Four big tax mistakes that show why the SNP really need to listen to the experts – Murdo Fraser

It is not as if SNP ministers were not warned. The Scottish Fiscal Commission, the independent body advising Scottish Government, had cautioned that the impact of behavioural change by taxpayers would mean that the amount of money likely to be raised from this increase was much lower than a straight-line analysis would suggest. Even they were, it seems, over-optimistic.

We now know that the Scottish Government’s own Tax Advisory Group (TAG) was not consulted in advance on the proposal to increase the top rate. This was despite the fact that the group was established by the then Finance Secretary Shona Robison in 2023 to provide “strategic advice” on tax policies.

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Valuable input ignored

TAG was made up of representatives from business, the tax profession and academia, including economists from the Fraser of Allander Institute and the Institute for Fiscal Studies, as well as representatives from council body Cosla and the STUC union group. But despite the valuable input that these individuals could have given to the setting of tax rates and how they might be used to maximise revenues, it seems they were routinely ignored.

When the new Finance Secretary Jenny Gilruth was asked in the Holyrood Chamber last month to give an update on TAG’s status, she did not seem to be aware that it even existed, asking the questioner – Labour’s Michael Marra – whether he meant the Scottish Fiscal Commission. It emerged recently it had been quietly disbanded.

Not surprisingly, TAG members did not feel valued, and wondered whether there was any point to being part of the group. According to papers released under Freedom of Information, one TAG member believed the group was deliberately kept in the dark as to ministers’ decision-making around tax, perhaps because they were likely to receive advice that they did not want to hear.

As my Conservative colleague Craig Hoy MSP observed, this all suggests that TAG was established by the SNP merely as a tick-box exercise, and there was never any intention of properly consulting financial experts before they imposed the highest taxes in the UK on hardworking Scots. If they had done so, it would be clear that these high rates were likely to be self-defeating and actually raise less revenue, as has turned out to be the case.

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Damaging the economy

Sandy Begbie, chief executive of Scottish Financial Enterprise, has now called for an urgent rethink of the 48p top rate of income tax and the six-band system the SNP introduced. He has urged an emergency audit of the income tax system before the next Budget later this year. This reflects widespread concerns in the financial community that Scotland’s higher rates of income tax compared to the rest of the UK make it harder to attract talented individuals to work in the sector in Scotland.

On past experience, there is little expectation that SNP ministers will heed these warnings. All the evidence suggests that they continue to see the use of taxation as a means of virtue-signalling, rather than as a device to support economic growth and raise revenues. We only need to look at three current cases in point to illustrate the issue.

We have just seen the introduction of the visitor levy in Edinburgh which, according to operators in the industry, is turning out to be a shambles. Providers of self-catering accommodation are reporting that some visitors are cancelling their bookings when being told about the additional 5 per cent charge. With Scotland already seen as a high-cost destination for tourists, a high level of visitor levy may actually do more damage to the economy, and reduce tax revenues overall, than provide any local benefit.

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Waiting in the wings is the prospect of a daily charge on visiting cruise ships, which some in local government have been pushing for. When I met the cruise line industry last week, they gave examples of cruise levies introduced in other countries which have delivered a substantial drop in the numbers of visitors and, overall, a substantial loss of tax revenues.

For example, the cruise levy introduced in Dubrovnik coincided with a near 20 per cent decline in cruise ships’ visits in the period from 2019-2025, while Amsterdam has seen a 44 per cent reduction in ship visits since the levy was introduced in 2019. In contrast, Scotland has enjoyed steady passenger growth in the same period.

Thirdly, we have the example of air passenger duty (APD), or air departure tax as it will become in its devolved form. I can well remember the then SNP tourism minister Fergus Ewing arguing strongly for the devolution of APD so that it could be cut to incentivise more direct air travel in an out of Scotland.

Now, however, it seems that the direction of travel is the complete opposite, with the SNP proposing a private jet tax which will apply only in Scotland. They are looking to raise additional revenues, but in practice are only likely to drive business away to airports elsewhere in the UK.

Once again, these taxes are likely to be set without any proper input from experts, who doubtless would advise that such increases would be self-defeating.

The lesson of the 48p tax rate is that behavioural change will always be driven by tax rates, and SNP ministers really need to start listening to the experts before they do more damage to the Scottish economy.

Murdo Fraser is a Scottish Conservative MSP for Mid-Scotland and Fife