A third of businesses have felt an impact on staffing and investment as a result of the Scottish Government’s higher income tax policy, researchers have found.
The Scottish Business Monitor (SBM), produced by the Fraser of Allander Institute at the University of Strathclyde, shows that 17% of businesses experienced a “fair amount” of impact, with another 17% stating that the policy had a “significant” effect on their operations.
Construction emerged as the most affected, with 27% of firms reporting a significant impact.
Workers in Scotland earning more than £28,867 pay more income tax than their UK counterparts.
Scotland also has six income tax bands, compared with three set by Westminster, after the introduction of a 45% advanced rate for those earning between £75,000 and £125,140.
Key issues identified from firms’ responses in the survey include:
- Recruitment and Retention: Many businesses say they are struggling to attract and retain talent, citing higher taxes as a cause of employee dissatisfaction, leading to increased wage demands and reluctance to relocate to or remain in Scotland.
- Wage Pressures: A number of respondents reported raising wages to compensate for the reduced take-home pay of employees due to the higher tax rates.
- Competitiveness and Investment: Some businesses perceive Scotland’s higher tax regime as a competitive disadvantage compared to the rest of the UK, with a few considering moving operations or investments south of the border.
Professor Mairi Spowage, Director of the Fraser of Allander Institute, said: “These results shed light into the ongoing debate on how tax policies are affecting businesses and the broader Scottish economy. While most firms report minimal impact from the current tax policy, a notable minority are experiencing challenges, especially in areas like staffing and investment.
“This divide underlines that taxation is a particularly contentious issue, and ties into the discussion happening across Scotland about how diverging rates of income tax are affecting the economy.
“As the Scottish Budget approaches on December 4th, the Deputy First Minister will need to weigh whether the current tax balance is right – or if there’s any scope for change.”