Unlimited Scottish council tax hikes demanded as £265m National Insurance black hole emerges

Local authority leaders have demanded the ability to hike council tax by as much as they want amid fears Labour’s increase in national insurance contributions will cost an extra £265 million.

Cosla, the umbrella organisation for Scottish councils, has told the Scottish Government it will need an extra £1.1 billion of funding in next year’s Budget.

Finance Secretary Shona Robison (Picture: Lisa Ferguson)

It emerged yesterday that SNP ministers will receive £1.7bn for the NHS as a consequence of UK government spending, although the Scottish Government can use a £3.4bn funding boost from Westminster any way it chooses.

Council leaders have seized on the extra funding that will be passed over to Holyrood and are asking for a third of it to be earmarked for local authorities.

Read more: SNP ministers urge Treasury to address 'growing alarm' over tax hike

Cosla was warned that councils need a £694m increase for revenue day-to-day funding - a 5 per cent rise - alongside the £265m in national insurance compensation and a £163m boost for capital projects for local authorities.

The organisation has also appealed for council tax rises not to be capped. The demand comes after former first minister Humza Yousaf irritated local authorities by announcing a council tax freeze for this financial year, without discussion with Cosla.

A briefing document, drawn up by Cosla ahead of SNP finance secretary Shona Robison delivering her Scottish Budget on December 4, bluntly warns “there should be no council tax freeze or national cap”. 

It adds: “Council tax is a decision for local authorities and reflects the investment needed to maintain and improve key community services.

“The Scottish Government’s failure to provide a fully funded council tax freeze in 2024/25 did not represent true partnership working and exacerbated already challenging financial pressures.”

Cosla president Shona Morrison. Picture: Cosla

Cosla president Shona Morrison said: “Years of real-terms cuts and flat cash settlements from the Scottish Government, compounded by rising inflation and operational costs, mean that our councils are constantly required to do more with less.

“Our councils have done their very best to protect core statutory services, such as education and social care. However, as we can see with the ever-increasing number of housing emergencies announced across our communities, even these essential services are facing real strain.

Read more: Two thirds of Scottish councils mulling council tax rise to plug £400m budget gap

“Without significant local investment and sustainable local services, we are all worse off.”

Cosla resources spokesperson Katie Hagmann said Scottish councils were in “an extremely challenging position”, which had been “made worse by significant cuts to our core budget in recent years”. 

She said: “This is putting unprecedented strain on our front-line essential services and local government is moving ever closer towards unsustainability. 

“The reality of budget reductions in areas such as roads, planning, culture, and leisure are threatening councils’ ability to meet statutory obligations, including services such as housing and homelessness.”

SNP ministers have previously warned that Labour’s plans to hike national insurance contributions for employers will cost Scotland’s public sector around £500m.

The UK government has stressed Holyrood will receive “additional funding on top of the £3.4bn” of Barnett consequentials announced in Chancellor Rachel Reeves’s Budget to mitigate national insurance rise, with details to be “set out in due course”.

But the Scottish Government has warned they do not have certainty on whether they will receive enough funding or whether negotiations will be complete before next month’s Holyrood Budget.

First Minister John Swinney | Michael Schofield

Speaking yesterday, First Minister John Swinney said Labour’s national insurance decision was “causing real alarm across the country”.

He said: “The costs to the public sector in Scotland could amount to £500m – but other vital sectors are facing a huge financial hit, which could have devastating consequences for front-line services.

“GPs, social care, universities and others are all looking at a multi-million cost increase – and it is estimated that Scotland’s charity sector is facing a £75m price tag.

“It is completely unacceptable for our third sector to be punished as a result of decisions made by the Chancellor. The UK Budget must not be balanced on the backs of Scotland’s charities.”

Read more: Key SNP council tax reform group hasn't met for six months - before John Swinney became FM

The Scottish Government, led by public finance minister Ivan McKee, is continuing Budget talks with all opposition parties including the Tories and Labour. Support is needed from at least one rival party for the Budget to pass.

Last week, Ms Robison suggested that a Budget deal with Labour would be “a positive thing”.

But a Scottish Labour insider warned their party would demand a “very high political price” for propping up the SNP’s Budget, insisting they would need to see “something real and something concrete” from Ms Robison’s plans, which they suggested had not yet materialised. 

The insider said Labour was “not going to simply bail them out”.

Mr Swinney was separately urged to deliver a “game-changing” tax cut to help Scotland’s businesses in next month’s Scottish Budget.

Scottish Conservative leader Russell Findlay told the First Minister that higher rates of income tax in Scotland were “stopping businesses from growing, preventing them from creating jobs”.

On income tax, the Tory said: “Everyone is pleading for the SNP to change direction.”

In recent budgets, SNP finance secretaries have used powers over income tax rates and bands to increase charges for higher earners, with ministers seeing this as a method of raising more money for public services.

Mr Findlay raised this issue at First Minister’s Questions after Glasgow University Professor David Heald told MSPs on Holyrood’s finance committee the high marginal tax rates in Scotland were “ludicrous”.

Hitting out at the SNP leader, the Tory said: “John Swinney surely knows that high tax kills growth and costs jobs. But in his topsy-turvy world, hitting hard-working Scots with high taxes will somehow boost our struggling economy. Even his own MSPs are worried.”

The First Minister, however, told Mr Findlay that since the SNP had come to power, Scotland had seen higher rates of GDP growth per person than the UK as a whole.

“Since 2007, GDP per person has grown by 10.5 per cent in Scotland compared to 6.3 per cent at a UK level,” Mr Swinney told MSPs.

“Just to remind Parliament, so Parliament has got complete information, 2007 was the moment that this Ggovernment was elected. So in the lifespan of this government, we have delivered more growth per head than the rest of the United Kingdom.”

Mr Swinney went on to note: “Most of the taxation that is imposed upon business is not determined by this Parliament, most of it is determined by the United Kingdom Parliament.”