The impact of the Scottish National Party’s tax policy on government revenues has become a focal point of debate, with no clear consensus on whether the policy has led to increased or decreased revenue. Since 2018, higher taxes have been imposed on high earners in Scotland, prompting researchers from the Institute for Fiscal Studies (IFS) to analyze available data to determine the effects of these changes.
The IFS’s scrutiny revealed substantial uncertainty regarding the actual impact of the higher taxes. Two UK government studies conducted on tax changes during the 2018-19 period provided inconclusive evidence on the matter. Additionally, although the Scottish Fiscal Commission (SFC) initially estimated the implications of the revised tax rates, the significant margins of error led the SFC to refrain from updating its assumptions. This uncertainty continues to cloud the true financial outcome of the tax policy.
A majority of researchers concur that the higher taxes might have cost the Scottish Government more than the original estimates by the SFC. However, the extent of this cost remains ambiguous due to the vagueness of the data. Moreover, it is suggested that various other factors, aside from tax changes, might be influencing the revenue outcomes.
International evidence indicates that taxpayers frequently relocate to areas with lower tax rates, a trend observed in countries such as Switzerland, the USA, and Spain. However, within the UK, internal migration data has shown that this has not significantly countered other influences contributing to the inflow of taxpayers into Scotland. In fact, more people moved to Scotland during the period of higher taxes than those who left, a movement consistent with trends seen in Wales and several more affordable rural areas in England.
David Phillips from IFS noted that tax rates undeniably affect the behavior of taxpayers, especially among high-income individuals who are essential contributors to overall tax revenue. Consequently, raising top tax rates might not generate the expected revenue and could potentially reduce it. Researchers have advised a cautious approach to further tax rate increases until a more precise understanding of taxpayer behavior and its impacts is obtained.
In response, Finance Secretary Shona Robison defended the Scottish Government’s tax policies, emphasizing that they are supported by evidence and have led to quicker growth in earnings and tax per capita compared to the rest of the UK. The SFC projects an additional £1.5 billion in revenue for 2024-25 as a result of these policies. Furthermore, findings from HMRC research indicate that more taxpayers have been attracted to living in Scotland than leaving, showcasing the country’s appeal regardless of higher taxes.
In conclusion, while the SNP’s tax policies have been implemented with the objective of increasing revenue through higher taxes on high earners, a substantial level of uncertainty remains about their effectiveness. Current evidence implies that the anticipated revenue gains may not be achieved or could even turn negative, suggesting that the Scottish Government should hold off on additional tax increases until more comprehensive and precise data becomes available.
