Scotland gets no comfort from higher taxes

FOR MANY PEOPLE faced with an unpleasant reality the instinct is to reach out for something that brings comfort and reassurance that all will be well. It might be a bottle of one’s preferred tipple, it might be a drug somewhat stronger, it might just be a bowl of Granny’s potato soup or Mum’s Macci cheese. Or it might be to hunker down, embryo-style, underneath the duvet. 

Eventually, those who have taken that route rather than confront the hard challenges, have to sober up, wake up and down the coffee before addressing the unpleasant reality they tried to avoid but cannot escape.

In political circles – and most especially in Scottish political circles – the warming soul food that is habitually reached for is a call for yet higher taxes. It does not matter that personal taxes have increased in one way or another in every year since devolution began, yet higher taxes are seen as the easy solution. Surely we can all afford just a little bit more?

The reason this route is taken is not difficult to fathom.

Scotland’s public services have become progressively worse over the last twenty-five years

Firstly, it passes the responsibility of the heavy lifting on to others; these others will inevitably be a minority of the electorate – and therefore smaller than those who will not face the burden of increased tax and can vote for it with relatively few concerns about the direct pain it could bring them. (There will be much indirect pain of a slower less productive economy – but joining the dots that will provide a picture of such effects will be difficult as they are spread across many pages and are not obviously or visibly connected.)

Indeed, as the rates of tax proposed will become progressively higher for a progressively smaller group of successful people even those only mildly affected might be tempted to ignore the personal cost or seek to justify it to themselves as helping those less fortunate than themselves.

The fact that Scotland’s public services have become progressively worse over the last twenty-five years despite having more and more money thrown at them funded from higher taxes is too difficult to contemplate. That would require time-consuming and often laborious investigation, discovery of evidence, acceptance of where faults exist and mistakes have been made. It would mean popularity-seeking politicians facing the truth that they have been responsible for many well-intentioned but thoroughly wrong-headed policies that have failed.

Those costly failures – we can all probably point to some, the ferry scandals, the hospital scandals, the big infrastructure scandals, the collapsing education standards, the falling life expectancy, the countless yet avoidable drug deaths – then require more spending and more tax increases to put right.

Far easier, then, to increase taxes on the few and continue spending more on the many, telling them they will benefit when the majority just don’t experience it.

The concept of giving a tax break to the many so they can make their own spending decisions simply does not cut it because, the argument goes, the wealthiest will benefit the most. As a debating response it is likely to be true, because those with the largest incomes will likely receive the largest reductions, but it ignores the accompanying fact that their number will be few and that a general cut in taxes will benefit the many – the majority, indeed probably all taxpayers.

Labour politicians have been campaigning over the last two years for a wealth tax – by that they mean not just taxing incomes but targeting assets

I write about this topic for three reasons. The STUC and some Labour politicians have been campaigning over the last two years for a wealth tax – by that they mean not just taxing incomes but targeting assets (our houses, our pensions, savings and valuable belongings such as family heir looms of jewellery and paintings). They have not yet had much traction, but the campaign is incessant and encourages both the SNP and Labour (and the Greens on the left of both of them) to take at least some measures to increase taxes. 

The campaign sets the mood, the context in which policy is formulated and brands reducing taxes seem an odd, quaint or even extreme pursuit.

As if to confirm this process, a leftist public sector lobby called “Future Economy Scotland”, has just published a paper calling for a hike in Scottish tax rates. Ignoring the obvious truth that Scotland needs higher taxes like a hole in the head, the report recommends increasing income tax by 1 percentage point on lower and middle bands and 2 percentage points on the highest 3 bands, alongside lowering the higher-rate threshold to £40k. Spending cuts are completely beyond the pale for this group, which would better be named ‘Future Lack of an Economy Scotland.’ The fact the group is funded by the Rosa Luxemburg Foundation should tell us everything we need to know.

Then there is the news that our SNP Government has commissioned IPSOS Mori, at a cost of £40,000 of taxpayers’ money, to produce a report summarising what a wealth tax might look like and what it might achieve. This is the sort of exercise that a political party should pay for itself but John Swinney clearly believes his Scottish Government is awash with money to burn at a time when the SNP is struggling to make ends meet.

Wealth taxes are not new; they are tried occasionally by avaricious governments around the world but inevitably raise less revenue than anticipated and are eventually repealed.  

having worked hard and bought assets or made investments from income that is already taxed, people resent being taxed again

The reason is straightforward, having worked hard and bought assets or made investments from income that is already taxed, people resent being taxed again simply for having that “wealth”. They change their behaviour to avoid the tax liability, including moving to a different country where the liability is lower or, more likely, does not exist.

More than a dozen European countries used to have wealth taxes but abolished them, including Austria, Denmark, Finland, France, Germany, Iceland, Ireland, Italy, Luxembourg, the Netherlands and Sweden.

France introduced a wealth tax in 1988 but eventually repealed it in 2017 after it was accepted it was causing serious harm to the economy and France’s public finances. It was estimated to be costing France €7bn annually in lost revenues, roughly double what it raised. 

The capital flight from France over the 29-year period was huge;, in 2015 alone over 10,000 millionaires left France, of which some 7,000 were from Paris. Economic growth was reduced by 0.2 per cent per annum and the €3bn-plus tax burden had to be picked up by other remaining taxpayers. Scotland does not have as many millionaires as Paris, let alone France, but we could expect many Scots millionaires to behave the same and simply move south or leave the UK altogether. After all, they are doing it already.

Sweden had a wealth tax for even longer – nearly one hundred years – but it was abolished in 2007 with virtually no impact on public finances from losing the small revenue it raised. It was estimated to have cost 1,500bn Swedish kroner in lost tax revenues.

Austria abandoned its wealth tax in 1993 due to its high administrative costs and the economic burden on enterprises. Likewise, Finland scrapped its wealth tax in 2006, motivated by the negative effect it was having on enterprises – a problem low-growth Scotland cannot afford to suffer.

Germany scrapped its wealth tax in 1996 with very little impact on public finances because it raised only 0.8 per cent of total tax revenues. German economists who considered its re-introduction found it would reduce economic growth by 0.33 per cent, investment by 10 per cent, employment by 2 per cent and tax revenue by €31bn.

Countries beyond Europe have also scrapped their wealth taxes, including India in 2015. Meanwhile, Norway found that increasing its existing wealth tax by 1 per cent in 2023 resulted in massive capital flight, especially to Switzerland. This caused an “exit tax” to be introduced.

The SNP might learn from Labour’s past experience. It had included the introduction of an annual wealth tax on the rich in its 1974 manifesto but abandoned the plan. It was going to include major transfers of personal wealth, heavily tax speculation in property and include a new tax on property companies. The Chancellor, Denis Healey, later commented he had tried but eventually gave up because “in five years I found it impossible to draft one which would yield enough revenue to be worth the administrative cost and the political hassle.”

Rachel Reeves was lobbied to bring in a wealth tax but resisted the demands from Labour’s left, arguing it would be counter to her strategy of supporting economic growth. Rachel is brighter than John. Wealth taxes lower capital stock by encouraging capital flight, impacting  new investment vital to generate economic activity. This in turn leads to low wage growth and further depresses tax revenues.

The impact of a wealth tax peculiar to Scotland within the UK is not difficult to predict. Already there are some 40,000 Scots who leave the country every year to go to work or settle in other parts of the UK or overseas; this reduces tax revenues and contributes to skill shortages. 

The answer offered by some is to demand greater immigration into Scotland. With no shame this demand is often made by the same people advocating higher taxes, including a wealth tax. Surely the better approach would be to encourage more Scots to stay in Scotland and contribute to the tax revenues by building businesses and growing the economy?

The answer is to reboot our private sector economy by making Scotland the most attractive tax location in Britain.

What Holyrood has to do is recognise there is nothing virtuous or progressive in having higher taxes than the rest of the UK. It is undermining the economy, it is making the public finances precarious and our public services are failing, while fewer jobs are being created and incomes are lower.

The answer is to reboot our private sector economy by making Scotland the most attractive tax location in Britain. That means reducing our business and personal tax rates to attract entrepreneurs back and encourage those already toiling to stay. We need to stop losing talent and start encouraging economic growth. 

The wealth tax advocated by the SNP and Greens would turn Scotland into an economic wasteland reliant on a public sector unable to raise the revenues to maintain high quality services.  It would be the antithesis of a successful Scotland and encourage the McBrain drain to grow faster and become larger.

In contrast, under Malcolm Offord’s leadership, Reform UK Scotland is proposing to cut Scottish taxes to be the lowest in the UK. It is a bold move and one Scotland desperately needs – and already it is changing the nature of the political debate.

John Swinney will be alright after he is no longer First Minister. Protected financially by his original workplace pension, his Westminster pension and then his Holyrood pension, of which eighteen of the twenty-seven years have been as a higher-paid minister, John Swinney need not worry about the pain of higher taxes for working people or even a wealth tax. 

But for many people the alternative of lower taxes for all being proposed by Malcolm Offord needs to be championed. We need more entrepreneurs investing in Scotland and creating jobs here – and yes, we need more millionaires, more successful people, locating in Scotland and paying their taxes here rather than abroad. Scotland needs to be a globally  attractive location for Scots and would-be Scots to build their success here so we can all benefit from it. Rejecting a wealth tax or yet more tax increases is the first step, the second is to reduce our taxes and make Scotland the place to be.

An edited version of this article first appeared in The Scotsman on 24 February 2026.