Exclusive:CBI boss urges SNP ministers to close income tax gap with England

The chief executive of the Confederation of British Industry (CBI) has urged SNP ministers to close the income tax gap between Scotland and England.

Rain Newton-Smith said uncompetitive tax policies are a "handbrake on growth" and addressing the disparity "can only benefit public services".

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

Rain Newton-Smith | Contributed

The tax gap north and south of the Border has long been a source of concern for business leaders. First Minister John Swinney will address the CBI’s annual lunch in Edinburgh today.

Ms Newton-Smith told The Scotsman: “Uncompetitive tax policies are a handbrake on growth. Businesses were relieved that the Scottish Government didn’t further widen tax divergence between Scotland and the rest of the UK in the 2025/26 Budget.

“We want a commitment to avoid further divergence, and an independent review to examine the extent to which this policy has affected Scotland’s competitiveness.”

She added: “I fully understand that the Scottish Government, like the government at Westminster, has tough decisions to shore up public sector finances and support households that are most in need.

“But realistically, the only way to improve public services and raise living standards is to help Scottish firms thrive and deliver improved productivity and growth.

“Additional barriers in the form of higher, or more complex, tax bands do not help reduce paperwork for businesses seeking to locate or recruit people in Scotland."

Ms Newton-Smith said the past few years “have been a tough time for Scottish businesses, with high energy costs, high inflation and interest rates adding to the everyday cost burden”.

She said: “Scottish business leaders say that closing the income tax gap between Scotland and the rest of the UK will remove the current hiring disadvantage and allow them to compete more equally in the race to recruit highly skilled staff. That can only benefit public services in the form of higher tax receipts north of the border, leading to better public services.”

Elsewhere, she took aim at the UK Labour Government’s decision to hike National Insurance and increase the National Living Wage, which she said had “made it harder for firms to hire, invest and grow”.

And she said a shake-up of workers’ rights could add £5 billion to companies’ costs per year, adding: “The clear indication coming from our members is that businesses will react to this in a rational way: they will employ fewer people and invest less.”

Addressing the CBI lunch on Friday, Ms Newton-Smith will argue the drive for net zero cannot be “in isolation from the hydrocarbon sector”.

She is expected to say: “Despite the voices being raised against net zero, the fact is Scotland is sitting on a goldmine of green energy. The numbers don’t lie. The opportunities are there.

“Since 2022, Scotland’s net zero sector has grown 20 per cent and created 16,000 more jobs while average UK growth has near-flatlined.

“So, let me be crystal clear. Business is behind net zero. Business is invested in our energy transition. And we’re behind the plans to go further. But we can’t see net zero in isolation from the hydrocarbon sector.

“Especially in Scotland. Oil and gas are still tens of thousands of jobs here. From the latest data it still makes up over 10 per cent of Scotland’s GDP.”

A Scottish Government spokesperson said: "Our income tax policies mean that the majority of taxpayers in Scotland pay less than they would elsewhere in the UK, while raising an anticipated £1.7 billion more in 2025/26 than if we had followed UK policies.

“This vital revenue supports a range of services and benefits which are not available anywhere else in the UK, including free prescriptions and free university tuition.

“We continue to closely monitor the impacts of our income tax decisions using a range of evidence such as real time economic data and engagement with stakeholders, including the business community.

“In line with commitments in the tax strategy, we are committed to evaluating the impacts of our policy decisions and will publish further research later this year.

“Many levers to grow Scotland’s economy lie with the UK Government and we recognise that many businesses are concerned about the impact of the UK Government’s decision to raise employers’ National Insurance contributions.”