Kate Forbes: Scottish income taxes are 'under review'

Deputy First Minister Kate Forbes has said the Scottish Government's progressive taxation policy is being kept "under review" over fears it is driving taxpayers away from Scotland and dissuading new workers from relocating here.

In its last budget the government introduced a new 45 per cent tax band for people earning between £75,000 and £125,000 in addition to increasing the top rate from 47 per cent to 48 per cent. That has led to higher earners paying more in income tax than they do elsewhere in the UK.

There was an instant backlash from the business community, which said that such divergence from the rest of the UK would drive workers away and limit their ability to attract new talent.

Speaking to Holyrood, CBI Scotland interim director Mags Simpson said the income tax divergence was already creating "a big problem" for Scottish businesses.

"We have asked the Scottish Government for a medium-term tax plan and have been assured that that's coming," she said.

"The CBI on the whole doesn't get involved in personal taxes, but our members are telling us this is having an impact on their ability to attract people.

"There are also differences with stamp duty [which applies in the rest of the UK] and the land and buildings transaction tax [which applies in Scotland]. All those things add up.

"The Scottish Government needs to have a grown-up conversation with themselves about the best way to grow the tax base.

"Candidates are now saying they can commute from Newcastle and that's slowly but surely becoming a narrative."   

In an interview with The Herald newspaper, Forbes said figures from HM Revenue & Customs show that, since the changes were implemented, more people have come to Scotland from the rest of the UK than had moved in the opposite direction.

However, she said that given how easy it is "for people to shift" the government's policies would be kept "under review".

"I was [..] public finance minister when income tax was first devolved and I recall at the time us making it clear that we would follow the Adam Smith principles of taxation and one of the commitments that we made was to always keep the divergence under review to understand the behavioural impact," she said.

"I want to be independent, but we are devolved and that has implications for how easy it is for taxpayers to shift."

She added: "What we have seen is despite the constant negative reaction from the opposition parties, HMRC concluding that just over 4,000 more people have come to Scotland than have left.

"I think that speaks to the fact that people choose to immigrate to Scotland for a whole host of reasons and it’s very reductionist to assume people purely make decisions on income tax.

"They will also take into account, for example, council tax, they will take into account the cost of living and on that we really do excel in Scotland with the reduced cost of prescriptions, tuition fees and basically I think a better work-life balance."

In its general election manifesto, which was released this week, the SNP said income taxes across the UK should be increased to match the Scottish system, something it said would raise £16.5bn in 2028-29.

It said that money should be invested in the green economy and overhauling the benefits system.