As part of his plans to tackle the social care crisis in the UK, Boris Johnson announced a 1.25 percentage point rise in National Insurance to raise funds for the NHS and social care.
This is set to provide £1.1 billion of additional funding to the Scottish Government in Barnett consequentials. However, the UK Government has said the money must be spent on health and social care.
Kate Forbes, the Cabinet secretary for finance, wrote to chief secretary of the treasury, Steve Barclay, demanding assurances on whether the additional money would be ringfenced and criticised the “lack of clarity” around the policy.
Speaking at Holyrood’s finance committee on Tuesday, Ray Perman of the Royal Society of Edinburgh said the decision to ringfence the funds was a “retrograde step” by the UK Government.
Asked what the impact of the tax rise would have on Scotland and its budget, Mr Perman said: “I think there are a number of reasons to criticise that particular tax and they have been well rehearsed.
"It will benefit Scotland in that we will get more money than we would have raised had we raised it in a devolved manner.
"It is ringfenced, it is money we would like to think the Scottish Government would spend on health and care anyway, but it is another example of prescriptive money coming from the UK Government, which I think is a retrograde step.
“We don't know yet what the impact on employment will be. One hopes that it is not significant, but we just don’t know.”
This was echoed by the Fraser of Allander’s David Eiser, who told MSPs the rise in National Insurance would be “critical” in helping the Scottish Government meet its budget requirements.
The economics expert said the decision to increase National Insurance was not “perhaps the best way” to raise funds, and excluded those who earn more from pensions or capital gains.
He said: "So you could question the fairness aspect of it, but having said that this is clearly better than nothing and politically governments find it easier to raise National Insurance than income tax.
"Before last week’s announcement by the UK Government, the outlook for the Scottish budget in the next few years was actually less good than it was pre-pandemic.
"What these consequentials will do is bring the outlook for the block grant back to that pre-pandemic outlook, but only just.
"It is still going to be an incredibly tight settlement. Those consequentials are really, really going to be critical.
"The fact that these appear to be ringfenced, in the immediate term that’s not going to create a financial constraint for the Scottish Government because clearly it is going to spend much more on this area of public services than what’s been ringfenced, so it can always shuffle other things around.
"But it is the principle that this appears to signal which is actually quite a different approach to the way the Barnett formula might work.”