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'Conversation' will take place on tax hike compensation - Sarwar

Anas Sarwar says discussions will take place about compensating the public sector for increase National Insurance contributions

Scottish Labour leader Anas Sarwar has said a "conversation" will take place between the UK and Scottish governments over the cost of increased National Insurance contributions.

Scottish ministers say the tax hike, announced in the UK budget, could cost public sector employers in Scotland an extra £500m.

Public Finance Minister Ivan McKee said the lack of clarity over whether there would be compensation for this money was a "big unknown" ahead of the Scottish government's own budget in December.

Sarwar told BBC Scotland's The Sunday Show that Labour had already committed to discussions on the issue, and talks would involve the chief secretary to the Treasury.

Rachel Reeve's first budget as chancellor raised the National Insurance rate for employers from 13.8% to 15%, and lowered the salary threshold on which it is paid from £9,100 to £5,000.

That could have a particularly big financial impact for the Scottish government, which funds a proportionally larger public sector workforce than in the UK as a whole.

Mr Sarwar said the budget had delivered an extra £1.5bn for Scotland in the current financial year and £3.4bn more next year.

Pushed on the issue of National Insurance compensation, Sarwar said: "Which is why the conversation will happen between the Treasury and Scottish government.

"Something we committed to on the day of the budget and not something that's happened since the budget because we recognise there will be an impact for example on our national health service and that's not an impact we want to see."

Sarwar has previously called for an end to the two-child benefit cap, which prevents most parents from claiming universal credit or child tax credit for a third child.

Asked if he was disappointed there was no change to that policy in the budget, he said it was not possible to fix everything at this stage.

He added: "Actually there's lots of things we haven't been able to address in this first budget because I think people understand that it will take more than one budget to fix a 14-year mess left by the Tories."

Ivan McKee says the issue of National Insurance compensation is a "big unknown"

Scotland's Public Finance Minister Ivan McKee said the new money available to the Scottish government did not fully relieve financial pressures.

He said most of the extra £1.5bn in the current financial year would be used to pay for already agreed public sector pay rises and there was a relatively small portion of that figure available for capital spending on things like infrastructure.

On the compensation for National Insurance changes, he said there were mixed messages.

"It seems that part of the UK government is saying one thing, but Rachel Reeves who is the chancellor, the boss at the end of the day, is saying another and that it's already been included in the money we've been allocated," he said.

"So that's a big, big unknown."

McKee refused to be drawn what would be in the Scottish budget on 4 December.

But asked if he thought that any further increase in taxes in Scotland would be counterproductive, he replied: "I think that is a very strong consideration."

The Scottish Conservatives said the chancellor had delivered a "socialist tax hiking budget" which was "straight out of the SNP’s playbook and will hammer hard-working Scots".

Finance spokesman Craig Hoy continued: "Labour repeatedly said they would protect working people, but their decision to hike employers’ National Insurance contributions will threaten workers jobs and their pay packets."