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The Scottish Fiscal Commission’s latest update is a reminder that higher tax rates cannot be relied upon indefinitely to solve underlying fiscal pressures, Rathbones, one of the leading wealth managers in Scotland, has warned.
The update highlights a challenging backdrop for Scotland’s public finances, with weaker funding growth expected, pressure on day-to-day spending and a significant income tax reconciliation to be managed in the next Budget, due early next year.
Rathbones, which has offices in Edinb said the figures underline the importance of policies that strengthen Scotland’s competitiveness, support long-term growth and broaden the tax base, rather than relying on an ever-widening gap between Scottish and UK income tax rates.
Scotland has higher income tax rates than the rest of the UK for many higher earners, a divergence Rathbones argues could increasingly influence where individuals choose to live, work, retire and invest.
Gordon Lawrie, Head of Rathbones’ Edinburgh office, says: “The Fiscal Commission update is a reminder that there are limits to how much governments can rely on higher tax rates to solve underlying fiscal pressures. Scotland faces the prospect of weaker funding growth, spending pressures and a sizeable income tax reconciliation despite years of higher rates for many taxpayers.
“We see first-hand with our clients the increasingly complex choices people are making about where they live, work, retire and invest. Tax is rarely the sole factor in these decisions, but it forms part of a broader assessment of where individuals and businesses choose to build their futures. At the same time, wealth and talent are more mobile than ever, meaning policymakers need to think carefully about how Scotland remains an attractive destination for entrepreneurs, investors and highly skilled professionals.
“The risk is that an ever-widening gap between Scottish and UK income tax rates discourages some of the very people who drive economic activity, employment and investment. If people choose to relocate, delay investment decisions, or build businesses elsewhere, that ultimately weakens the tax base the system depends upon.
“The priority should be policies that improve Scotland’s competitiveness and support long-term growth. A stronger economy is the most reliable route to stronger tax revenues and more sustainable public finances.”
