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Rachel Reeves accused of leaving devolved nations in the red after NICs rise

16 June 2025
in Business
Reading Time: 3 mins read
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Rachel Reeves accused of leaving devolved nations in the red after NICs rise
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Chancellor Rachel Reeves has come under mounting pressure from devolved governments after being accused of underfunding Scotland, Wales and Northern Ireland in the wake of her decision to increase employer national insurance contributions (NICs).

The 1.2% rise in NICs for employers on salaries above £5,000, introduced on 6 April, is being covered by the Treasury in England through direct funding. However, for the devolved administrations, Reeves has chosen to apply the Barnett formula to calculate their allocations — a move that has sparked widespread criticism.

Although the formula adjusts funding based on population size, it does not account for the significantly larger public sectors operated by Cardiff, Edinburgh and Belfast. Finance ministers in each of the devolved nations say they have been left with substantial shortfalls and have accused the UK government of breaching the UK’s own Statement of Funding Policy, which prevents one administration from taking actions that financially disadvantage the others.

In Wales, the funding gap is around £72 million annually. Welsh finance secretary Mark Drakeford confirmed the government would take £36 million from reserves to cover half the cost but warned that the remainder — to be borne by local authorities and public bodies — would mean cuts of around 14%. “We have made our position very clear with the Treasury that using the Barnett formula in this instance is a breach of the rules,” Drakeford said. “If this was a one-off, we may have been able to use more of our reserves, but as it is, this will unfairly impact Wales year after year.”

Scotland is facing a significantly larger bill, estimated at £700 million, with the Treasury offering only £339 million in additional funding. In Northern Ireland, where the shortfall is around £200 million, £146 million has been allocated — still well short of the amount needed to meet public sector obligations.

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