Welsh Government dips into £36m reserves to plug National Insurance gap

The Welsh Government has confirmed it will provide £36 million from its reserves to help meet rising employer National Insurance (NI) costs in the devolved public sector.

The increase, introduced by the UK Labour Government, has raised employer NI contributions from 13.8% on earnings above £9,100 to 15% on salaries above £5,000.

At the same time, the Employment Allowance was increased from £5,000 to £10,500.

The changes mean an additional £257 million in annual costs for public services in Wales.

The UK Government has contributed £185 million to offset the impact, but a shortfall of £72 million remains.

Finance Secretary Mark Drakeford said:

“We’re protecting our vital public services by using £36m from our reserves to help address the National Insurance shortfall left by UK Government.

“The UK Government did provide funding, but this falls short of the actual costs faced by Welsh public services, creating a multi-million-pound gap every year.

“We have stepped in to help as much as we can, but the Welsh Government cannot afford to cover the entire shortfall.

“The UK Government should treat the public sector the same across the UK and make good on its pledge to fully fund these extra costs.”

The Welsh Conservatives criticised both Labour governments following the announcement. Shadow Cabinet Secretary for Finance, Sam Rowlands MS, said:

“Before the general election Labour promised that two governments working at either side of the M4 would deliver for Wales. Instead, we see a party at war with itself, with a Welsh Labour Government seemingly powerless to influence their UK counterparts.

“If Labour hadn’t squandered hundreds of millions of pounds on vanity projects and inefficiencies, this funding gap would not pose such a substantial challenge. They must also explain how they will address other financial pressures later in the year after depleting reserves to plug this shortfall.

“This situation lays bare the UK Labour Government’s disregard for Wales and Welsh Labour’s ongoing failure to competently manage its own budget.”

The funding package now totals £220 million, which the Welsh Government says will cover around 85% of the increased NI costs for public services across Wales.