The Scottish National Party’s decision to raise the top rate of income tax to 48p for earners exceeding £125,000 has resulted in an unexpected decline in tax revenues, according to recent analysis. This rate increase, introduced in Scotland while the rest of the UK maintains a 45p top rate, was intended to generate additional funds for government projects. However, data from the 2024/25 tax year suggests the opposite occurred, with overall revenue falling.

The think tank Tax Policy Associates, led by Dan Neidle—a former adviser to the Scottish government—reported that the policy was expected to yield an extra £53 million in tax income. Instead, it found a reduction ranging between £15 million and £30 million, with an estimated midpoint of approximately £22 million. This outcome is cited as evidence of the Laffer curve effect, an economic theory that posits tax revenues may decline if rates rise beyond a certain threshold. The theory attributes this decline to behavioral changes, including reduced working hours, relocation to more tax-friendly jurisdictions, or adjusting income to lower-tax categories such as dividends or pension contributions.

Under SNP governance, Scotland now has six income tax bands, double that of England, contributing to Scotland being the highest-taxed region in the UK. The structure results in individuals earning more than £33,500 paying more tax than their counterparts in England, with those earning above £50,000 facing nearly £1,500 more annually.

Critics of the SNP’s fiscal policy argue that the increased tax burden on higher earners has not translated into enhanced public services. Despite two decades under SNP leadership, Scotland continues to face significant challenges, including the highest drug-related death rates in Europe, record NHS waiting times, and cost overruns in public infrastructure projects such as ferries and hospitals.

While these difficulties are not unique to Scotland and can be found in other parts of the UK public sector, experts caution that high tax rates may discourage entrepreneurship and investment, potentially hindering economic growth. The pattern of wealthier individuals and skilled professionals relocating or adjusting their income strategies underscores concerns about maintaining a competitive economic environment.

The findings from Scotland serve as a cautionary example for policymakers. The current UK government has committed not to raise income tax, as outlined in the 2024 Labour Party manifesto. Nevertheless, analysts emphasize the importance of carefully considering the broader economic impacts and potential unintended consequences before implementing significant tax increases on higher earners.