Clash looms over public sector pay as SNP drags workers into higher tax bands
Fears have been raised over the impact of the SNP government’s income tax strategy on public sector pay negotiations.
One of Shona Robison’s top tax advisers has warned thousands of public sector workers being dragged into higher rates will impact already-tight public pay negotiations in the coming years.
The Scottish Government set a pay policy of nine per cent over three years. But after the first two years, more generous than forecast settlements have left SNP ministers with around 1 per cent for next year’s pay negotiations - a real-terms pay cut that trade unions will not agree to.
Now, Professor David Heald, Emeritus Professor at the Adam Smith Business School at Glasgow University, who sits on the Scottish Government’s tax advisory group, has warned that a strategy to freeze the higher rates of income tax will likely make pay negotiations even more challenging for SNP ministers.
Analysis by the Scottish Fiscal Commission, the Scottish Government’s independent forecasters, has found that almost 950,000 Scots will pay higher income tax rates in the next two years.
Those currently earning the median full-time salary - £39,900 - could be dragged into the higher rate of 42 per cent by 2029/30 - including many public sector workers such as some teachers and nurses.
Speaking in front of Holyrood’s finance committee, Professor Heald stressed that SNP ministers want the Scottish tax system to be “more progressive”.
He added: “But it can be done in sensible ways and it can be done in destructive ways.
“More and more people are getting into the higher rate in Scotland. If you’re going to have six tax bands, it’s ludicrous that three tax bands are trivially different and you get a jump of 22 per cent to 42 per cent.”
Professor Heald issued a warning that the strategy is “going to start affecting pay negotiations”.
He added: “With having a lot of public sector professionals in the higher rate, you are going to start getting people and trade unions starting to negotiate for net pay.”
Scottish Conservative finance spokesperson, Craig Hoy, claimed “a red light is flashing” over upcoming public sector pay negotiations.
He added: “It would be heroic negotiations for the Scottish Government to go into a room of trade union officials, based on recent experience, and come out having negotiated a real-terms reduction in pay. I believe that’s not going to happen.
“As public sector workers are getting into the higher rates of tax, the trade union negotiators who negotiate on their behalf are going to be tougher. They effectively know that 50 per cent of any pay increases is going to be handed back to the Scottish or UK exchequer in tax and National Insurance.”
Professor Graeme Roy, chairman of the Scottish Fiscal Commission, said his organisation has highlighted public sector pay “as being a risk”, adding that money will have to be found from other parts of an already-tight Budget, to offset any pay increases.
He said: “If you look at what the pay policy says, 9 per cent over three years, what’s left in that overall envelope suggests a real-terms pay cut in the final year. We highlight that as being a risk.
“It then means that if the actual pay policy differs, that means that within the portfolio allocations, essentially more of that allocation has to go on public sector pay. That means the other aspects of the Budget need to do the heavy lifting in order to make up the gap.
“As more pay awards come through, the government will essentially recycle some of that through higher taxes.”
A spokesperson for Scottish Government said: “Thanks to the decisions the Scottish Government has taken on public sector pay, a band 6 nurse at the bottom of the scale will take home an additional £1,994 after tax because they live in Scotland and not England, and a teacher in Scotland will take home £6,365 more after tax than they would in England.
“The Cabinet Secretary has committed to reviewing the Pay Policy as part of the 2027-28 Budget process to ensure continued sustainability and alignment with fiscal priorities.
“Public sector pay deals balance prudent financial management with securing early agreements, protecting service delivery and avoiding industrial action.”
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