Income tax gap poses growing risk to economy

Higher taxes may be acceptable if it means better public services, but Scotland’s are crumbling

Concern about the increasing gap between income tax rates in Scotland and the rest of the UK, and the wider effects this will have on the economy is rising. The fact that anyone earning more than £28,850 in Scotland will pay more tax than their counterparts south of the Border means a large swathe of the population has an incentive to relocate.

It takes little imagination to realise that financial sector employees would be among those to feel the difference more keenly. Money is, after all, their business. The status of Edinburgh’s financial sector may be somewhat reduced, but it still remains an important part of the Scottish economy.

Now Chris Hayward, policy chairman of the City of London Corporation, the governing body for its finance district, has revealed the income tax issue was raised during a meeting with Humza Yousaf this week. Speaking afterwards to The Scotsman, Hayward said: “If you can cross the Border, frankly, and pay less tax, and still commute or work remotely, and you’re going to make a significant saving on your tax bill, the chances are that will impact… It [high taxation] is a risk to Scottish jobs.”

Just as there is a worldwide market for investment, there is also one for talented individuals in high-earning roles and for companies looking to open new offices. If their staff would prefer to live in Manchester or Newcastle, where it’s easier to recruit top-quality employees, companies may think twice about moving to Scotland.

However, when people think about where they want to live and work that choice is seldom all about money. The quality of local schools and healthcare, for example, also plays a part. For many people, higher taxes can be acceptable if there is a reasonable quid pro quo in terms of better public services.

The problem is that Scotland has high taxes and crumbling public services. Education, in particular, has been falling down international league tables, as England performs well. The SNP government’s deal with the public is broken and delivering little in return. If companies and higher-earning taxpayers start to leave, this worst-ofall-worlds crisis may spiral ever deeper.