Ministers must assess behavioural changes linked to tax policy – economists

The Scottish Fiscal Commission released its latest forecasts alongside the Budget.

Tax policy changes were announced by the Scottish Government in its Budget on Tuesday (Jane Barlow/PA) (PA Archive)

The Scottish Government should assess the long term behavioural changes caused by its tax policy, the chair of the Scottish Fiscal Commission (SFC) has said.

The Deputy First Minister announced on Tuesday that a new tax band is to be created for higher earners, while the top rate will rise by 1p in the pound.

Taken alongside the increase of two lower bands by inflation and maintaining the higher rate band at its current level to catch more taxpayers, the Scottish Government said the changes will bring in £1.5 billion more next year.

But continued changes to Scotland’s taxation policy have raised concerns of potential behaviour shifts among Scots in a bid to pay less tax.

While such changes could include leaving the country altogether, they could also see higher earners take action to avoid paying increased tax.

According to the SFC’s most recent forecasts, the increase to the top rate and creation of the new advanced rate – which will impact those earning £75,000 per year or more – will bring in a net of £82 million, with £118 million lost due to behavioural changes.

Speaking to journalists at a briefing following Tuesday’s Budget, SFC chairman Professor Graeme Roy was asked if there has been enough work done on the long term behavioural impact of tax divergence.

“In short, no, but I think part of that is because data comes out with a lag, so you need to wait for the data to come through and it take a bit of time for that to happen,” he said.

“Part of it is a data issue, but I do think that this is a really important question, that we’ve never had in the UK before about substantial tax differentials.

“So it’s a really interesting research question.

“I would think, I would hope, that a Government who are really interested in thinking about their economic policies would have a really clear plan for evidence about the impacts of its policy choices, including on tax, but also then what that funding is hoping to support as well.

“I would hope that was something that Government would have a key interest in, Parliament should have an interest in as well, but Government has certainly got the resources to ask that question and look at it – it would be really interesting to see what it comes up with.”

A spokesman for the Scottish Government said: “The Scottish Government’s tax policies are grounded in evidence and carefully balance the need to raise revenue with the impact on taxpayers and the economy.

“People base their decisions on where to live and work on a wide range of factors, not just the tax they will pay. People who call Scotland home enjoy a range of support not available throughout the UK, such as the Scottish child payment, free prescriptions and free access to higher education.

“Since the Scottish Government made changes to income tax rates and bands in 2017-18, net migration of working age people from the rest of the UK to Scotland has averaged almost 7,000 per year. This is adding significantly to Scotland’s workforce and helping to grow Scotland’s economy.

“The Scottish Government continues to work with stakeholders such as HMRC to develop the evidence base on potential behaviour change, with a view to making a further constructive contribution to the public debate on taxpayer behaviour in Scotland in the new year.”