The leftist-seperatist Scottish National Party government in Edinburgh appears to have fallen afoul of the Laffer Curve, with revenues to the Treasury declining by £22 million after the imposition of a tax hike.
Former member of the Scottish government’s Tax Advisory Group, Dan Neidle, has claimed that the decision by former far-left Scottish leader Humza Yusuf’s administration to impose a 48 per cent tax rate on high earners resulted in government revenue declining during the first year it was introduced in 2024-25.
A report from Neidle’s independent think tank, Tax Policy Associates, found that by levying a 48 per cent tax on earnings over £125,140 ($166,200), the government likely lost between £15 million ($19.9m) and £30 million ($40m). Neidle told The Times that he believes the specific loss was likely approximately £22 million ($29m).
“I hope the Scottish government takes a very careful look at the evidence and decides whether, politics aside, it’s in Scotland’s interest to keep the 48p rate,” he said.
The report accused the Scottish government of hiking taxes to “demonstrate that Scotland taxes its highest earners more heavily than England” rather than being concerned with what would bring in more money to the treasury.
As a result of this political decision, the policy likely breached the Laffer Curve, an economic theory postulated by American economist Arthur Laffer, which stipulates that there is an ideal level of taxation to maximise exchequer receipts for any given economy, and that by either cutting or raising taxes too much away from that point, the government would lose revenue.
While raising taxes could see revenue decline simply as a result of capital flight, in which the wealthy — who tend to be the most mobile — abandon the country for greener pastures, there are many other ways in which high earners can reduce the money sent to the government, such as paying themselves in stock dividends rather than taking an actual salary or simply reducing the number of hours they work. After all, individuals at all income levels in a economy have a level at which they believe what the state demands of them is fair and reasonable or not.
For the rest of the economy, progressively higher taxes damage economic growth, which further impacts the amount of wealth in an economy to tax in the first place, all of which contributes to the phenomenon of higher taxes meaning less tax money collected.
Although perhaps counterintuitive on a surface-level read, the opposite can also obviously be true, with historic examples of tax cuts such as those given in the United States in 1964 under President John F. Kennedy and in 1981 by President Ronald Reagan, resulting in more revenue pouring into the treasury as a result of people using fewer loopholes to avoid tax and higher overall economic growth.
Responding to the apparent breach of the Laffer Curve in Edinburgh, Scottish Tory finance spokesman Craig Hoy, said that the figures demonstrated “the sheer arrogance at the heart of the SNP’s economic policy”.
“Ministers were repeatedly warned that punishing success with ever higher taxes would make Scotland less competitive, yet they ploughed on regardless.
“They have created a tax system that sends entirely the wrong message to entrepreneurs, investors and skilled workers — that ambition is something to be penalised, not rewarded. Scotland cannot tax its way to prosperity, and the SNP’s anti-growth agenda is leaving our economy weaker as a result.”
Scotland may have been particularly hit as a result of its high taxes, but the rest of the UK has also seen significant capital flight in recent years. According to a separate report from the libertarian Adam Smith Institute (ASI) think tank, the number of millionaires in Britain fell to its lowest level in nearly 20 years.
As a result of high taxes and crashing property values, many wealthy people are simply moving their accounts offshore to avoid the snag. The report found a staggering seven per cent decline in the number of people with over £1 million over the past year alone.
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