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How glorious, we have a natural experiment

It’s very difficult to rewind the economy, change the starting conditions then see what happens. We therefore depend – as with geology, cosmic stuff, astronomy and so on, natural experiments to build our science:

Nicola Sturgeon’s barrage of tax rises risks sparking an exodus of rich Scots across the border, the Institute for Fiscal Studies (IFS) has warned.

High-earners in Scotland will be thousands of pounds worse off from changes to income tax that the parliament is expected to approve on Thursday, the think tank said.

Scottish business leaders branded the rising tax burden “a disadvantage for Scotland” and expressed concern it would make competing with the UK for talent harder.

Under the new policies, the richest tenth of Scots will on average be 2.1pc poorer than those south of the border, according to the IFS – a hit equivalent to £2,590.

Meanwhile, the poorest tenth will on average be £580 better off a year from April from benefit rises, lifting incomes by 4.6pc.

Ms Sturgeon’s government is increasingly relying on taxing higher earners to fund its policies, said Tom Wernham, a research economist at IFS and an author of the report.

He said: “With this group in particular, there is a risk that higher taxes will incentivise tax avoidance efforts, such as converting income into dividends – to which Scottish tax rates don’t apply – or even migrating across the border.”


So what is the movement of people – or the movement of money into dividends – going to be? Or, more importantly, what do we observe it to be over time? For that will be the grand test of Spud’s insistence that people don’t move because of taxes, won’t it?

No, I don’t know the answer either. That’s the point of observing, see?

18 thoughts on “How glorious, we have a natural experiment”

  1. Can’t find it at the mo, but I saw a news item recently whereby a company that was going to build a factory in the North East of England decided to go to Ireland because of the more favourable tax regime. This ‘science’ seems pretty much settled already. Unlike some others…..

  2. “it would make competing with the UK for talent harder”

    They’ve left already and haven’t told anyone?

  3. That one’s a bit complicated. It’s not actually the tax on profits. It’s about drugs, pharma. And there’s a levy on UK drug production related to the prices the NHS pays for drugs. If the NHS drugs bill goes up then the UK manufacturers have to cough up a rebate – or summat – on their sales to the NHS. This has recently risen to some billions a year- a big enough sum to drive those decisions.

  4. Tim, my theory is: it won’t make much difference to population movement.

    Under the new policies, the richest tenth of Scots will on average be 2.1pc poorer than those south of the border, according to the IFS – a hit equivalent to £2,590.

    This is enough of an added tax bill to annoy, but probably not enough to make you want to move if you’re a higher rate earner. Of course, if you’re truly rich, you’re not paying Income Tax like a chump.

    On t’other sporran, English white flight to Scotland is unlikely to be dissuaded by spending another couple of grand a year. House prices are generally a lot lower in Scotland anyway.

  5. “This is enough of an added tax bill to annoy, but probably not enough to make you want to move if you’re a higher rate earner…”

    I know a number of people who have turned down lucrative promotions rather than live down south. Not so much they hate the English, but the comfort blanket of living amongst your own – the wider family ties and support networks. Downside of staying put includes the ‘Dead Man’s Shoes’ situation, whereby when you visit years later the same old faces occupy the same old desks.

  6. Will we also see people migrating to Scotland for the higher benefits?

    Not benefits per se, but when I got the job in 2015 and moved to Perth, Scotland, the additional spending per head versus UK spending was something that was on my mind.

    I haven’t found services any better, but there does seem to be a greater availability, so I haven’t had years of waiting to see a specialist or whatever, so from that perspective you can tell the difference being Scottish rather than rUK resident.

    I don’t think the same is true of welfare though. There are differences (like how the Cold Weather Payments are made), but I don’t think they are overall higher.

    The increase in April will be the same inflation related rise that applies to other rUK welfare payments.

  7. Bloke in North Dorset

    We can also keep an eye out for anyone who’s called for higher taxes as a virtue signal moving when it becomes a reality.

  8. Seems this has already been shown in the US. Rich and middle class people leaving high tax states like California and New York for low tax states like Florida and Texas. Cue much whining and denial that their policies had anything to do with it. Now they are trying to apply taxes to those out of state assets. That was slapped down hard in the 90s as unconstitutional when California tried to introduce source taxes on pensions.

  9. I imagine a lot of higher rate tax payers in Scotland are working on financial services in Edinburgh or oil in Aberdeen. Neither area noted for cheap houses (for the same reason).

  10. Wot Steve said.

    Tho I wonder if relative movement in house prices will form part of how the whole thing will reach equilibrium. Housing in an increased-tax area becoming (relatively) cheaper. A lot of the jobs are going to be there pretty much whatever the tax – many will be public sector jobs, after all – but people might not be prepared to stump up extra taxes as well as high housing costs in order to take those jobs. So a downwards pressure on what they’re prepared to pay on housing.

  11. I have two friends at home who swear they will retire south. It’s not the tax, it’s the nasty Nazi flavour of the SNP. During a recent election campaign the wife of one was sworn at by SNP supporters for being a foreigner. What shitbags – bullying a small woman, for Christ’s sake.

  12. £2,590 a year extra tax is not a material concern compared to housing costs, as others have said.

    One thing to watch out for is people “pulling up the ladder”: they earned their wealth when taxes were lower, so they’re happy to kick out the rungs below them. We already see this with pensioners UK-wide; but I’d expect it to become a particular feature of Scottish politics in the next few years.

  13. The rich have benefited from ScotGov polices since the SNP took charge – free tuitions, prescriptions for all, museums and no tolls on the bridges. More voting power to boot.
    The poorest 10% don’t benefit from those things (this is compared to England of course).
    The real surprise is why haven’t earners in the top half migrated to Scotland, or maybe they have.

  14. Jeez! Things must be getting bad down south if people are fleeing to Jockistan. I wasn’t wrong getting out & not leaving a forwarding address, then?

  15. “Andrew M February 11, 2023 at 10:43 am

    Why don’t / can’t they tax dividends more too?”

    Dividends paid to individuals are taxed after taxing the company profits from which they are paid.

    So a company makes £10,000 profit and pays £1,900 corporation tax. The £8,100 left can be paid as a dividend. In the hands of a basic rate taxpayer that’s £607.50 income tax.

    £2,507.50 tax on £10,000 profit when paid to a basic rste income tax payer.

    £4,532.50 tax if paid to a higher rate income tax payer.

    How much more tax would you like?

  16. @Andrew C

    That was certainly my experience of running a personal company. You save a bit on NI, but then you don’t get the benefits of NI. The only significant tax saving is if you can ’employ’ a spouse or some other family member to do the books, say, and they haven’t used all their tax-free allowance.

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