THE SCOTTISH Finance Secretary has demanded reassurance from the UK Government that money from a new tax will not be “ring fenced” for the NHS.
Kate Forbes has written to chief secretary to the treasury Steve Barclay about the new 1.25 per cent rise in National Insurance Contributions (NICs), which will fund the health service and social care reforms in England.
As previously reported, Scotland will get around £1.1bn a year from the rise, which is due to be brought in next April – around 15% more than what Scottish workers will pay out in the extra tax.
However the SNP has argued Scottish workers are being penalised to solve England’s social care problems, and the new levy is unfair.
In a letter to Mr Barclay today, Ms Forbes has asked exactly how much money Scotland will receive from the new tax, and also wants reassurance that the money would not be ring fenced.
In response, the Treasury claim Ms Forbes was invited to a meeting by Mr Barclay weeks ago, but did not reply.
However currently NICs are hypothecated – allocated to a certain policy or area – and are used to fund state pensions and the health service in all parts of the UK.
The 1.25% rise in NICs will also be hypothecated – legally required to be spent on health and social care.
A smaller amount of additional funds will also be raised by a tax on dividends – money paid to self-employed people as their salary. This element of the funding will be passed on to the Scottish Government in Barnett consequentials while the NICs contributions will be allocated to the health service.
Ms Forbes has asked for clarity over the new funds, saying the announcement was made in a “disorderly manner” and there had been “mixed messages”.
She said: “While additional funding by way of Barnett consequentials is welcome, notwithstanding current debate about the specific policy implications of the levy, the way in which this announcement has been handled falls far short of what could reasonably be expected in terms of inter-governmental co-operation and engagement.”
Ms Forbes criticised the “lack of prior engagement” with any of the devolved governments about the new policy, and asked several questions about how much the Scottish Government would receive in Barnett funds, assurances that the Barnett money would not be “ring fenced” or that the overall grant for Scotland would not be impacted by this new levy.
She added: “There have also been unhelpful assertions about the impact of the announcement on the competence that Scottish Ministers and the Scottish Parliament rightly hold over decisions relating to funding for devolved public services.”
A senior Whitehall source told The Herald Ms Forbes appeared to be “either confused about the current law around taxes, or is making claims for the sake of political argument.
They added: “Since she is the finance secretary, I’d hope that she wasn’t confused about how funding works in Scotland.”
Along with questions about the new levy, Ms Forbes has also asked the Treasury to amend a “longstanding” anomaly in the tax system.
She explained: “The Upper Earnings Limit for Class 1 National Insurance contributions is aligned with the Higher Rate Threshold for UK Income Tax.
“Since 2017-18, the Scottish and UK Higher Rate Thresholds have diverged, and this has led to some Scottish taxpayers facing a combined marginal tax rate of 53% on a segment of their income.
“This issue was not addressed when the current Income Tax powers were devolved to the Scottish Parliament under the Scotland Act 2016, when it was always clear that devolution would lead to a level of divergence.
“The Upper Earnings Limit for Scottish taxpayers should be aligned with the Scottish Higher Rate Threshold and this must be addressed in the next available legislative vehicle.”
A HM Treasury spokesman said: “The Chief Secretary requested a meeting with Kate Forbes a number of weeks ago and has still not received a response. The UK Government is keen to continue working with the Scottish government to ensure people in Scotland are receiving the best possible health and social care, including continuing our hugely successful nationwide vaccination programme.
“The Health and Social Care Levy will provide an additional £1.1bn for Scotland each year, which is more than will be collected from residents in Scotland. Full details of funding will be set out at the upcoming spending review in October.”