Scotland’s decision to increase its top rate of income tax to 48 percent may have backfired by generating lower public sector receipts, according to an analysis published by lawyer and tax expert Dan Neidle. Data from Her Majesty’s Revenue and Customs for the 2024-25 period indicates that the Scottish government collected roughly £22m less than anticipated from high earners, prompting concerns that the devolved administration has crossed what economists term the Laffer curve.
Over the past eight years, the Scottish government has incrementally raised its top income tax rate above the broader United Kingdom baseline of 45 percent, which applies to annual earnings exceeding £125,140. Modeled by economist Arthur Laffer, the theoretical economic concept posits that tax collection increases alongside rates up to an optimal threshold, beyond which further hikes discourage work, drive wealthy residents away, or encourage taxpayers to exploit avoidance methods, ultimately reducing total revenue.
According to the research, high-earning individuals in Scotland adapted to the elevated tax burden by altering how they draw remuneration. Rather than taking standard high-rate taxable income, many taxpayers shifted toward alternative methods such as drawing corporate dividends or increasing personal pension contributions to shield their capital from the 48 percent levy.
Tax Policy Associates, the research organization founded by Neidle, examined the average taxes paid by top-rate taxpayers in Scotland compared against the rest of the UK, alongside the proportion of income taxpayers utilizing self-assessment. The review revealed that Scotland’s share of total income tax generation declined across both metrics.
Evaluating the Revenue Shortfall
Neidle noted that if his working hypothesis holds true—assuming underlying Scottish incomes grew at a pace comparable to the rest of the UK—the policy change resulted in a direct deficit of approximately £22m. He described this figure as a conservative projection that could potentially escalate toward around £30m once final adjustments are complete.
By contrast, Neidle calculated that a more modest one-penny increase in the top tax rate could have secured an additional £53m for public coffers. However, the analysis acknowledged that year-to-year fiscal data frequently contains statistical noise, and external economic variables independent of tax policy can trigger significant fluctuations in the demographic distribution of high earners living north of the border.
Scottish Government Response
Defending its fiscal strategy, a spokesperson for the Scottish government rejected the assertion that progressive taxation has damaged the regional economy, pointing to broader economic indicators.
“Our economy is one of the best performing parts of the UK, with Scotland the top UK destination for foreign direct investment outside London for the past eleven years,” the Scottish government spokesperson stated. “The number of Scottish taxpayers and liabilities continued to grow strongly in 2024-25 and the number of top-rate taxpayers also grew faster in Scotland than the rest of the UK.”
Officials emphasized that the current tax framework is designed to fund distinctive public services not universally available across the rest of the United Kingdom, including free university tuition, free prescriptions, and the Scottish Child Payment.
As economic analysts and government bodies review ongoing HMRC receipts, further data releases are expected to clarify the long-term sustainability of divergent income tax bands between Scotland and Westminster.