Kate Forbes has warned the Chancellor's national insurance hike risks harming economic growth as she argued the move calls a “question of basic competence” which the UK Government has failed.

Speaking ahead of a keynote address at the Investment Association Conference today, the Deputy First Minister highlighted estimates that Scotland faces more than £2 billion in higher taxes across the public and private sector next year as a result of the autumn budget driven largely by the national insurance rise.

In her budget on October 30, Ms Reeves announced an increase to employers’ national insurance contributions (NIC)while also lowering the threshold at which they start paying contributions.

The rate will rise by 1.2 percentage points to 15% from April next year and will now be paid on staff earnings from £5,000, rather than the current £9,100 level.

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The Scottish Government immediately called for £500m to cover the increased cost to the Scottish public sector but on Monday the Treasury briefed that an offer was being made to SNP ministers of between £295m to £330m - a figure criticised as insufficient by finance secretary Shona Robison.

Earlier this month The Herald revealed that Scotland councils and universities were facing additional costs of £265m and £45m respectively due to the national insurance hike.

Ms Forbes noted that the calculated cost of this policy for Scotland’s directly employed public sector is more than £500 million - and around £750m when costs include the likes of childcare settings, colleges, and adult social care.

Chancellor Rachel Reeves (Image: PA) The Scottish Council for Voluntary Organisations (SCVO) estimate that the third sector face costs of over £75m in employer NICs. The remainder of additional sums raised by the increase in employer NICs will be borne by businesses across Scotland.

“Labour’s national insurance hike has all the hallmarks of a plan that just was not thought through. Just like the winter fuel payment debacle, it is clear that the Treasury took a decision and then considered the consequences afterwards," said Ms Forbes.

“The desperate scrambling for a solution after the fact and the sheer panic which has emanated from the Treasury in the days and weeks since the Budget is proof of that.

“Then just yesterday, we saw the UK Government brief the press that they would be refusing to cover even close to the full costs, leaving hundreds of millions of pounds which they clearly expect to be absorbed by cuts to public services in Scotland. This is a question of basic competence – and the UK Government have failed at the first hurdle. As well as the hit of hundreds of millions of pounds to public services, industry will suffer too."

She added: “Businesses across the country are planning their year ahead, and making decisions about whether they can afford to take on extra staff – or in some cases, whether they can continue to keep the staff they do have.  Labour’s tax on jobs is the last thing they needed.

“The UK Government’s decision could seriously harm economic growth here in Scotland – forcing businesses to rethink their plans to expand, denying opportunities to workers, and in some cases forcing small businesses to close altogether.

“The national insurance hike could prove to be disastrous for the economy, public services, businesses and families – and it is vital that the UK Government reconsiders their approach.”

Earlier yesterday Ms Robison, who is preparing to unveil the Scottish budget on December 4, said Treasury funding of £330 million will not be enough to cover the cost to public bodies of the Chancellor's national insurance rise as she warned of the prospect of cuts to services.

"That Labour are trumpeting that they could reimburse less than half of this sum and expect people in Scotland to celebrate is beyond belief – and shows a complete disregard for public services in Scotland,” she said.

“Clearly, the Labour Government expect the shortfall of hundreds of millions to be absorbed by cuts to Scotland’s public services. Let me be clear, that is nothing less than Westminster austerity through the back door."

She added: "Labour need to fully fund their decision to avoid irreparable damage to our public services in Scotland.

“With just over a week until the Scottish Government announces its budget for the coming financial year, we need urgent and formal clarity from the UK Government that they will do so.”

Ms Reeves’s budget provided an extra £3.4 billion for next year, which the Scottish Government will likely have to use to cover the remainder of the increased costs to the public purse through the national insurance hike.

A UK Government spokesperson said: “The budget delivered more money than ever before for Scottish public services and the Scottish Government receives over 20% more funding per person than equivalent UK Government spending. It is for the Scottish Government to allocate this across its own public sector and meet the priorities of people in Scotland.

"It will also receive additional Barnett funding on top of this record £47.7 billion settlement as part of support provided in relation to changes to Employer National Insurance.”