Exclusive:Scotland-England income tax gap causing difficulties for firms, says City of London

Alastair King, the head of the governing body for London's financial district, said the income tax gap between Scotland and England was creating difficulties for businesses north of the Border.

And he described the current situation as “sad”, in an exclusive interview with The Scotsman, as SNP ministers were told they must heed the financial chief’s intervention.

Elsewhere, Mr King, who divides his time between London and Aberdeenshire, said rumours of tax rises in Chancellor Rachel Reeves’s UK Budget were causing concern in the financial sector.

Speaking to The Scotsman at Scotland’s Global Investment Summit, which was hosted on the Royal Bank of Scotland campus in Edinburgh, he said: "It creates concern in the financial sector in relation to competitiveness, where those taxes are going to fall."

He added: "There is a real concern in the sense of it's so much more a global market for talent, a global market for investment, a global market for intellectual property and all the rest of it. We have to balance the amount of tax against the potential deterrent effect that high tax rates will have on that."

Read The Steamie - our dedicated politics newsletter

Mr King stressed the importance of a competitive economy. “We are in a globally competitive world,” he said.

“We have the most extraordinary challenges that we're facing - a lot of people from around the world wanting to eat our lunch. I think, therefore, we've got to have a competitive tax system."

He called for reform of stamp duty on shares and "restraint in relation to any form of banking tax".

Mr King added: "We have been very clear in the fact that we have to get a better tax system to attract big investors around the world. The non-dom rules, that's caused an awful lot of problems."

Senior business figures have repeatedly spoken out against Scotland’s income tax policy.

Anyone earning more than £30,318 pays more income tax in Scotland than if they lived south of the Border. Someone earning £50,000 pays £1,527 more, and a person earning £100,000 pays £3,331 more.

Asked about this, Mr King said: "I think anything that stops the Scottish economy being as competitive is something that needs to be addressed. Also, I'm concerned that certainly friends of mine who do have businesses up in Scotland do find it difficult to deal with that differential."

Asked if this was because of issues with attracting talent, he said: "Absolutely. Because of the tax gap."

In 2023, Judith Cruickshank, managing director of commercial mid-market at the Royal Bank of Scotland, raised concerns that workers in the financial sector were choosing to live in northern English cities rather than move to Scotland where they would pay more income tax. Edinburgh has the second biggest financial services sector in the UK.

Asked about this, Mr King said: "I have certainly heard of elements of that. I have heard of that sort of situation, yeah."

He added: "It is sad in the sense that I do remember when I was doing fundraising for various businesses of mine, we used to come to Edinburgh on a regular basis to do part of that fundraising - there would always be a day or two in Edinburgh. That doesn't happen so much any more, and I'm not saying that's purely due to the differential in tax, because there are other reasons.

"But anything that makes Edinburgh and Scotland less competitive, I think it doesn't help the situation."

Scottish Conservative finance spokesman Craig Hoy said: “This stark intervention from such a senior figure must be heeded by SNP ministers. Their high-tax approach is having a hugely detrimental effect on workers and is holding back opportunities for Scottish businesses to grow.

“If the SNP remain wedded to this, they will do even more damage to Scotland’s economy, which is already stagnating compared with other parts of the UK.”

The Chancellor previously confirmed her Autumn Statement would be delivered on November 26, almost a month later than last year. The Scottish Budget is due to be published on January 13.

Liz Cameron, chief executive of the Scottish Chambers of Commerce, said: “The ongoing divergence in income tax rates between the Scottish and UK governments poses a significant challenge for firms who aim to attract top talent and compete with businesses across the country.

“The freezing of the UK-wide personal allowance, combined with the Scottish Government’s decision to freeze the higher, advanced and top rate thresholds, means that fiscal drag is likely to bring more Scottish taxpayers into these higher rates of tax as earnings rise.

“Scotland’s businesses need a level playing field to improve their domestic and international competitiveness, and positively aligning Scotland’s income tax regime for basic, intermediate, and higher tax bandings will be vital to attracting new employees into Scotland and driving up business growth.

“Finding skilled workers is one of the top issues for businesses, and the lack of available talent is preventing firms from meeting demand and expanding. The Scottish Government should reconsider its current tax policy to ease pressure on household budgets, and reduce the staffing costs businesses continue to face.”

A Scottish Government spokesperson said: “People are coming to Scotland, not leaving, and the majority of income taxpayers in Scotland pay less than they would elsewhere in the UK. Our taxation choices enable us to deliver policies that are not available anywhere else in the UK, including our flagship Scottish Child Payment. This is forecast to benefit the families of over 330,000 children in 2025-26.

“The Scottish Government stands behind Scottish business. While not all the economic levers are in our hands, what we can and will do is help open the doors that will deliver jobs and increased investment.”