Scottish Budget: Workers ‘choosing to live in English cities rather than pay more tax in Scotland’

Judith Cruickshank, a senior figure at the Royal Bank of Scotland, said she had heard ‘many anecdotal stories’

Workers in the financial sector are choosing to live in northern English cities rather than move to Scotland where they would pay more income tax, a senior banking figure has warned.

Judith Cruickshank, managing director of commercial mid-market at the Royal Bank of Scotland, said she had heard "many anecdotal stories" of higher earners deciding to live in cities such as Manchester, Newcastle and Liverpool.

She said the issue had been raised as a "challenge" by members of Scottish Financial Enterprise (SFE), the representative body of Scotland's financial services industry, where she sits on the board.

Edinburgh. Picture: Jane Barlow/PA Wire

Ms Cruickshank made the comments at a post-Scottish Budget event held by the advisory firm True North, where she appeared on a panel alongside Shona Robison, the deputy first minister and finance secretary.

Ms Robison announced on Tuesday that a new income tax band is to be created for higher earners, while the top rate will rise by 1p in the pound. Meanwhile, the threshold for paying the higher rate of tax – £43,663 – will be frozen.

Figures compiled by the Scottish Fiscal Commission (SFC) show the proportion of taxpayers in Scotland paying a higher rate of tax has almost doubled since ministers took control of rates and thresholds in 2016.

The percentage paying the higher and top rates was 12.15 per cent in 2016/17. In 2024/25, this will increase to 21.67 per cent – when the new “advanced” band is included – and it is forecast to rise to 27.05 per cent in 2028/29.

Professor Graeme Roy, chairman of the SFC, said: “In 2021/22 there were just over 435,000 taxpayers in Scotland paying at least the higher rate, but then if you look at what we are projecting for 2024/25, that is up to nearly 650,000 taxpayers paying at least the higher rate, and that is up to over 20 per cent of all taxpayers in Scotland paying at least the higher rate. That is fiscal drag, that’s just more and more people moving into the higher rate.”

Professor Mairi Spowage, director of the Fraser of Allander Institute at the University of Strathclyde, told the True North event the increase in the top rate of tax would only raise a “statistically insignificant” £8 million due to the impact of behavioural change.

This includes higher earners choosing, for example, to work fewer hours or put more money into their workplace pension to avoid paying more tax.

Ms Cruickshank said businesses in Scotland were already seeing such behavioural change, with more people choosing to work part time.

She said: "At the migratory side, again, anecdotally we have seen that. We've seen that in our customer base, but also in the work that we've been doing with SFE. I sit on the board of SFE as well and the work that we've done this year on the growth strategy – we talked to most of our members about plans for growth for next year and what it would take.

“We are all hugely passionate about the sector, we want the sector to grow, but it does come up as a challenge. And I think the challenge is particularly because most of those businesses are UK-based businesses, they're not Scottish businesses in Scotland employing only Scottish people.

“And so, we have very real decisions that people make, and particularly now in a post-Covid world where people can choose where they work from.”

She said she had heard “many anecdotal stories about people choosing to remain in cities like Manchester or Newcastle or Birmingham”.

Ms Cruickshank added: “And that's the opposite of what it was 15 years ago when if you went to Waverley on Monday morning or Edinburgh Airport, there were dedicated planes and trains taking people down to work in London who were choosing to live here.”

She said the cost of living may be better in Scotland than in London, but people are “choosing between living in cities like Manchester, Liverpool, Newcastle etc, and the difference is not as stark”.

She added: “Particularly, again, when you look at those higher salary brackets, where people are choosing to base in Edinburgh, the housing price between here and cities like Newcastle is not as advantageous.”

Ms Robison said the Scottish Government was working with HMRC “to look at whether or not there is any behavioural change impact”, adding: “So we will keep a very close eye on that.”

She told the True North event: “I think one of the issues is more people working from home. And of course that is essentially a flexibility that we've not seen previously in terms of where people might base themselves while they're working for a particular organisation.

“So we have to be very cognisant of that and we need to make sure that our cities are competing with some of those emerging cities, particularly in the north of England. So we are certainly not complacent at all and I think these are matters that we want to work with the sector around to make sure that we can maintain that attractiveness.”

Ms Robison said the Budget had involved making “wicked decisions and choices”.

An attendee at the True North event later asked her what the point was of adding 1 per cent to the top rate, given this was only forecast to raise £8m. She replied: “We were trying to maintain that progressive system, but we’ll keep these things under review and I hear what you’re saying.”

A prominent think-tank has meanwhile said the cost of funding the council tax freeze in the Budget could instead have been used to increase the Scottish child payment to more than £30 a week.

The Institute for Public Policy Research (IPPR) Scotland said increasing the welfare payment could lift another 10,000 children out of poverty.

In the Scottish Budget, £140 million was set aside to compensate councils for the decision to freeze council tax.

According to IPPR Scotland’s analysis, this could have increased the Scottish child payment to £34.50 a week – rather than the planned £26.70.

It points out the council tax freeze disproportionately benefits higher-income households.

Humza Yousaf pledged to increase the child payment to £30 a week during his campaign for the SNP leadership earlier this year.

Dave Hawkey, senior research fellow at IPPR Scotland, said: “All indications are that Scotland’s interim child poverty target – set in legislation by the Scottish Government – will be missed next year, setting us off course from the final target and keeping children trapped in poverty.

“However, rather than making progress towards Scotland’s child poverty ambitions, this Budget risks stalling it."

Ms Robison was also separately forced to defend cutting more than £200 million from the housing budget, saying the Government’s affordable housing target was still “important”.

The finance secretary also confirmed there would be public sector job losses, although added she was determined to avoid any compulsory redundancies.