Tax row over £500 NHS staff bonus a ‘healthy dose of politics’

The call to make the £500 bonus for all NHS and social care workers in Scotland exempt from tax may encourage lobbying for tax-free bonuses, the Fraser of Allander Institute has warned.

The economic thinktank has suggested paying a higher gross bonus to those workers would be a better solution.

And its blog post on the issue concluded the Scottish Government urging the UK Government to make the bonus tax-exempt has a “healthy dose of politics” about it.

However, the blog also clarified that only the UK Government had the power to make the bonus exempt from income tax, responding to arguments elsewhere that it is a devolved matter.

It said: “The Scottish Government’s powers over devolved income tax do not give it the ability to exempt income tax on these bonuses – only the UK Government could do that (although not necessarily straightforwardly).

“But exempting any bonuses from tax is not widely regarded as a good use of tax policy – regardless of which government has the powers to do it, and regardless how much we appreciate the work done by NHS/social care workers in recent months.

“There’s a reason bonuses are taxed; if they weren’t, everyone would want paid in bonuses rather than regular pay. Making an exception to the rule once opens the possibility of endless future lobbying for tax-exempt bonuses – which is not something any government should be keen to encourage.”

Nicola Sturgeon made the announced at the SNP conference on Monday that every NHS and adult social care worker would be given £500 as a one-off “thank you payment” for their service this year.

During Tuesday’s COVID-19 statement to parliament, Sturgeon said: “I think we all recognise – it’s why we stood on our doorsteps week after week applauding health and care workers – that the particular contribution of that workforce is I think worthy of particular recognition.”

She added: “We will continue, in the face of public sector pay freezes announced by the UK Government, we will continue to do everything we can to ensure proper reward and recognition.”

The Scottish Conservatives have argued increasing the payment to £625 would give workers the desired £500, while returning the additional £125 to the Scottish Government through income tax.

Leader Doulas Ross said: “The SNP are pushing for indyref2 in the middle of a pandemic and creating a political bunfight out of thin air. As the Fraser of Allander Institute have now made clear, this is all a political game from the SNP. They’ve dialled nationalist grievances up to 11.

 “So my message to Nicola Sturgeon is, put your political guns away, apologise for trying to politicise the efforts of health and social care workers, and top-up this payment immediately.”

Elsewhere, Unison Scotland has called off its ballot over NHS pay in light of the announcement. The trade union had been due to consult with members about industrial action from Tuesday.

Tam Waterston, chair of the union’s health committee, said: “Unison was the only union calling for money in the pockets of health workers this year and we welcome the Scottish Government’s commitment to keep its promise and to pay up now for Scotland’s health workers.

“Industrial action was always a last resort for our members and this announcement shows the power of being in a union and what can be achieved as the result of a strong and powerful campaign.”