The multibillion-pound growth plans of one of Scotland’s key industries are being hampered by the SNP government’s income-tax policies which are making it more difficult to attract talented workers, a poll has found.
Research shows that a majority of firms in the country’s financial services sector have concerns about hiring staff for executive and management-level positions.
More than 80 per cent of respondents to a survey run by the trade body Scottish Financial Enterprise (SFE) suggested the tax divergence pursued by Holyrood ministers is routinely affecting their ability to attract and retain people north of the border.
The issue becomes more acute for top executives, known as c-suite level, as well as senior managers. For c-suite level appointments, 88 per cent of firms expressed some level of concern about whether they would be able to attract and retain people, while for senior managers there was concern among 93 per cent of companies.
Sandy Begbie, the SFE chief executive, said: “I think we are beyond the tipping point. The tone [from government] is one of divergence increasing further and that is also creating a negative backdrop to attracting people to Scotland.”
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SFE has 120 members that employ about 100,000 people. Begbie said: “We have heard Scottish weighting coming into conversations. People are saying ‘if you want me to stay in Scotland, or in some cases come to Scotland, then you are going to have to compensate me for the increased tax’. That adds costs for the business.
“If that tax regime is to continue in the direction of travel, you are going to start to see fewer senior jobs being based here and that will impact the [Scottish] influence inside those organisations.”
Headhunters recently told The Times that candidates were asking for Scottish weighting to compensate them for the additional taxes.
Holyrood has been steadily charting its own income tax policies since 2017. The results of the SFE survey do not yet take into account the impact of changes announced at the Scottish budget in December, which came into force this month.
A sixth Scottish tax band, of 45 per cent on earnings between £75,000 and £125,140, has been introduced while the top rate, for those on more than £125,140, has risen from 47 per cent to 48 per cent.
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Anyone in Scotland earning more than £28,867 pays more in income tax than if they lived elsewhere in the UK. A Scottish worker on £60,000 per year has an additional £1,796 to pay, while for someone on £125,140 the sum is £5,232.
In the SFE survey, 66 per cent stated they knew of occasions where Scotland’s business and tax environment had had a negative impact on investment decisions. Alongside that, 33 per cent of respondents felt the Scottish government had a poor understanding of the sector and its economic impact while 38 per cent felt politicians needed to improve their knowledge of financial services.
One respondent said: “The tax divergence is counterproductive and will lower the actual tax take by putting Scottish businesses at a competitive disadvantage and reduce the overall taxable profits of Scottish businesses. It is making it more difficult to attract and retain talent in Scotland.”
Another said: “As a business lead, I am now starting to have concerns raised over the Edinburgh location of my firm. Talent attraction at the senior levels is starting to impact the firm’s ability to grow.”
The SFE survey took in responses from more than 40 organisations collectively employing in excess of 50,000 people.
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Financial services is estimated to provide upwards of £14 billion in gross value added, a measure of economic output, which is equivalent to about 9 per cent of the Scottish total. The industry employs close to 149,000 people, with more than £690 billion of assets being managed by Scottish companies.
In October last year SFE published its growth strategy for the sector, mapping out ways to unlock a further £7 billion in economic output by 2028, increase assets under management to £1 trillion by 2030 and boost the sector’s international standing.
Begbie suggested income tax was a risk to achieving those ambitions, along with other policy areas such as a shrinking pool of university places for Scottish students. In an echo of the entrepreneur Sir Tom Hunter’s recent suggestion to cut tax below the level of England, Begbie believes reducing the burden would lead to an increase in the overall base of taxpayers.
He said: “If you speak to any of the large firms in Scotland, one of their top reasons for being here is the human talent. Why would you have a policy that as a consequence is pushing some of the brightest and best young people in Scotland out of the country as they can’t get university places?
“You cannot continue to tax more a base that is static or even potentially shrinking. That is not going to get you anywhere. At the very least, over time, we should realign with the rest of the UK which we need to be competitive with.
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“We would encourage government to go even further. If you are looking for those senior jobs in areas like asset management, for example, provide a really competitive tax environment, ideally lower than the rest of the UK, and you will find it won’t take a lot to start to attract those jobs.”
Begbie pointed out that the tax position was also affecting the perception of Scotland among potential overseas investors, with the issue having been raised on recent trips to Boston and New York.
He said: “They don’t necessarily know the detail but what they hear is a tax environment that is not conducive to businesses being attracted to Scotland.”
The Scottish government said: “Scotland’s tax policies, which are progressive and grounded in evidence, carefully balance the need to raise revenues with the impact on taxpayers and the economy. People from the rest of the UK are coming to Scotland, not leaving. Over 45,000 people of working age came to Scotland in 2021, with net in-migration at just over 5,000.
“People base their decisions on where to live and work on a wide range of factors. Those who call Scotland home enjoy a range of support not available throughout the UK such as free university tuition and free prescriptions.
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“Scotland continues to be attractive to businesses, with foreign investment growing faster than the UK’s and Europe’s in recent years.”
