The Scottish National Party’s (SNP) recent increase in the top rate of income tax has reportedly led to a decline in tax revenues, according to an analysis by tax expert Dan Neidle. Neidle, a former adviser to the Scottish Government and head of the think tank Tax Policy Associates, estimates the tax hike will reduce income tax receipts by approximately £22 million in the 2024-25 fiscal year.

The findings suggest that Scotland may have surpassed the point on the Laffer Curve where higher tax rates begin to diminish overall revenue. The economic theory, developed by economist Arthur Laffer, posits that raising taxes beyond a certain threshold can disincentivize earning—or encourage tax avoidance strategies—thereby reducing government income.

Introduced in April 2024, Scotland’s top income tax rate rose to 48p on earnings above £125,140, a one-penny increase compared with the 45p rate in the rest of the UK. Additionally, a new "advanced" 45% rate was applied to income between £75,000 and £125,140, higher than the 40% rate charged south of the border. Scotland now has six income tax bands, twice as many as those in England, Wales, and Northern Ireland, resulting in those earning over £33,500 paying more in tax than elsewhere in the UK. For example, individuals on salaries of £50,000 face an additional tax burden of nearly £1,500 annually.

According to Tax Policy Associates, the 48p rate was expected to generate an additional £253 million in revenue. However, analysis of recent HM Revenue and Customs (HMRC) data indicates a shortfall, with revenues down by an estimated £15 million to £30 million. Neidle pointed to declines in average taxes paid by top-rate taxpayers and the proportion of self-assessed taxpayers in Scotland as indicators that high earners may be adjusting their income to limit exposure to the higher rate. Common avoidance methods include working fewer hours, increasing pension contributions, utilizing salary sacrifice schemes, or converting salary income into dividends.

While the think tank underscores these patterns as consistent with tax minimization behavior, it acknowledges other explanations remain possible. Additional clarity is expected when further government data are released next year.

Craig Hoy, finance spokesman for the Scottish Conservatives, criticized the SNP’s tax approach as counterproductive, suggesting it deters entrepreneurs, investors, and skilled workers. He argued the policy reveals what he termed "arrogance" at the core of the SNP’s economic strategy.

A spokesperson for the Scottish Government responded by emphasizing that Scotland’s economy remains among the strongest in the UK. The Tax Advisory Group, of which Neidle was a member until its disbandment this year, had never been consulted on the decision to introduce the 48p rate.