28th July 2026
Scotland’s decision to increase its top income-tax rate to 48p was intended to raise additional money for public services. New HMRC figures are now raising an awkward question: could the policy have actually reduced the amount of tax collected?
The headline figure doing the rounds is £22 million.
But it needs some explanation. The £22 million is not an official Scottish Government or HMRC calculation saying that the 48p tax rate definitely lost Scotland £22 million. It is an estimate based on what appears to have happened to the incomes of Scotland's highest earners compared with those elsewhere in the UK.
Nevertheless, the figures are interesting enough to deserve attention.
Scotland's highest income-tax rate
Scotland increased its top income-tax rate from 47p to 48p in April 2024, applying the rate to taxable income above £125,140.
Scotland also introduced a new 45p Advanced Rate covering income between £75,000 and £125,140.
The policy was designed to increase the contribution made by higher earners towards funding Scotland's public services.
On paper, the logic is straightforward: if someone pays an additional penny in every pound of income above the threshold, the Government should collect more money.
But taxation does not always work quite that simply.
High earners have considerably more opportunity than most taxpayers to alter when and how they receive income, increase pension contributions, change remuneration arrangements or, in some circumstances, move their tax residence.
That means the Government cannot simply assume that a higher tax rate will produce a proportionate increase in revenue.
The original warning
The Scottish Fiscal Commission had already recognised this problem when the 48p rate was introduced.
Its modelling suggested that the theoretical additional revenue from the tax increase could be substantially reduced by behavioural responses.
In other words, the Government might announce a higher tax rate and calculate the extra money it should generate, only to find that taxpayers respond in ways that reduce the actual amount collected.
The latest HMRC figures provide some potentially important evidence that this effect may have occurred.
What happened to Scotland's highest earners?
The figures show that the number of Scottish taxpayers with income above £125,140 increased by around 17%.
That sounds positive from the Scottish Government's point of view.
More people in the top tax band ought to mean more revenue.
But there was a surprising second part to the figures.
The total income of these taxpayers increased by only around 8%.
That means average taxable income per taxpayer actually fell by approximately 7.6%, from around £112,754 to £104,202.
For comparable taxpayers elsewhere in the UK, average income increased by around 5.4%.
That difference is what has attracted attention.
If Scottish high earners' incomes had behaved more like those of high earners elsewhere in the UK, the amount of tax collected could have been considerably higher.
Where does the £22 million come from?
Tax analyst Dan Neidle of Tax Policy Associates has compared the Scottish figures with the rest of the UK.
His analysis estimates that Scotland might have collected approximately £2.091 billion from this group if the tax rate had remained at 45%, compared with approximately £2.069 billion actually collected.
That produces a difference of roughly £22 million.
It is an intriguing result.
But it is important not to turn an estimate into a fact.
The £22 million is based on a counterfactual calculation — essentially asking what might have happened if Scottish high earners' incomes had behaved differently.
It does not prove that every penny of the £22 million difference was caused by the 48p tax rate.
There could be other explanations.
The missing money may not have disappeared
One of the most important points in this debate is that a reduction in taxable income does not necessarily mean that money has vanished from Scotland.
A high earner might:
increase pension contributions;
alter the timing of income;
change the way they receive remuneration;
move some economic activity elsewhere;
change their tax residence;
use legitimate tax-planning arrangements.
Some of those responses could reduce Scottish income-tax receipts without necessarily reducing the person's overall wealth.
That is why the £22 million figure should be treated as an estimate of a possible revenue effect, rather than a proven loss directly attributable to the 48p rate.
But the figures still raise a serious question
The interesting issue is not really whether the number is exactly £22 million.
It is whether Scotland is approaching the point where raising the tax rate on the highest earners produces little additional revenue — or potentially even reduces it.
This is where the controversial idea of the Laffer Curve comes into the discussion.
The basic argument is that a tax rate of zero produces no revenue, while a tax rate of 100% would also provide little incentive to earn taxable income.
Between those extremes there is theoretically a rate that maximises revenue.
That does not mean that every tax increase loses money. Nor does the latest Scottish data prove that Scotland has crossed the revenue-maximising point.
But it does demonstrate why the behaviour of taxpayers matters.
Scotland faces a difficult balancing act
There is a legitimate argument for higher taxation of those with the greatest ability to pay.
Scotland needs substantial sums to fund the NHS, councils, education and other public services.
However, the Scottish Government also has to consider the economic consequences of making Scotland significantly different from the rest of the UK.
The issue is particularly relevant for people who can choose where they live, where they work and how they structure their income.
A tax increase that produces £100 million of additional revenue on paper might look attractive.
But if behavioural changes reduce that figure dramatically, the Government may be left with a much smaller gain while potentially making Scotland less attractive to some high earners.
That is the dilemma.
So did Scotland's 48p tax rate lose £22 million?
Possibly — but it has not been proven.
The £22 million estimate has a credible analytical basis and is supported by some striking HMRC figures showing that average income among Scotland's highest earners fell while comparable incomes elsewhere in the UK increased.
But it would be wrong to say that HMRC has established that Scotland lost £22 million because of the 48p rate.
The more defensible conclusion is that the latest evidence raises a serious question about whether Scotland's highest income-tax rate is producing the revenue that policymakers expected.
And that may ultimately be the more important question.
For the Scottish Government, the objective is not simply to have the highest tax rate.
It is to raise enough money to fund public services without encouraging so much behavioural change that the expected revenue starts disappearing.
If the 48p rate is generating substantially less than expected, Scotland may eventually have to decide whether a higher headline tax rate is actually the best way of raising more money.