Nicola Sturgeon announced the payment yesterday as a one-off thank you bonus to the 300,000 frontline health workers for their work during the pandemic.
In a speech to close the SNP’s 2020 conference, the First Minister had claimed she did not have the power to make the payments tax free and urged Boris Johnson to ensure workers kept “every penny of Scotland’s thank you to them”.
She added: “Do not take any of it away in tax.”
However, her plea for the bonus to be paid in full has now been dismissed by the Treasury, which pointed out the SNP administration had received more than £8.2 billion of extra funding and the decision to scrap tax on the payment was a decision for Holyrood as the relevant powers are devolved.
A spokesman for the Treasury said: “The income tax on these payments is paid to Scotland, not Westminster — and the Scottish Government has the powers and funding to gross up the payment if it wishes.”
It is near identical to a scheme in Wales announced in June, which is also taxed.
The Fraser of Allander Institute has claimed making the payment a “higher gross bonus” would be far easier.
The SNP have now been accused of “playing politics” with the announcement.
Scottish Conservative leader Douglas Ross said: “The SNP have all the funding and powers they need to top up this payment today. Any extra income tax would go to the Scottish, not the UK Government, so if they increase it, no-one misses out.
“Why is it that the SNP feel the need to take a £500 NHS ‘thank you’ payment and stoke up division with such a clearly political move, all to provoke a fight with the UK Government?
“The SNP are pushing for indyref2 in the middle of a pandemic and creating a political bunfight out of thin air.
“As the Fraser of Allander Institute have now made clear, this is all a political game from the SNP. They’ve dialled nationalist grievances up to 11.
“So my message to Nicola Sturgeon is, put your political guns away, apologise for trying to politicise the efforts of health and social care workers, and top-up this payment immediately.”
Officials at the GMB Scotland union said the gesture failed to “scratch the surface of delivering proper value for our carers”.
Representative Drew Smith said: “Sick to my stomach to see pay for care workers on less than £10 an hour and who have been put through hell this year being turned into the latest bit of constitutional game-playing. There is no shame left.”
Announcement of the payment has prompted UNISON to call off its strike ballot, with the public sector union having been protesting over pay earlier this year.
Willie Duffy, UNISON head of health, said: “We welcome this move by the First Minister on the eve of our NHS pay ballot to acknowledge the outstanding efforts of our health workers.
"However, it’s important our NHS workers are acknowledged for the vital work they do each and every day, not just during this pandemic.”