Scotland faces exodus of high earners unless Nicola Sturgeon cuts taxes

Nicola Sturgeon was warned that 'the politics of cutting top-rate taxes looks awful in Scotland, but if they don’t do it, they will lose taxes' - Max Mumby/Indigo
Nicola Sturgeon was warned that 'the politics of cutting top-rate taxes looks awful in Scotland, but if they don’t do it, they will lose taxes' - Max Mumby/Indigo

Scotland faces a mass exodus of high earners to England unless Nicola Sturgeon follows suit on Downing Street’s planned cuts to income tax, economists and business leaders have warned.

Economists have predicted a fifth of the estimated 18,000 top-rate taxpayers in Scotland will move south of the border if the SNP administration does not also cut the top rate of income tax to 40 per cent.

The Scottish Tories warned on Sunday that Scotland risks “being left behind” if SNP ministers at Holyrood fail to match the tax-cutting proposals being introduced in the rest of the UK.

Changes to income tax announced in the mini-Budget include a cut in the basic rate to 19p in the pound, as well as the scrapping of the top rate for those earning £150,000 a year or more.

Those measures do not apply in Scotland, where control over income tax rates and bands is devolved.

The rate of income tax for Scotland’s highest earners currently stands at 46 per cent for the highest earners, while in England it is to be cut from 45 per cent to 40 per cent.

While Ian Blackford, the SNP Westminster leader, condemned Chancellor Kwasi Kwarteng’s package of measures as “nonsense”, John Lamont, the Scottish Conservative MP, urged the Scottish Government to adopt similar “radical” proposals.

Douglas McWilliams, an economist and deputy chairman of the Centre for Economics and Business Research, told The Sunday Times that “it would be realistic to assume about 20 per cent of top-rate taxpayers could move south”.

Mr Lamont told BBC Scotland’s The Sunday Show: “What I don’t want to see is Scotland being left behind while the rest of the UK powers ahead with this new, ambitious, radical plan set out by the Chancellor on Friday.”

Richard Lochhead, the Scottish Government minister, has already vowed that the SNP will continue with a “fairer and more progressive approach to taxation”.

However, Mr Blackford said “millions and millions of ordinary workers” across the UK would have less cash because of the changes – warning also that these could see the country endure a longer and deeper recession.

The Institute for Fiscal Studies, an economic think tank, has calculated that only those people earning £155,000 a year or more will be “net beneficiaries” from the new Chancellor’s package. 

Meanwhile, three former Scottish government economic advisers – Sir George Mathewson, the former head of the Royal Bank of Scotland, Professor Sir John Kay, from the London School of Economics, and former billionaire tycoon Jim McColl – have called on the First Minister to bring taxation in line with the rest of the UK.

Sir George stressed the dangers of creating a taxation difference between England and Scotland, telling the Sunday Times: “We cannot afford to give people a tax incentive not to be in Scotland. Whatever they do in Westminster must influence what you have to do in Scotland because it’s an open market.

“Following Covid and now the war in Ukraine, the economy needs a massive boost and Westminster has reacted.”

Sir George, a vocal supporter of independence, added: “The Scottish Government has not been as business-friendly as it was in Alex Salmond’s time. Now it has some big decisions to make.”

‘No-win situation for Scottish Government’

Sir John, a fellow of the British Academy and the Royal Society of Edinburgh, said while only 0.6 per cent of the Scottish population payed 46 per cent income tax, they made up 16 per cent of Scottish income tax in total.

He said: “It’s a no-win situation for the Scottish Government.

“The politics of cutting top-rate taxes looks awful in Scotland, but if they don’t do it, they will lose taxes. So probably the sensible thing to do is match it, even though perhaps the politically astute thing to do is not match it.”

Benny Higgins, a Scottish banker and former business adviser to Nicola Sturgeon, told The Telegraph a potential six per cent gap between the two nations would spell “jeopardy” for Scotland’s business community.

He said: “A one per cent gap may be seen by me and my peers as tolerable and understandable, but a six per cent gap would be different.

“The effect on high earners means jeopardy for the Scottish business community. The Scottish Government doesn’t have to close the gap completely but should do something to reduce it.”

Mr McColl added: “There’s always a risk that if it’s more business-friendly down south, people will recognise that, so it does create a danger for the Scottish economy.”

John Swinney, the Deputy First Minister, said: “The Chancellor’s announcement has provided tax cuts for the rich and little for those who need support during this cost of living crisis.

“We have committed to carry out our emergency budget review and we will set out our tax policies during the normal Scottish Budget process.”