Analysis: What does Boris Johnson's health and social care tax mean for Scotland?

The Barnett formula, it was once said, is much like the Schleswig-Holstein question, in that only three people understand it; one is mad, one is dead, and the other has forgotten.

Prime Minister Boris Johnson’s reform of health and social care in England will have significant implications for Scotland. The most obvious consequence does not require an intimate understanding of fiscal mechanisms to hit home.

His pledge of an additional £12 billion a year to tackle a funding crisis which has been exacerbated by the pandemic is being bankrolled by a 1.25 per cent rise in National Insurance (NI) from April 2022.

That means Scots earning an average salary of £30,000 average will pay an additional £255 per year from next April. Even those earning £20,000 a year face an annual increase of £130.

The imposition of the UK-wide levy has sparked anger in the ranks of the SNP. Ian Blackford, the party’s Westminster leader, railed against Mr Johnson’s announcement, describing it as “another Tory poll tax, and warned that it would slash the income of 400,000 Scots.

He and others - not least Tory grandees such as Sir John Major and Lord Hammond - point out that the NI increase will disproportionately hit younger earners, as well as those on low and middle incomes. That it will also break a 2019 manifesto commitment is not insignificant.

But contentious as the NI increase is, there will not be a one way flow of money from Scottish taxpayers’ wage packets to the Treasury.

Under the devolved fiscal framework, the resultant public spending in England will bring about an increase of around £1.1bn in the annual block grant Scotland receives from the Treasury.

Prime Minister Boris Johnson's major investment in England's health and social care system will have repercussions for Scotland. Picture: Dan Kitwood/Getty

Mr Johnson said that Scotland, as well as Wales and Northern Ireland, will benefit by around 15 per cent more than is generated from their residents through the tax hike, the equivalent of around £300m a year - or, as he called it, a “union dividend”.

The UK government’s 35 page plan for social care reform does not specify how it arrived at this number, but you can be sure that economists are already hard at work calculating any differences between the increased NI contributions and the additional Barnett consequential.

The question, for now, is how that money will be spent.

It may have been political mischief-making or mere ignorance, but Mr Johnson’s claim to the Commons that receipts from the levy will go directly to those responsible for health and social care in the devolved administrations, including NHS Scotland, is misplaced.

The money will not be ring-fenced, meaning that the Scottish Government can spend it how it sees fit, although health secretary Humza Yousaf has already said that the funds will be directed towards health and social care, in line with the SNP’s manifesto commitments.

There would be considerable political pressure were he to consider doing otherwise.

But Mr Yousaf and his cabinet colleagues still have choices to make.

In Scotland, health and social care funding rose to more than £15bn for the first time under the 2020/21 budget, with more than £100m delivered in excess of Barnett consequentials to support frontline services as part of the overall uplift.

Indeed, the latest Scottish budget has already set aside £883m to invest in social care and integration, which includes funding for local authorities to deliver the Living Wage, and uprating of free personal care - a flagship policy which sets Scotland apart from the rest of the UK.

Despite this investment, the pressures on the NHS and social care are being acutely felt, meaning the issue of how that £1.1bn is allocated is crucial.

The most obvious route is to plough the money into the establishment of a National Care Service (NCS), prompted by February’s independent review of adult social care, led by Derek Feeley.

A consultation paper published last month noted that the government has committed to increasing investment in social care by 25 per cent over the parliamentary session, but that “public resources are still limited".

The extra funding from the Treasury could change that.

The scope and structure of the NCS - due to be debated by MSPs on Thursday - will determine how much it will cost, but its ambition will not be realised on the cheap.

First Minister Nicola Sturgeon has already said the NCS, which she wants to see established by the end of this parliamentary term, could bring about a social care legacy equal in stature and impact to the creation of the NHS after World War II.

As things stand, Mr Feeley and his fellow authors suggested their recommendations could cost £660m; COSLA believes the bill will be closer to £1bn.

Of course, the Scottish Government is not duty-bound to allocate the extra funding towards the NCS.

It could be invested to address specific shortfalls highlighted in the independent review.

It highlighted, for example, that there may be as many as 36,000 Scots who do not currently have access to social care support, and for whom it would be beneficial. The bill for rectifying that would run to around £436m.

It could even direct the money to frontline services in the NHS, and in a week when accident and emergency waiting time performances hit a record low for a fourth consecutive week, that should not be ruled out.

There are hard choices ahead, and while the political fallout from the regressive principle of imposing NI increases to cure an ailing England will roll on for days and weeks to come, some in the SNP might well concede in private that they are the biggest beneficiaries of Mr Johnson’s grand plan.

It is almost inconceivable that the formation and administration of the NCS could have been achieved without tax rises in Scotland. In this respect, Mr Johnson is providing the money as well as taking the flak.

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