Scottish local authorities are facing a £265 million bill to pay for an increase in employer national insurance contributions announced by the Chancellor in her Budget, it can be revealed.

The figure was given by council representative body Cosla as it launched its lobbying campaign "Invest Locally in Scotland’s Future" ahead of the Scottish Budget on December 4. 

It is appealing to the Scottish Government to provide extra funding to cover the cost in full.

In addition, Cosla cited an analysis from the Accounts Commission which estimates councils face a budget shortfall of £392 million even before the national insurance rise is taken into account.

"The changes to employers’ national insurance contributions is estimated to introduce a direct cost of at least £265m for local government, before additional costs for commissioned services in the third and independent sector are taken into account. Scottish Government must commit to passing on the promised consequentials," said the document.

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"Accounts Commission analysis shows a budget gap of £392m in 2025/26 even before the additional pressure of the national insurance contribution changes."

In her first budget last week Rachel Reeves unveiled a rise in employer national insurance contributions from 13.8% to 15% alongside a lowering of the threshold from £9,100 to £5,000 at which companies begin paying contributions on each salary. Ms Reeves said the changes would raise £25 billion a year.

A post Budget analysis of the policy by the Institute for Fiscal Studies estimated that employers will have to pay an additional £900 for each employee on median average earnings. 

Chancellor Rachel Reeves delivering the UK Budget in the Commons last week (Image: PA) Cosla President Councillor Shona Morrison said councils had suffered "real-terms" financial cuts by the Scottish Government for several years and warned the problems were putting "vital services" at "increasing" risk.

"Councils are at the heart of our communities, providing the vital services we all use at some point over the course of a normal day – from ensuring the best possible education for our children to providing good quality affordable housing and to making sure our communities and public spaces are clean and safe," she said.

"In turn, these services benefit us all by improving our health and wellbeing, strengthening our communities, and supporting us in reaching a just transition to net zero. 

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"However, the great work performed everyday by our councils is increasingly at risk. Years of real-terms cuts and flat cash settlements from Scottish Government, compounded by rising inflation and operational costs mean that our councils are constantly required to do more with less. 

"Our councils have done their very best to protect core statutory services, such as education and social care. However, as we can see with the ever-increasing number of housing emergencies announced across our communities, even these essential services are facing real strain." 

Cosla resources spokesperson Councillor Katie Hagmann said budget cuts were threatening councils’ ability to meet statutory obligations including in services such as housing and homelessness. 

"Across Scotland, councils are in an extremely challenging position, made worse by significant cuts to our core budget in recent years. This is putting unprecedented strain on our front-line essential services and local government is moving ever closer towards unsustainability.  

"The reality of budget reductions in areas such as roads, planning, culture, and leisure are threatening councils’ ability to meet statutory obligations including services such as housing and homelessness. Last year, the 2024/25 budget resulted in a flat cash revenue settlement with further cuts to local government’s core capital budget. Our communities cannot afford for this to be repeated. 

"The 2025/26 budget must provide fair and flexible funding to allow local government to deliver our jointly agreed outcomes and address the multiple challenges we are facing. It is vital that the Scottish Government ensures that any additional revenue and capital funding, made available through the UK Budget, is passed onto councils. 

"The key asks in Cosla's ‘Invest Locally in Scotland’s Future’ campaign reflect the challenges across all our councils. We are calling on the Scottish Government to provide fair and flexible funding to allow councils to balance budgets, meet workforce challenges such as recruitment and retention issues, higher demand for services, and the ability to provide fair pay uplifts.

"It must look to reverse the real-terms reduction to the affordable housing supply programme, and it must ensure that additional capital investment is made available to allow councils to meet higher costs and drive forward a healthier local economy."  

In her budget, Ms Reeves announced a £1.5 billion funding boost for Holyrood this financial year and a further £3.4 billion next year.

However, it was unclear whether mitigations for the public sector over the increase to employers’ national insurance and lowering the threshold for contributions were included in the £3.4 billion.

First Minister John Swinney was pressed on the extra cost to public bodies of the rise at First Minister's Questions in Holyrood yesterday.

He told MSPs finance secretary Shona Robison had written to the Chancellor to seek "clarity" ahead of the Scottish Budget.

"We need clarity for our own budgeting purposes about what compensatory effects will be allocated to public funds to deal with the increased costs that will arise from the increase in the employers’ national insurance contribution," he said.

"That will apply to clearly identifiable public service organisations, but there is also a question about whether it will apply to organisations that are not classified as being in the public sector but provide public services, such as care providers, third sector organisations or further afield, universities and colleges.

"There is significant uncertainty about whether that will be adequately and properly covered in the budget, and that will be the subject of detailed discussions between the Scottish Government and the UK Government as we proceed with our budget steps."

The size of cost of the national insurance contributions rise to all councils was revealed after the SNP leader of Glasgow City Council wrote to the Chancellor seeking 'urgent clarity' over the hike which she claims will cost her council over £50 million. 

In a letter seen exclusively by The Herald, Councillor Susan Aitken said there is "continuing lack of clarity" over the increase.

A UK Government spokesperson said: “We have taken tough decisions to fix the foundations of the UK economy while protecting the smallest employers across Scotland by more than doubling the Employment Allowance to £10,500 - meaning more than half of them with NICs liabilities either gain or see no change next year.

“The Scottish Government will receive additional funding on top of its record £47.7 billion settlement announced at Budget to support them with the costs associated with changes to Employer National Insurance Contributions. More details will be set out in due course.”

A Scottish Government spokesperson said: “We continue to assess the full implications of the Chancellor’s Autumn Budget statement. Finance Secretary Shona Robison will be announcing further details as part of the Scottish Budget on 4 December.

“We recognise the crucial role councils play in their communities.  That is why we are making available record funding of more than £14 billion to councils in 2024-25 and our commitment to meaningful budget engagement with Cosla will continue ahead of the Scottish Budget.”