Scotland’s 48% top rate: is it raising any money at all? - Tax Policy Associates
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New data suggests Scotland’s 48p tax rate may be losing money
Income TaxScotland
By Dan Neidle
·
July 25, 2026
·11 Comments
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People often talk about the Laffer curve: the idea that if you raise a tax beyond a certain point, you may in fact reduce revenues. Laffer curve effects are rather more common in newspaper headlines than in actual tax data. But that may be about to change – we’ve a new analysis showing that Scotland’s increases in the top rate of income tax, culminating in the rise to 48% in April 2024, may now be costing Scotland around £22m of lost tax in its first year.
The 48p rate was always a political symbol rather than a serious revenue measure. The sums are trivial – a rounding error against Scotland’s £18.6bn total income tax take. But when you use tax as a symbol, people are entitled to ask what the symbol actually means. The awkward possibility is that Scotland’s gesture of asking more from its highest earners is costing more than it collects.
The Times has more on the story here, including a response from the Scottish Government (which doesn’t engage with the data).
The Scottish rates
After a series of increases, Scotland now has six income tax bands and the highest income tax rates in the UK:
This understates the complexity because of the interaction with National Insurance thresholds, child benefit claw back, and the personal allowance taper – sometimes the gap is much wider than the headline rates suggest.1
The April 2024 increase
In April 2024, Scotland’s top rate of income tax went from 47p to 48p (compared to 45p in the rest of the UK). At the same time, a new "advanced rate" of 45% appeared on income between £75,000 and £125,140 (the rate in the rest of the UK is 40%).
The revenue projections for the new 48p rate were unusual.
If we just multiplied the new tax rate by the number of people earning that amount, we’d expect it would raise £53m – so that’s the "static" revenue estimate.
But we have to adjust for "taxpayer responses" – avoidance, reduced effort and migration. That is normal, particularly when you get to higher incomes, where people often have control over how much income they declare, in what form, and in which year.2 But when the Scottish Fiscal Commission applied the normal approaches, they came out with an unusual result – 85% of that £53m disappeared in taxpayer responses, leaving only £8m of revenue.
The problem for Scotland is that its ability to raise income tax is constrained by the rest of the UK. For someone with a permanent home in the UK, moving to another country is a fairly big deal. Moving from Scotland to the rest of the UK (and vice versa) is far easier.3 For people with two homes, on either side of the border, it can be a judgment call.4
Migration is an actual real-world step, but most of the taxpayer response will be fictional – people doing things which only make a difference on paper. That’s always the case, but Holyrood’s limited devolved powers make the situation worse. Whilst Holyrood can set its own income tax rates for employment and self-employment income, everything else – dividends, savings income, capital gains, the personal allowance, and every relief – remains reserved to Westminster.5 A Scottish company owner who pays herself in dividends rather than salary leaves the Scottish tax base without moving house.6 So does a Scottish employee making an additional pension contribution. Both are cheap, legal and immediate.
These effects can be quantified and (to a degree) predicted. That astonishing 85% fall from the static estimate came from HMRC figures analysing the moment in 2018-2019 when Scottish rates started to diverge from the rest of the UK.7
To state the obvious: £8m is a very small amount, and the figure comes with a great deal of uncertainty.8 The measure could raise more than this, but it could raise less – and eight million is close enough to zero that it could lose money. The IFS speculated that Scotland’s top rate rises "may have reduced revenues".
We covered all of this in our piece on the Laffer Curve and in an episode of Untaxing on Radio 4. I congratulated the Scottish Government on conducting about as close to a controlled experiment as tax policy gets: same currency, same labour market, no border – and the rest of the UK three points cheaper. I couldn’t wait to see what happened.
We now have some data.
On 9 July, HMRC published the first outturn covering a full year of the 48p rate. So guesses, hypotheses, and estimates can be checked against reality.
What the data shows
HMRC publishes the tax raised in each band, for Scotland and the rest of the UK (which I will...