Scottish Financial Enterprise (SFE) is urging the Scottish Government to reconsider its income tax policy, claiming it’s not working as intended.
This call comes after the Institute for Fiscal Studies suggested that recent tax increases may have reduced rather than increased revenues.
The Scottish Government has implemented a complex income tax structure with higher rates for middle and high earners compared to the rest of the UK.
For instance, a taxpayer earning £50,000 pays £1,540 more annually in Scotland than in the rest of the UK.
The government defends its approach, stating that Scotland’s tax policies are evidence-based and balance revenue needs with economic impacts.
However, SFE argues that aligning some income tax rates more closely with the rest of the UK would signal recognition of business concerns about growth, investment, and talent retention.
Scottish Financial Enterprise’s Chief Executive Sandy Begbie CBE said: “SFE has consistently stressed the risk of income tax divergence shrinking the Scottish tax base. We have pursued an evidence-based approach on this issue which has now been vindicated by the Institute of Fiscal Studies.
“It is now time for the Scottish Government to recognise that this policy is not working and take action to begin changing course.
“We recognise that divergence cannot be unpicked over night, but bringing even some income tax rates more closely in line with the rest of the UK would be a step in the right direction and a clear signal that the Scottish Government recognises the concerns of business and their ability to attract and retain talent.
“With the recent UK budget damaging business confidence, it’s even more important that the Scottish Government listens to the needs of business, helping to drive investment, create jobs and deliver more sustainable economic growth.”
As the Scottish Budget for 2025-26 approaches, the debate over income tax policy and its effects on the economy continues to intensify.
