When Malcolm Offord stood up and argued that Scotland should cut taxes to boost the economy, he was laughed out of the room by many in the political establishment. Now, with the latest figures in, it looks like the joke is firmly on those who mocked him.
Scotland has the highest income tax rates in the UK, with the Scottish Government having used its devolved powers to pull higher earners into steeper tax bands than their counterparts south of the border. The argument from Holyrood was simple enough – charge more, collect more, spend more on public services. Sounds reasonable on paper. In practice, it is not working out that way.
The Laffer Curve is one of those economic concepts that gets dismissed as right-wing fantasy by politicians who would rather not hear it. The basic idea is straightforward though. If you tax people at zero percent, you collect nothing. If you tax them at 100 percent, you also collect nothing because nobody bothers working. Somewhere in between sits the sweet spot where you actually maximise what comes into the public purse. Push rates too high past that point and revenue starts falling, not rising, because behaviour changes.
That is exactly what appears to be happening in Scotland right now. Higher earners are making decisions. Some are relocating across the border to England. Others are restructuring how they take income. Some are simply working less or turning down additional earnings that would push them into the higher Scottish bands. The result is that the Scottish Government is collecting less than the projections suggested it would.
This creates a serious problem for John Swinney and his government. The entire logic of the higher tax strategy was that it would fund better public services and demonstrate that Scotland could do things differently and better than Westminster. Instead, the gap between what was forecast and what is actually coming through the door is becoming increasingly difficult to ignore.
Offord, who served as a Scotland Office minister and was a vocal critic of the Scottish Government’s tax direction, argued consistently that making Scotland a more expensive place to earn a good living would have consequences. He pointed to the risk of talent drain, of businesses thinking twice about basing senior staff in Scotland, and of the wider economic signals being sent to investors. At the time, those warnings were brushed aside.
The figures now suggest he had a point. Scotland’s income tax revenues are underperforming relative to what the Scottish Fiscal Commission had projected when the higher rates were introduced and adjusted over recent years. That shortfall has to be made up somewhere, and the options are not pretty. Either spending gets cut, more borrowing happens, or the UK Government is asked to fill the gap through other mechanisms.
None of those options is politically comfortable for a government that sold higher taxes as a progressive solution to Scotland’s public spending needs.
There is also the broader economic picture to consider. Scotland’s growth rate has been lagging behind the rest of the UK for some time. Productivity is a persistent concern. The working age population faces demographic pressures. Against that backdrop, having a tax environment that actively discourages higher earners from staying or coming to Scotland looks like a significant own goal.
To be clear, this is not an argument that taxes should never be higher than in England, or that public services do not need funding. The question is whether the current rates have crossed the line where they are actually undermining the revenue base they were meant to strengthen. The evidence increasingly points toward yes.
Swinney’s government now faces an uncomfortable reckoning. Reversing the tax decisions would mean admitting the strategy was wrong, something no government does easily or willingly. Holding the line means continuing to collect less than expected while defending a policy that the numbers are quietly dismantling.
Scottish Labour and the Scottish Conservatives will both be watching closely, though for different reasons. Labour has been broadly supportive of using tax powers to raise revenue, which puts them in an awkward spot if the revenue story continues to deteriorate. The Conservatives, who have argued for tax competitiveness throughout, will feel increasingly vindicated.
What Scotland needs is an honest national conversation about tax, growth, and what kind of economy the country actually wants to build. That conversation has been avoided for too long, with ideology on both sides getting in the way of looking clearly at what the data is saying.
The Laffer Curve was never a right-wing conspiracy. It was always just economics. And right now, Scotland is living through a practical demonstration of exactly why it matters.
Hardly surprising tbh. You raise taxes too high and people just find ways around it or leg it somewhere cheaper. Basic economics really, thought they’d have figured that out by now.