Exclusive:Income tax gap between Scotland and England 'is a risk to Scottish jobs', warns City of London

The City of London Corporation said it was a source of ‘significant concern’ in the financial sector

The income tax gap between Scotland and England is a source of “significant concern” in the financial sector and is potentially putting people off working north of the border, the governing body for London's financial district has said.

Chris Hayward, policy chairman at the City of London Corporation, said it was a “risk to Scottish jobs”.

He said the issue had been raised in a meeting he held with Humza Yousaf, the First Minister, earlier this week, as well as in meetings with financial figures.

A view of Edinburgh from Calton Hill. Picture: Scott Taylor

Judith Cruickshank, managing director of commercial mid-market at the Royal Bank of Scotland, previously raised concerns that 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 new income tax band for higher earners was created as part of the recent Scottish Budget, while the top rate will rise by 1p in the pound. The threshold for paying the higher rate of tax – £43,663 – will be frozen.

Taxpayers earning more than £28,850 already pay more income tax in Scotland than in the rest of the UK. As a result of the latest changes, Scotland will have six income tax bands while the rest of the UK has three. Those earning £150,000 will pay around £6,000 a year more than down south.

Speaking to The Scotsman, Mr Hayward said: “I would share the concern. It was raised at the meeting we had yesterday, actually, that the gap is noticeable and is significant, and is potentially a detraction from working in Scotland. From the point of view of Scottish jobs and Scottish employment, that’s a challenge.

"It’s not for me to comment on the domestic policies of the Scottish Government, because that’s a decision the Scottish Government have made, they’ve set out the reasons why they’ve made it.

"But I do think that there is a fear that that will not help Scottish jobs, because if you can cross the border, frankly, and pay less tax, and still commute or work remotely, and you’re going to make a significant saving on your tax bill, the chances are that will impact.

"It’s not for me to comment on the rationale behind the tax differential. The Scottish Government have made clear their policy on it. But it is a risk. It is a risk to Scottish jobs.”

Asked if he had heard concerns being raised in the financial sector, he said: “Yes, absolutely heard about it. It’s been one of the things that was raised at a meeting I was at yesterday. So there is, I think, significant concern about the tax gap. It’s been raised with me since I’ve been up here, so it’s clearly on everybody’s minds.”

He added: “Those concerns exist, and they have been strongly articulated to me by the Scottish financial community while I’ve been here.”

Edinburgh has the second biggest financial services sector in the UK, while Glasgow also has a significant presence.

Elsewhere, Mr Hayward said he had spoken to the First Minister about attracting investment into the Scottish renewables industry.

He said there are fears the commitment to net zero north and south of the border has “stalled”. The UK Government has moved its target dates, he said, while Labour has rowed back on its green investment pledge. Meanwhile, a recent report warned Scotland will miss its 2030 climate targets.

Mr Hayward said private finance can fund projects, but “significant investment won’t happen unless there is full political commitment”.

He added: “You need that certainty, absolutely you need that certainty, and if there’s not that certainty and there’s a space, there’s a vacuum, then I think it’s a challenge to the just transition actually taking place.”

Mr Hayward also said a “responsible risk culture” needed to be reintroduced in the financial and business sectors.

He added: “I think since the financial crash, we’ve become almost terrified of the word ‘risk’. But the bottom line is, you will not get economic growth unless we take some risk, and we need our financial regulators to recognise that as well, and not only regulate, which is their job, but also to innovate and to support global competitiveness.

"And that’s a discussion which now is starting to bubble both north and south of the border.”

Conservative MSP Liz Smith said: “The only people not to recognise the threat that higher taxes pose seem to be SNP ministers.

“This warning from the City of London’s governing body is just the latest – and given the importance of the finance sector to Scotland’s economy, it’s one that Humza Yousaf should heed. His creation of a tax gulf with the rest of the UK won’t just stymie growth and deter skilled workers, but is putting Scottish jobs in danger.”