy.
The Labour UK Government has created in its explanation a new concept: the elasticity of truth. It is trying to hoodwink the workers, who, along with the public, will pay. The negative effect of the employer national insurance hike will not happen all at once. The OBR forecasts that workers will bear around 60 per cent initially, rising to 76 per cent in the medium term. Employers, too, will have to find other ways of absorbing the remaining costs.
The immediate reaction of business demonstrated a waning of confidence. As we know, business confidence is critical for growth; a lack of it also leads to a postponement in recruitment and the shelving of investment plans.
There is not only a rise in the employer rate from 13.8 per cent to 15 per cent; there is a huge drop in the earnings level threshold from £9,100 to £5,000. Both of those moves can only limit growth, which is the antithesis of what the UK Government states that it wants. We are not talking about marginal effects, as the Government expects to raise an additional £24.5 billion annually.
We are told that some smaller businesses will benefit from a rise in the employment allowance from £5,000 to £10,500. That is true, and it is very welcome. However, as ever, the devil is in the detail. If someone’s business is doing more than half of its work in the public sector—which, most notably, might be for local councils and NHS services—they are barred from claiming the allowance. That will exclude thousands of Scotland’s small businesses. A very small company with only one director who is the only employee and is liable for secondary class 1 NICs cannot claim either. As we know, there are many such small businesses in every constituency in Scotland.
At the start of my speech, I referenced unintended consequences. It is disappointing that the UK Government knows fine well the consequences and that it has chosen to direct those consequences at employees. Its elasticity with the truth is perhaps no surprise. It is up to us in Scotland to expose the uncomfortable truth and support as best we can businesses and workers alike.
16:43
When I had the opportunity to close the stage 1 debate on the Budget (Scotland) (No 4) Bill on behalf of Scottish Labour, I expressed that a number of things had become clear in the budget process—principally that the UK Labour Government had delivered record investment in the Scottish budget with the largest block grant in the history of devolution, adding £5.2 billion to the Scottish budget. The UK Government made that choice in its budget. It was a choice to bring to an end 14 years of austerity that we had under the Conservatives. It is curious that we are hearing quite a lot of accord between the SNP and the Tories today, but those of us who have been in Scottish politics for a long time should not be surprised by that.
Will the member take an intervention?
If Mr Mason allows me to make some progress, I will come to him.
In the case of the stage 1 debate, it seems that there was, at best, confusion on the SNP benches about whether that record investment was positive, as suggested by the finance secretary and other members on the front bench, or whether it was, “charity” or “handouts”, as advocated by many SNP back benchers. I know that Mr Mason is no longer an SNP back bencher, but I will hear him if he wishes to make a contribution.
The member says that it is a record increase, but would he accept that, in real terms, it is a 0.8 per cent increase in the resource budget? That is not exactly stunning.
As I have said many times, and as has been well established, after 14 years of austerity, putting £5.2 billion into the Scottish budget is significant and has allowed us to look again at public services. That is well documented and was well rehearsed in the budget debate.
There was confusion between those on the front benches and those on the back benches. If we give the Government the benefit of the doubt, instead of listening to the glittering hit list of SNP back benchers, we can assume that the ministers believe that the £5.2 billion investment is a positive thing and is important for Scottish public services. If that is the case, the SNP surely must recognise that revenue-raising measures had to be taken in the UK budget and that they were sought in order to provide the resources for public services.
Yet the motion from the SNP Government says that some of those revenue measures should be cancelled. The SNP is, of course, perfectly entitled to advocate that position, but in doing so, it surely must level with the Parliament and the public and explain what alternative measures it would take to increase revenue. It is clear that the SNP has to either advocate for alternative tax rises, which I do not think we have yet heard happen—we have heard about vague notions of a basket of measures—or propose spending cuts. When challenged in the budget debate on that point, SNP back benchers wholly failed to answer—indeed, they seemed to suggest that independence was the solution. Again, they are perfectly entitled to that constitutional position, but I would gently suggest that, given the complete lack of an economic case for independence, the projected deficit on day 1 of becoming independent country, and the fact that independence would do absolutely nothing to deal with the reality of the here and now in relation to the debate that we are having, I do not really think that it is much of an answer at all.
Perhaps the Government front bench can provide a little more clarity than the back benches, although it, too, has opposed every revenue-raising measure in the UK budget. SNP MPs did not vote for any of them—indeed, they did not turn up to vote on the budget. Perhaps we might have had more clarity from the First Minister, as leader of the Government, but no—he advocated that the UK Government should match his own tax policies. However, the Fraser of Allander Institute published an analysis, just one month ago, showing that doing so would mean Scotland losing £636 million.
If that is the position of the SNP, it must be clear about that. If it is not willing to make tax rises in order to pay for public services, it must say, here and now, what it would cut. Would it be the health service, when we know that one in six Scots are on a waiting list? Would it be the housing budget, when the SNP is trying to correct mistakes that it made in the past in that regard?
As I said already, it is clear that not a single alternative is suggested in the SNP motion because the SNP simply does not have one. Its motion sits alongside the add-on amendment from the Conservatives, which fails to take one iota of responsibility for their 14 years in Government, during which they wrecked the economy—they left a complete mess behind and the new UK Labour Government had to pick up the pieces.
That is what the UK Labour Government is doing, and it is seeking to invest for the people of Scotland.
As I said at the outset of my speech, it is quite telling that there is such synergy and agreement between the SNP and the Conservatives today.
As Daniel Johnson and other colleagues have outlined, decisions in Government are not always easy, but they have to be taken to increase the public finances. Of course, we recognise the challenges that will exist, particularly for many third sector organisations, and we have to continue to work to support them. However, I point out again that, after almost 18 years of an SNP Government, our third sector is on its knees because of repeated failures to increase budgets and invest in multiyear funding so that third sector organisations have the clarity that would enable them to plan for the future.
We will not take any lectures from the SNP or the Tories, who are clearly conspiring today with no alternatives and no solutions. They have lodged their motion and amendment today simply for a political purpose.
On a point of order, Presiding Officer. Could you advise the members who are yet to speak in the debate that the timings were given as four minutes? We have had a number of speakers cut short already.
The position is actually that SNP members have four minutes, as was requested by the party’s business manager, and that most other back benchers will have six minutes, through the normal time management of the debate.
16:50
The people were promised change if they elected a UK Labour Government. However, there has been no change for the better. Keir Starmer’s Government has kept the Tories’ cruel two-child cap, which is pushing more and more children into poverty every single day. It has scrapped winter fuel payments for millions of pensioners, and it has failed to compensate the women against state pension inequality—WASPI—women. The UK Government has also decided to hike employer national insurance contributions, which is a move that will hammer vital public services.
Today, I will talk about the last of those failures. I am clear that the Labour UK Government must fully reimburse any negative impact on public services in Scotland that is caused by an increase in employer national insurance contributions. Labour is trying to spin the move by saying that it will compensate the public sector for the national insurance changes, but the sums do not add up. The estimated cost of the NI hikes to Scotland’s public services is more than £700 million, yet the UK Government is reportedly offering only around £300 million in compensation, which leaves a gaping hole in the budget. The costs include a £265 million charge for local councils and a charge of almost £200 million for our NHS, which is money that those bodies will have to pay to Westminster rather than spend on front-line services.
Social housing will also be affected by the national insurance changes, which it is estimated could cost registered social landlords around £15 million. The Scottish Federation of Housing Associations has said that Labour’s proposals will have a difficult impact on housing associations and co-operatives and, ultimately, on their tenants and/or staff. That could lead to rent rises, which means that Labour’s increase in national insurance will put more pressure on household incomes amid a cost of living crisis.
In recent months, the Social Justice and Social Security Committee has been looking into third sector finances. In evidence, we heard that the third sector is the essential sector, which delivers crucial support to thousands of people across Scotland. Right now, the third sector is looking for more financial clarity, including multiyear funding models, but, instead, the sector is now faced with increasing costs, thanks to the UK Labour Government’s decisions. Before becoming a member of Parliament, I worked for a couple of charities and I know about the pressures of paying staff and dealing with funding, so I am sure that charities would rather not have to deal with this development. The UK Government must ensure that the essential sector is also fully compensated, so that organisations are not faced with difficult choices to balance the books.
The UK Labour Government’s decision to increase employer national insurance contributions has been widely condemned. The public sector, the third sector and businesses are united against the move, which will impact vital services across the country. Organisations that provide public services in Scotland are due to pay a net £400 million to Westminster’s coffers simply as a result of the increase in employer national insurance contributions. That poor Labour decision is likely to increase social rents and divert money from front-line health services. It is a tax on jobs that is an additional barrier to our social care sector. The SNP Government stands with local authorities, the Scottish Trades Union Congress and civic society in calling on the Labour chancellor to fully recover the increased costs for the public sector and the third sector.
Ms Stevenson, you will need to conclude, as you are over your time.
The UK Government must do the right thing to protect essential services.
16:55
When we debated the issue just three short months ago, I reminded members of the time in 2010 when 50 prominent Scottish business leaders told Gordon Brown, the then Prime Minister, that the main threat to Britain’s economic recovery was that of putting a tax on jobs, which is exactly what has happened with the move that we are debating today. The late Alex Salmond protested vehemently alongside those Scottish business leaders, because he feared that such a tax would have the worst effects on the Scottish economy.
The tax on jobs that is now in place thanks to the UK Labour Government means that employers will have to fork out £900 extra for each employee on median average earnings and £770 extra for those on the minimum wage. It is a policy that explicitly breaks Labour’s manifesto commitment, despite what Daniel Johnson—who is not in the chamber at the moment—said. I remind him that, in 2022, Ian Murray, who is now Secretary of State for Scotland, and Jackie Baillie said that the national insurance rise would have a significant detrimental impact on working people.
That is an important point. A knowledge of the most basic economics—never mind Michelle Thomson’s advanced understanding of elasticity, for which I give her great credit—tells us exactly what will happen: costs will rise, jobs will be lost and prices will rise for consumers. That knowledge also tells us that increasing employer national insurance contributions makes hiring staff and creating new jobs, especially in labour-intensive industries such as retail and hospitality, much more challenging, which, in turn, is likely to have a negative effect on the very thing that we so desperately need—economic growth. We know what housing associations are saying about the effect that that will have on the market.
Where is the logic in a policy that our universities have said will cost them more than £45 million, on top of the very serious funding gap that they all face, which most vice-chancellors in Scotland have been warning about for months? Where is the logic, given that we want our universities to be leaders in innovation and development? I do not understand the policy, and the university sector feels extremely strongly about it.
Labour’s rationale for the tax hike was that it would plug what it described as a £22 billion black hole, although that statistic was greatly disputed by various economists and commentators. Labour believes that it will ensure that money will be available for investment in public services, especially in schools and the NHS. It also told us that there were other policies that would help, so nobody should get too worried about it. Frankly, I find that bizarre.
The increase in employer national insurance contributions will have a very serious impact on many people in Scotland, as well as businesses and disability charities, which provide extremely important services to our most vulnerable in society, and it will create negative externalities in the market. Michelle Thomson, who knows all about negative externalities, as well as elasticities, will perhaps agree with that point, because they are serious. We might talk about grand economic theory, but such issues matter on the ground to the people who are running businesses. That is the problem that Labour must face, because, as other members have said, businesses are having to reduce staff and cut salaries and working hours, which is not acceptable.
I will finish on a point about the Scottish economic context. Figures from the Scottish Fiscal Commission, the Fraser of Allander Institute and the Institute for Fiscal Studies all show that implications arise from the UK Labour Government imposing tax rises and from the Scottish Government hiking taxes, which Craig Hoy mentioned in his opening remarks. That matters, too. The combination of a high-tax scenario in Scotland and the implications of the national insurance changes in the UK is having a detrimental effect when it comes to rewarding entrepreneurship, innovation and job creation, which we need to be very careful about.
I cannot stress enough just how serious this issue is at the very time that Scotland needs to create economic growth.
17:00
Higher costs, higher prices and job losses—austerity on stilts from the Labour Government. That is not the change that we were looking for. Charities and businesses are closing in our communities as a result of the hike in national insurance, and the policy will have dire consequences for organisations in every community. My Labour colleagues must be getting the same emails and phone calls that I am getting from local businesses, charities, hospices and other organisations in our communities that are scared for their future.
In my constituency, once a quarter, I convene the community action network, which brings together local and national organisations with a shared commitment to tackling poverty and supporting people in North Lanarkshire. It is integral to the community’s wellbeing and the work in my community. I asked members of the network how the tax hike would affect them, and the responses have been stark.
Barnardo’s said:
“It is a very significant challenge for our charity, and will inevitably mean that we have less resource to direct towards meeting the immediate needs of children.”
The policy will impact
“our ability to fund our crucial frontline services to vulnerable care experienced young people, homeless young people and homeless families throughout North Lanarkshire.”
LAMH Recycle, which is a local firm that works to reduce barriers to employment through recycling, said:
“It is going to have a big impact on our future planning and recruitment would need to be halted as the costs would be too much.”
North Lanarkshire Carers Together said:
“The impact of this means we will struggle to offer staff cost of living salary increases”—
which they deserve—
“over the next 5 years.”
That testimony reflects the broader picture: long-term risks, the loss of quality and experienced staff and, for many, a reduction in critical front-line services.
Turning Point, a leading social enterprise that delivers essential health and social care services across 18 local authorities, said that it faces a financial hit of possibly £1.2 million and that the policy
“placed every one of our services into a deficit or enhanced deficit position.”
This phrase from its response stood out:
“Less funding will see less service.”
That is an apparent but deeply important point.
Lanarkshire Links, whose work is integral to mental health advocacy in my area and is informed by people with lived experience of mental ill health, expects the national insurance increase to result in significant funding cuts and said that it threatens the job security of its team, with those voices being lost.
I could go on and on. We were promised that what has been announced would not happen.
This afternoon, we have been challenged to say how we would have filled the black hole and what we would have done differently. Lorna Slater outlined exactly why flip-flopping between Labour Governments, Conservative Governments and coalition Governments has led to further obscene levels of inequality in this country. That is the nub of the issue. It is not about whether we have a choice between doing this or increasing taxes elsewhere; it is about having a vision for a more equal and fairer society—one that embraces universal services and is built on reducing the inequalities that the poorest people in our communities face. One would think that those calls would be coming from Labour members, but it is Oxfam that is leading the fight on the issue.
Labour members want to know how we could do that. I appreciate that non-dom status has been removed, but how about looking to the World Bank’s advice on our tax system? The fact that our system is so complex means that there is much tax avoidance and fraud, and simplifying the system could reduce the impact of that completely. There needs to be a vision for a stronger, fairer and more equal society.
17:04
Thank you, Presiding Officer, for the opportunity to speak, albeit briefly. My key theme is that Labour was right to raise taxes, but it has chosen to raise the wrong tax. That is partly because it promised before the most recent election not to raise income tax or employee national insurance. That should be a warning to all of us about what we put in our manifestos.
I have said previously, and I am happy to say it again, that we cannot have taxes as low as they are in Scotland and the rest of the UK and expect to have good-quality public services, whether it be better road surfaces, shorter NHS waiting times, more mental health support or more classroom assistants. Either we accept public services roughly as they are, or we look at how we can raise more money through taxation. I note that the Conservatives, as they always do, are murmuring when I say that kind of thing.
I agree that raising employer national insurance contributions was not the best option. We have had a number of suggestions already, but how about higher VAT on luxury goods and services? We could have capital gains tax on first homes as well as second homes. We could have a production tax on whisky. We could have a carbon land tax. The list goes on and on. However, there is no getting around the point that most of us want better public services, and that means more taxation.
In particular, at Scottish and UK levels, we need a replacement for council tax. It must not be revenue neutral; it must raise more revenue, especially for local government. That would also impact positively on national finances.
However, the fact is that employer national insurance contributions are being increased, and there seems little likelihood that Westminster will suddenly become more generous and refund all employers in Scotland, or in England, where GPs and the third sector are also losing out. I certainly support the Government’s motion calling on Westminster to reverse its decision, but I am not holding my breath.
17:06
The UK Government’s decision to raise employer national insurance contributions will have devastating consequences for Scotland’s businesses, charities and public services. The not-for-profit Thistle Foundation, which does critical work in my constituency to support thousands of people with disabilities and long-term health conditions, has called the ENICs hike a “catastrophic blow”, with the impact on it leaving an unfunded financial gap of £292,000.
High-volume, low-profit employers are appalled that Scotland’s block grant is being used to offset short-sighted policy making from London. Women dominate Scotland’s workforce in sectors that are being hit hardest by the increased costs—health, social care, retail, hospitality and the third sector—and many of those industries are already struggling with financial pressures. They now face higher costs, possible job losses and service closures. If employers are forced to cut jobs or reduce hours, women, who are more likely to be working part time or in low-paid roles, might well suffer first. The Convention of Scottish Local Authorities, the STUC and 50 other organisations have warned the UK Government that the decision risks Scotland’s vital services.
The Parliament has already debated the ENIC hike and there is largely consensus, even from some in Labour, who might now be pondering the benefit of independence from their Westminster Government’s chaotic decisions. The UK Government is acting in an economically illiterate manner. This tax on jobs is anti-growth and it should be dropped.
We could be discussing other important issues of strong public interest in the chamber today, such as Government-funded bodies acting beyond the law and NHS board accountability. I hope that the Parliament and the Scottish Government are listening to that point.
17:08
Throughout the debate, many members have mentioned the various sectors of the economy that will be impacted. I will leave the intricacies of elasticity, among other things, to Liz Smith and Michelle Thomson, but I believe that the immediate impact on the health and social care sector is particularly stark and warrants highlighting.
As has been mentioned throughout the debate, the Labour UK Government’s employer national insurance contribution changes represent a substantial financial and operational burden for third sector organisations and social care providers across Scotland. Workforce costs already account for the majority of expenditure in the sectors, which leaves little room for them to contend with those further increases.
The rise in employer national insurance contributions is especially unsustainable for smaller providers and for those with high staffing requirements, many of which are already operating on extremely tight margins. The direct results of the changes could lead to real risks of service reductions, staff lay-offs and closures, which will further jeopardise the care sector, which so many people rely on and which we should all be fighting to fund better and stabilise.
Scottish Care’s analysis points to the fact that the changes to national insurance rates that were announced in the UK budget will create additional financial burdens on independent care providers in a dangerous and inequitable—which is not easy to say at this point on a Monday—way. Scottish Care has outlined the potential for care homes to close as a result of the change. The people in those care homes still need care and places have to be found, which is putting more burden on an already stretched system. If care homes close, it will cost the public sector more to find places for those people.
Labour trumpets its increased block grant to the Scottish Government, but what use will that be if we end up having to find emergency care places as a result of the decision? The Health and Social Care Alliance Scotland—the ALLIANCE—alongside other third sector organisations has raised serious concerns about the financial strain that is being caused by increased national insurance contributions. It has signed a joint letter to the Chancellor of the Exchequer, following a survey of its organisation members that found that 85 per cent are worried about the additional costs, with 62 per cent fearing service cuts, 82 per cent being concerned about financial stability and 71 per cent expecting recruitment and retention challenges. Many have called for exemptions or increased funding to offset that burden.
Meanwhile, data from the Scottish Council for Voluntary Organisations estimates that the change will cost third sector organisations in Scotland £75 million next year, which further threatens the sector’s ability to deliver essential services.
The list does not stop there. The Coalition of Care and Support Providers in Scotland expects not-for-profit providers within its community alone to face an additional £30 million bill next year, due to the rate increase and threshold reduction—costs that it cannot afford and has no clear way to cover. In recognising the urgent need for action, the CCPS has also written to the chancellor, calling for full exemption for public service social care providers. It warns that, without that, the consequences will be devastating. That could very soon lead to the loss of vital community-based support, which will increase the strain on the NHS and the Scottish Prison Service and put a heavier burden on unpaid carers, many of whom already struggle to balance employment with wellbeing.
The Labour UK Government’s failure to recognise and account for the impacts of the changes on social care and third sector organisations raises further concerns about the lack of value being placed on social care, and about awareness of the perilous state of the sustainability of the sector. The Nuffield Trust estimates that the employer NIC changes will cost independent sector social care employers in the region of an additional £940 million in 2025-26. It also points out, most notably, that the Government seemed to be aware of those consequences.
An initial table that was published by the OBR on its economic and fiscal outlook included £5.5 billion provision for compensation for ENICs for public sector employers and adult social care. However, that was later revised through the removal of any mention of adult social care and reduction of the allocation to £4.7 billion. Officials have not yet explained the £800 million reduction, but, based on independent calculations, it appears to reflect an estimate of the ENICs change’s financial impact on adult social care. That strongly suggests that the UK Government understands the sector’s vulnerability but has chosen not to provide the necessary support. Alarmingly, major adult care provider failure is listed in the national risk register, which warns that such failures could severely disrupt care for those who depend on it. Without urgent intervention to stabilise the sector now, it could be decimated.
Many members have mentioned this afternoon how hopeful they were at the end of the Conservative Government and their disappointment at the mess that the decision has caused. Alex Cole-Hamilton, Lorna Slater and Kevin Stewart, among others, mentioned the other options that are available to the UK Government, none of which it seems even to have considered.
A few members mentioned the impact on hospices. Given the charitable nature of hospices, we are passing a burden back to them to raise money from people in their communities to plug the gap. That points to the effects that many members have warned of beyond the immediate rise in ENICs. Their needing to raise more money to plug gaps in services is a horrendous situation for charities to be in.
Today, the Scottish Greens call on the UK Government to, at the very least, fully fund the increase in employer national insurance contributions for commissioned services and arm’s-length external organisations. The additional costs will place significant strain on vital services and the organisations that deliver them, many of which are already operating under extremely challenging financial and operational conditions. Those providers have an unsustainable burden, with many already grappling with the consequences of having very little funding and of Brexit and its devastating effect on staff retention.
If the additional cost of ENICs is not addressed, it not only will compromise the ability of those organisations to maintain the services that people rely on but could also lead to cuts, closures and reduced quality of services. The consequences of that would be far reaching, impacting on the most vulnerable members of society and further exacerbating existing challenges in our health and social care systems. The UK Government must act now to ensure that those organisations are fully supported, thereby safeguarding the essential services that contribute to the wellbeing and support of our communities.
I remind all members who have taken part in the open debate that they are expected to be in the chamber for closing speeches.
17:15
I am conscious of time, but it is a great pleasure to follow Gillian Mackay—even if it is on a Tuesday rather than a Monday. Perhaps it has been a long week for us all.
I will start with John Mason’s speech, short as it was. He talked about the need to raise tax, the options of VAT, a production tax on whisky and, indeed, a replacement for the council tax. I start there because this is a debate about a UK Government decision and about the decisions that Governments have to make to match their outgoings to assist the society and communities that vote them in.
It is the UK Government’s chancellor whose choices are being questioned, but, as Pierre Mendès France said, to govern is to choose and, to do that, we need to look at the reality that the Labour UK Government faced when it went through the doors. There has been mention of the famous letter saying “there is no money left”, but the in-year financial catastrophe that the UK Government faced was enormous. There were assurances and promises to make payments but with no budget identified to do that and, without choices and decisions that others would look at and assess the viability of, there was a very serious risk of returning to the catastrophe that we had during the days of Liz Truss, when people would lose mortgage offers before they had had a chance to consider them.
I have listened to Labour members’ speeches all afternoon. Are they labouring under the apprehension, as Margaret Thatcher was, that the economy of a country is the same as a household budget? Perhaps I should send them an economics textbook so that they can brush up on economics.
I am grateful for the intervention, although I am slightly disappointed by its tone. When we look at the cost of borrowing on the international markets, we can see the reality of what Governments representing their countries need to pay for borrowing. That cost has never been as stark—at least in current memory—as it was over the period when Liz Truss took over the Conservative Government at Westminster.
As I have said, governing is about choices, and the UK Government has chosen to provide, from the common wealth of the United Kingdom, nearly £4.9 billion to boost Scotland’s finances, taking our block grant to £47.7 billion for 2025-26. That is a commitment to Scotland’s people, to a devolved Scottish Government and to Scotland’s future. It is not a gift; it is an investment in Scotland by a UK Government that believes in devolution and believes that Scotland has two Governments: the Scottish Government here and the UK Government at Westminster.
Craig Hoy: [Made a request to intervene.]
Will Martin Whitfield give way?
I will give way to Mr Hoy, if he is swift.
Mr Whitfield is right that the Government needs to choose, but is it not true that, since Labour came to office, it has made the same choices and the same mistakes as the SNP? They have both agreed to public sector pay increases that are way above inflation without working out how to pay for them.
Mr Hoy talks about the mistakes of the SNP Government. It would be foolish—almost naive—and unexpected of me not to agree about the challenges and choices of the SNP Government. Similarly, I intervened on a Conservative back bencher, Sandesh Gulhane, to invite him to be retrospective about the decisions that the previous Conservative Government had made. It would still be beneficial to see some honesty about those decisions. If to govern is to make choices, those choices must be made.
During the minister’s opening speech, Daniel Johnson intervened to ask what we should put up. Should that be personal tax or national insurance? Should it be VAT? That question went unanswered by the minister.
A number of speakers pointed to the UK Labour manifesto and alleged a breach of promise. The promise was about taxes on working people. There have been contributions from across the chamber regarding what the effect of that will be. The truth is that an economic black hole had to be filled in order to maintain confidence in the UK economy as a whole, and that has been done. Challenging decisions must be taken.
Will the member accept an intervention?
My apologies: I am into my final minute and want to refer to a couple of other contributions.
It is foolish and incorrect to ignore the reality of the decision making or the reality that Scotland has two Governments and that the largest ever block grant—except for during Covid—has been provided to the SNP Government here.
The question comes down to the choices that we make. The devolved Government here, in Scotland, has chosen the size of its civic sector and earnings. Three members pointed to the importance of independence as a solution, but the reality is that this Scottish Government is in the position of having the largest amount of funding that has ever been made available to a Scottish Government and that the choices that it makes about that are its alone.
17:22
We do not often come to the chamber and find the Conservatives agreeing with the wording of a Scottish Government motion, but today is a rare exception, because we agree with every word of the Scottish Government motion and will even be voting for it at decision time in a few moments. It might be nice of the SNP to return the favour and vote for our amendment, but that might be too much to ask.
It is right to say, as the minister did at the start of the debate, that the increase in employer national insurance contributions will cause deep damage to the Scottish economy and to public services. It is not only we, in the chamber, who are saying that; the Office for Budget Responsibility has clearly said that economic growth will be lower as a result of the national insurance increase.
Many members have spoken about the economic impact on the public sector. I will rehearse some of the figures, because they are important. It is estimated that the change will cost £750 million each year across the public sector in Scotland. The Convention of Scottish Local Authorities estimates the cost to councils to be £265 million, which will be only partly compensated for by the Scottish Government. That is, no doubt, one of the number of reasons why we expect to see double-figure increases to council tax rates across Scotland. The first of those—a 10 per cent increase—was made this afternoon by East Lothian Council. Mr Whitfield might be aware of that particular fact.
According to the Scottish Council for Voluntary Organisations, charities and bodies in the third sector estimate that the change will cost £75 million, and universities estimate that the cost to them will be £45 million. We have already seen the impact of that, with the University of Edinburgh having written to all its staff at the end of last week to share very serious concerns about its finances and to say that nothing is off the table regarding potential redundancies or future cuts to staffing.
We have seen the impact on the health service, which Sandesh Gulhane referred to in his contribution. In its briefing for the debate, the Royal College of General Practitioners set out its concerns about the impact on GP practices. Dr Gulhane also mentioned dental practices, which contract to the NHS and will not have their costs fully reimbursed.
The Scottish Federation of Housing Associations referred to the impact on registered social landlords, which is estimated to be some £15 million.
However, those are just the impact on the public sector and on contractors to the public sector. Let us also consider the impacts on the private sector. The Scottish Retail Consortium estimates that the impact in Scotland on the retail sector alone will be £190 million annually. Businesses across the piece will be hit, with the increase having a substantial impact on employment and hitting growth. According to the Office for Budget Responsibility, there will be a negative impact on wages, which are expected to be lower. The Scottish Hospitality Group estimates that the average hospitality business in its membership will be hit with a cost of £160,000 per year, and the care sector is also deeply concerned about the impact on it, as Liz Smith pointed out.
The statistics are clear: the increase will be deeply damaging. Against that backdrop, it has been a very uncomfortable afternoon for Daniel Johnson and Martin Whitfield, who have had to defend the indefensible. I have some sympathy with them: we have been in that position occasionally in the past. [Laughter.] Now that their party is in government, they are feeling the heat.
Martin Whitfield asked us to reflect on the record of the Conservative Government over the previous 14 years, and I am very happy to do so. As has been referred to in the debate, when we came into government in 2010, there was “no money” left, according to the note that was left by the Chief Secretary to the Treasury. The deficit that was inherited in 2010 by the Conservative Government—I apologise to Mr Cole-Hamilton: I should have said “the Conservative-Liberal Democrat coalition”—was more than double the deficit in 2024. Also, let us not forget that that was after the Government of the time had to spend huge sums to support the economy and household incomes because of Covid and had then to deal with the consequences of the invasion of Ukraine and the substantial hike in energy costs that resulted. Despite all that, the deficit was still less than half of what it was in 2010.
For all that we hear from Labour about economic chaos, let us look at where we are now. Long-term borrowing costs are up and economic growth forecasts are down. The latest figures for economic growth across the UK show an increase of barely 0.1 per cent, and the per capita GDP figure is now negative: the economy is shrinking on a per capita basis. Let us remember that Rachel Reeves came in as chancellor promising that she was going to deliver growth. That seems to be so far away now; everything has gone backwards. It was a hollow promise.
Let us remember what Labour told us in advance of the election. The Scottish Labour manifesto in 2024 said:
“A UK Labour government will not increase taxes on working people and will not increase National Insurance, VAT or the basic, higher or additional rates of Income Tax”.
As Liz Smith reminded us, Ian Murray said in March 2022:
“the Chancellor is choosing to bring in a huge National Insurance rise at the worst possible time that will have an enormous impact on working people and businesses ... under Labour, National Insurance wouldn’t go up”.
Jackie Baillie, who is not in the chamber this afternoon, even lodged a motion in Parliament saying that national insurance increases would exacerbate the household difficulties and lead to
“rising inflation, increasing food and fuel prices, and high energy bills”.
Whether we consider the winter fuel allowance, the farm tax or the WASPI women, Labour has betrayed people and broken its promises.
However, it would be wrong of me to forget what the SNP has done in the same period. Despite all the fine words that we heard from the SNP front bench about the need to support businesses, in the SNP’s budget and its choices it has maintained the income tax differential between here and the rest of the UK and has failed to pass on the business rates relief that is available south of the border. According to the Scottish Retail Consortium, which I mentioned earlier, the Scottish budget will add £7.6 million to rates bills in the coming financial year. It is no surprise that business confidence in Scotland is tanking, as it is in the rest of the UK.
I agree that Labour is letting us down, but so is the SNP. Martin Whitfield was right that Scotland has two Governments. The sad thing is that we are being failed by both.
17:29
As my colleague the Minister for Employment and Investment made clear in his opening remarks, the impact of the UK Government’s decision to increase employer national insurance contributions is catastrophic. The decision leaves Scotland’s public services facing a bill of more than £700 million and it leaves the Scottish Government in a position where we are still to find out the final amount of consequentials, which is yet to be confirmed by HM Treasury.
The reality is that this represents a significant material shortfall in relation to the expected cost to public sector employers for directly employed staff, due to the proportionally higher number of public sector workers in Scotland, who are also more highly paid. Our most valuable and important public service asset is, of course, our workforce, so this is not simply a technical adjustment—it is a fundamental abdication of responsibility by the UK Government. Reserved policies should work for all parts of the UK—yet, once again, Scotland is being disproportionately affected.
In his opening remarks, my colleague Mr Arthur set out the real and immediate dangers that are posed by this tax hike. He warned that businesses, which are already facing immense cost pressures, will have to make difficult choices about how to deal with materially higher costs, including through job cuts.
Make no mistake, Presiding Officer, this is a tax on jobs—that is where the tax ultimately falls. We highlighted that key public services—services that the people of Scotland rely on daily—would be placed under even greater strain. What we have heard throughout the debate has only confirmed those concerns. The economic impact will be felt through the impact on jobs and through higher inflation, and it will affect every community, every sector and every household in Scotland.
Although the chancellor has confirmed that Scotland will receive a Barnett share of the funding provided to UK departments, that funding covers only directly employed staff. Commissioned service providers, who are critical to healthcare, social care and education, are not covered by the Barnett formula and nor is further or higher education—colleges and universities.
Let us be absolutely clear about what that means: the funding gap will hit GP practices, dentists, social care providers and early learning and childcare workers—services that are fundamental to the wellbeing of our population. Those services are already stretched and, without full financial compensation, their ability to operate effectively will be severely compromised.
The Cabinet Secretary for Health and Social Care met social care providers and other key stakeholders to discuss this very issue just last Thursday. We should be under no illusions about just how sobering the impact of this measure will be in terms of potential care home closures, job losses and cuts in service provision. The impact on the third sector needs to be recognised as well—a point that Clare Adamson, among others, made very well. There will be an impact on local organisations in our constituencies across the country unless the UK Government reconsiders and acknowledges the hugely damaging consequences of its decision for businesses, for the services that we all rely on, and for the wider economy. To provide some certainty for public services, the finance secretary has announced our intention to cover 60 per cent of the estimated employer national insurance contribution costs for directly employed staff.
This misguided tax rise by the UK Government will not only burden businesses but exacerbate the financial pressures facing Scotland’s local authorities. Council leaders have issued stark warnings that front-line services including social care, waste management, and local infrastructure will be forced to bear the brunt of these cost increases.
Education will also suffer. Schools and nurseries depend on support staff, whose employment costs will rise significantly under these charges. Local authorities will be left with few choices—reduce services, cut jobs, or pass on costs to struggling families. It is entirely unacceptable that decisions made in Westminster will directly harm Scotland’s young people, educators and parents.
The First Minister and the COSLA president, Shona Morrison, have already written to the chancellor, with their concerns being backed by 48 Scottish public sector and third sector organisations including the STUC, the SCVO and the British Dental Association.
That breadth of opposition, spanning the public, private and third sectors, should be a wake-up call for the UK Government. Scotland’s businesses, workers and service providers are speaking with one voice: the policy is harmful, unnecessary and unsustainable.
It is staggering that, despite the scale of the concerns that have been raised, the UK Government has still failed to engage meaningfully with Scotland. The change was made without consultation or dialogue and without any consideration of Scotland’s economic reality. If we are to believe that there is a genuine desire to reset relations between our Governments, actions—not words—must reflect that. The Cabinet Secretary for Finance and Local Government will once again press the issue with the UK Government at the upcoming finance interministerial standing committee on 27 February. Nonetheless, the key question remains: why are we having to fight for basic engagement? Why must Scotland repeatedly battle to have its needs recognised?
In the debate today, members set out the severe risks that are posed by this misguided tax increase. We warned of the pressures on businesses, the burden on public services and the broader economic impact of the tax on jobs. During the debate, those warnings have been reinforced time and time again. Members across the chamber have highlighted the impact that the increase will have on businesses; on local third sector organisations; on public services, both directly and on those that are commissioned; and across the wider economy. The impact that it will have on jobs is potentially significant. We have seen that this tax increase impacts on many parts of the economy across the private, public and third sectors. If the UK Government is serious about economic growth, supporting business and strengthening public services, it must provide full financial compensation to mitigate the impact of this misguided tax increase.
I fully agree with the Minister for Employment and Investment in his view that the policy is detrimental to all of Scotland’s economy. We can already see the negative impact that it has had on business confidence and business conditions, and it is only a matter of time before we start to see the real impact on jobs. It is the wrong tax at the wrong time. This tax on jobs must be reversed. Scotland’s businesses, workers, public services, third sector, education and care sectors and others deserve better.
I call on members to support the Government’s motion, and I call on the UK Government to reverse this misguided tax increase.
That concludes the debate on employer national insurance contributions.
Air ais
GrangemouthAir adhart
Decision Time