The Institute of Chartered Accountants of Scotland (ICAS) said recent analysis from Tax Policy Associates underlines the need for policymakers to assess the behavioural effects of tax decisions. 

Commenting on reports that behavioural changes among higher earners may be affecting Scottish tax revenues, ICAS said the findings strengthen the case for a full evidence-led assessment of how tax divergence is influencing competitiveness, investment, talent attraction and the long-term sustainability of Scotland’s tax base. 

Gail Boag, CEO of ICAS, said: “ICAS has long argued that the UK tax system is overly complex and that simplification is essential to improving compliance, reducing administrative burdens, and supporting business confidence. We have warned for several years that Scotland could be approaching a tipping point, where growing tax divergence from the rest of the UK begins to influence decisions about where people choose to live, work and invest.

“Analysis suggesting the 48p top rate may have raised less revenue than expected underlines why that warning matters. Scotland simply cannot afford to treat tax competitiveness as a secondary issue if it wants to protect its tax base and support economic growth.

Ms Boag said while more evidence is needed before firm conclusions can be drawn, policymakers should not ignore signs that behavioural effects may be starting to emerge.

“These potential behaviour changes include opting against promotion, reducing working hours, increasing potential contributions, or even relocating to other parts of the UK,” she added.

“Tax policy can’t therefore be viewed solely as a means of closing short-term budget gaps. It must form part of a long-term strategy that supports economic growth, strengthens competitiveness and ensures Scotland remains an attractive place for people to live, work and invest.

“The Scottish Government should look carefully at the evidence and assess the cumulative impact of tax divergence across all income levels – not just among higher earners.

“As ministers consider future tax measures, they must balance revenue-raising objectives with the need to attract and retain talent, encourage investment and grow the economy over the long-term. Any proposals should be assessed not only on the revenue they are expected to generate, but also on their potential impact on taxpayer behaviour.”