Scotland’s decision to raise its top income tax rate to 48 per cent on earnings above £125,140 may have backfired, resulting in lower tax receipts according to tax lawyer Dan Neidle. Research published by Tax Policy Associates analyzed HMRC data from the 2024-25 financial year and suggested that the Scottish government collected roughly £22m less as high earners adjusted their financial behavior to avoid the levy.
The Laffer Curve Impact on Scottish Tax Receipts
According to analysis by Dan Neidle, Scotland may have crossed the Laffer curve—an economic theory modeled by Arthur Laffer indicating that tax increases can eventually depress overall revenue if rates exceed an optimal threshold. Scotland has gradually raised its top rate above the UK-wide baseline of 45 per cent over the past eight years. HMRC figures indicate that high earners responded to the 48 per cent rate by altering how they took compensation, such as paying themselves in dividends or shifting income into pension contributions rather than handing cash directly to the government.
Tax Policy Associates evaluated the average taxes paid by top-rate taxpayers in Scotland versus the rest of the UK, alongside the proportion of income taxpayers paying through self-assessment. Both metrics showed a drop in the share of tax income generated in Scotland. Neidle noted that this projected shortfall of £22m is a conservative estimate that could climb to approximately £30m, assuming Scottish incomes grew at the same pace as those in the rest of the UK.
Data Variability and Broader Political Context
While the analysis points to a revenue decline, Neidle acknowledged that year-to-year data noise can introduce uncertainty into tax calculations. Non-tax variables may also drive significant fluctuations in the volume of higher earners residing in Scotland.
The findings offer a cautionary note for political figures facing pressure to fund extensive public spending packages through wealth taxes. A spokesperson for the Scottish government defended the country’s fiscal framework, pointing out that Scotland remains a leading destination for foreign direct investment outside London and that the number of top-rate taxpayers grew faster in Scotland than in the rest of the UK during the 2024-25 period. The government attributed its progressive taxation model to funding distinct public services, including free university tuition, free prescriptions, and the Scottish Child Payment.
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