The Scottish government has demanded that it is fully compensated by the Treasury for a hike in National Insurance for public sector employers.

Finance Secretary Shona Robison said the tax increase announced in the UK autumn Budget could cost the SNP administration £500m.

Chancellor Rachel Reeves seemed to suggest £3.4bn in additional funding for Scotland in 2025-26 did not include compensation as she urged Holyrood ministers to spend the money “wisely”.

However, the UK government said that extra funds would be provided on top of the £3.4bn to make up for the extra staff costs.

The Scottish government is also set to receive an additional £1.5bn for this financial year, 2024-25.

Making her first budget announcement as chancellor, Reeves said employers are to pay National Insurance on workers’ earnings above £5,000 from April, down from £9,100 currently, with the rate increasing from 13.8% to 15%.

That could have a particularly big financial impact for the Scottish government, which funds a proportionally larger public sector workforce than in the UK as a whole.

Robison told BBC Radio’s Good Morning Scotland that the tax hike could cost the Scottish government up to £500m.

“Because the Scottish public sector is larger, we need to see that fully covered,” she added.

“We will be seeking urgent clarity on that.”

About 600,000 people are employed in Scotland’s public sector, making up 22% of the total workforce – compared to about 17% in the UK as a whole.

That has fuelled concerns at Holyrood that Scotland could be short changed if compensation for the National Insurance increase is not proportional to its public sector.

Earlier, Reeves was asked about concerns that the tax increase could cost the Scottish government £500m.

She told Good Morning Scotland: “We’ve given £3.4bn in the settlement to Scotland, which takes into account all of those pressures.”

“The challenge now for the SNP in Scotland is to use that money wisely.”

The chancellor said the Budget provided the biggest settlement for Holyrood in the history of devolution.

She added: “The Scottish government now need to deliver.”

A UK government spokesperson said the Treasury would provide funding to support the public sector with the additional costs.

They said the £3.4bn figure did not include the additional support.

The spokesperson added: “We will work through the implications for the devolved governments budgets at official level.”

It is understood that of the £3.4bn settlement for 2025-26, £2.8bn is for day-to-day spending.

The Scottish government is due to announce its budget for the next financial year on 4 December.

It has already made £500m of cuts from its budget for this financial year.