The Scottish government is planning to offer the lowest-paid public sector workers an inflation-beating pay rise in its budget next week, partly funded by tax rises.



Public sector unions have lobbied the finance secretary, Derek Mackay, for a pay increase of 4-5%, after a decade in which pay has been frozen or rises capped at 1%.

With nursing, civil service and teaching unions warning of possible strike action next year, union leaders have said they believe Mackay will offer an average pay rise of 2.5-3% when he unveils the budget on Thursday next week.

It is understood, however, that Mackay will offer higher increases to the lowest earners, implementing a progressive pay policy that mirrors the sliding scale used in Scotland’s council tax, home-buyers’ tax and income tax regimes.

Mackay has found extra money after postponing plans to cut air passenger duty in Scotland, and receiving a slightly higher than expected Treasury grant in the UK budget last month. He is also expected to unveil higher taxes for the better off to help fund higher spending.

Under devolution, the Scottish government has responsibility for most public services, from hospitals to schools, prisons, roads and courts, which employ about 490,000 people.

Public sector unions, including the Royal College of Nursing and teachers’ unions, have raised the prospect of industrial action and strikes over pay which they say has fallen by 18.2% in real terms since 2010.

The PCS civil service union won 80% support for strike action in an indicative ballot last month of its members across the UK. Along with Unison and the GMB, it is calling for a 5% pay rise.

The EIS, Scotland’s largest teaching union, will ballot its 55,000 members on industrial action if its next pay deal is as low as 2.5%. Members of the NASUWT, the smallest of Scotland’s teaching unions, had been due to start a series of strikes in a number of schools before legal action halted them in Glasgow.

Some union officials have said they believe Mackay is considering an offer of 3%, but Dave Moxham, tge assistant general secretary at the Scottish TUC, said that would not be enough after nearly 10 years of pay restraint. The STUC is seeking 4%.

“[The] UK budget was far from perfect for Derek Mackay but it does provide the potential for him, with modest tax increases and some management of his budget, to ensure that public service workers get an at least inflation pay rise,” Moxham said.

“There are high expectations that, given all his positive words about wanting to scrap the pay cap, he will make that meaningful.”

Mackay is facing competing demands to increase funding for Scotland’s 32 local councils, whose grant was cut by 5.2% last year, and from senior figures in the arts to increase cultural and heritage funding.

After protests on Monday by 111 leading Scottish authors, including Ian Rankin and Kate Atkinson, more than 120 executives in Scotland’s arts, business and cultural bodies wrote an open letter on Tuesday urging Mackay to lift culture spending, which fell to £325m this year.

It is understood Mackay has dropped an earlier threat to link a public sector pay rise to job cuts or efficiency improvements.

Unison, the largest of the public sector unions, has told him that Holyrood’s powers to levy and collect income tax in Scotland means his government will recoup tens of millions of pounds from a pay rise through payroll taxes, reducing its real terms cost.

The Institute for Public Policy Research estimated a 2% pay rise would cost the Scottish government £380m, but £170m would flow back to the Scottish and UK governments through taxes, national insurance payments and reduced benefit costs.