IoD Survey

82% of business leaders concerned by tax divergence

Catherine McWilliam
Catherine McWilliam: the tax regime is another barrier

More than eight in ten executives across a range of business sizes have expressed concern over the divergence of income taxes between Scotland and the rest of the UK.

The annual IoD State of the Nation Directors Survey reveals that 82% of respondents are concerned at the introduction of a sixth tax band and of these 39% said it was likely to make staff recruitment more difficult.

The new band – 45% on earnings between £75,000 and £125,140 – was announced in the Scottish budget in December. The top rate, on salaries of more than £125,140, will rise from 47% to 48%.

A third (34%) of IoD survey respondents said an employee’s choice of location would be a concern, and 27% are worried about the impact on inward investment.

A majority of respondents were also unimpressed with Scottish Government policy with 76% of respondents saying there has been insufficient attention to growing the economy in the long term.

Staff recruitment is a concern, with only half (54%) reporting that they were confident of being able to recruit sufficient skilled staff in the next 12 months.

The IoD findings add to concerns raised elsewhere over the growing income tax gap between Scotland and the rest of the UK. Chris Hayward, policy chairman of the City of London Corporation, last week said the tax gap could put people off relocating to Scotland.

Catherine McWilliam, nations director – Scotland at the IoD, said: “Business leaders think that the introduction of the new tax band in Scotland will make things even more difficult for them.

“Responses show that leaders clearly see Scotland’s tax regime as yet another barrier to attracting and retaining talent – and encouraging investment.”

The Scottish Fiscal Commission has estimated the new tax band and the increase in the top rate of income tax will bring in about £82 million of additional revenue for the public purse.

A Scottish government spokesman said: “Scotland’s tax policies, which are progressive and grounded in evidence, carefully balance the need to raise revenues with the impact on taxpayers and the economy.”

The government points to Scotland’s popularity for attracting inward investment as an indication that factors other than tax play a part in the decision to locate staff in Scotland.

Results in the IoD survey were more positive across other key areas, with 69% of respondents stating their intention to grow in the next 12 months.

Employment and cybersecurity were identified as key priorities for the next five years, and there is real appetite for embedding AI tools into businesses, with 80% of respondents feeling optimistic about opportunities, and 46% noting that AI is already being used within their organisation.

The 2024 State of the Nation Directors Survey was open to responses from members of the Institute of Directors in Scotland from 22 January until 4 March. In that time approximately 180 directors responded to the survey. No responses were disqualified from inclusion.

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