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Councils facing £100m cost to cover UK tax hike

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Local authorities say the funding gap does not take into account services they buy in, such as adult social care

Councils have warned they will have to make "difficult decisions" to cover a £100m funding gap arising from the UK-wide increase in employer National Insurance.

Finance Secretary Shona Robison has announced the Scottish government will provide £144m to cover 60% of the extra costs councils are facing.

But local government body Cosla said that would leave its members with a £96m bill to cover the other 40%.

It comes as the Scottish government's long standing freeze on council tax comes to an end, leading to speculation some local authorities will announce big increases.

PA Media Shona Robison, a woman with blonde hair, speaks in the Scottish Parliament chamber. She is wearing a black dress and has her hands out in front of her chest. PA Media
Finance Secretary Shona Robison said the extra funding should help local authorities avoid large council tax rises

Labour Chancellor Rachel Reeves announced last year that the rate of employer National Insurance contributions is to increase from 13.8% to 15% in April, and the threshold at which it is paid would be lowered.

The Scottish government has been told to expect an extra £300m to help meet the cost of the increase, but ministers say the larger public sector in Scotland means this falls well short of what is required.

Robison announced on Tuesday that £144m would be passed on to councils, but Cosla resources spokesperson Katie Hagmann said this left local authorities facing a funding gap.

"Given the mounting challenges for local government, this additional funding will not solve the crises councils and communities are facing, which are exacerbated by the employers National Insurance increase," she said.

"Difficult decisions will still need to be made as councils look to protect essential frontline services."

She said the £96m figure also did not take into account the impact on services that councils buy in, like much of adult social care.

The Cosla spokesperson added: "It is important to note that there has been no additional funding for commissioned services, the biggest of these being adult social care, which are also vital services and will see significant impacts."

Council tax freeze

Cosla's warning comes as local authorities are considering council tax rises.

In recent years, the Scottish government has asked councils not to raise council tax rates in return for extra funding, but that restriction will be lifted in April.

Robison said the £144m from the government was equivalent to a 5% increase in council tax, and would help avoid "inflation-busting" hikes in the levy.

The UK government is yet to confirm how much compensation it will offer Holyrood ministers to offset the tax rise, but it is expected to be about £300m.

The Scottish government estimates it will need about £550m to cover the increased costs for public sector workers, rising to £750m when indirect employees such as those in childcare, higher education or social care are included.

Robison described the suggested £300m compensation from the Treasury as "unacceptable" and said it should "fully fund the actual costs for Scotland's public sector".

The UK government has said difficult financial decisions had to be made as it faced a £20bn black hole in public finances.

A spokesperson said that the Scottish government had received a record £47.7bn budget "as part of support provided in relation to changes to employer National Insurance".