Chancellor Rachel Reeves has come under fire from the governments of Wales, Scotland, and Northern Ireland following a 1.2% increase in employer National Insurance contributions (NICs), effective from April 6. While the Treasury pledged to cover the NIC hike using the Barnett formula, a mechanism that allocates funds based on England’s population, officials in the devolved nations argue that this approach fails to account for their larger public sectors, resulting in significant funding shortfalls.
Specifically, Scotland faces a £700 million shortfall, Northern Ireland is short £200 million, and Wales is missing £72 million annually. In response, the Welsh government plans to use £36 million from reserves but warns of a 14% cut across various public sectors. Finance officials in all three nations contend that the Treasury’s method breaches the UK’s statement of funding policy, which stipulates that each government should not act in ways that create adverse financial implications for the others.
Scottish Finance Secretary Shona Robison criticized the funding gap, warning that it could hinder essential services. The dispute has reignited calls for reform or replacement of the Barnett formula, which has been in use since 1978. The controversy also exacerbates tensions between Welsh Labour and the UK Labour leadership, especially as support for Labour in Wales declines ahead of imminent elections. The UK government maintains that the funding aligns with established practice and agreements.
This development underscores the ongoing challenges in balancing fiscal policies with the equitable distribution of resources across the UK’s constituent nations.
