Has Scotland’s 48% tax rate really reduced public revenue?
The media should take note: a modelled hypothesis is not the same as definitive proof.
By
Laurie Macfarlane
01 August 2026
By
Laurie Macfarlane
01 August 2026
This week, Scotland’s tax policy found itself in the headlines for all the wrong reasons thanks to tax expert Dan Neidle. In a convincingly argued paper, Neidle claims that far from raising revenue for public services, Scotland’s decision to increase its top rate of income tax to 48% may actually have reduced tax receipts. A policy expected to raise around £53 million is instead estimated to have cost the Scottish Government around £22 million. The embarrassing episode has gone global, even attracting attention in the Washington Post.
At first glance, this appears to provide rare real-world evidence for the elusive “Laffer Curve”: the idea that, beyond a certain point, higher tax rates change behaviour so significantly that governments end up collecting less revenue, not more. For opponents of Scotland’s more progressive tax system, the analysis has provided the ammunition they have been waiting for. Sandy Begbie, chief executive of Scottish Financial Enterprise, has called on John Swinney to commission an urgent independent review of tax policy and to “correct course” ahead of the Budget.
So has Scotland finally proved the Laffer Curve once and for all? Not necessarily, at least not yet.
Neidle’s analysis is thoughtful and carefully argued, and it raises important questions about Scotland’s increasingly divergent income tax system. But it is equally important to be clear about what the analysis does – and does not – prove. As Neidle himself has acknowledged, much of the media coverage has greatly overstated the certainty of his findings. What has received far less scrutiny are the methodological limitations of the analysis itself.
As we will see, unpacking those limitations shows that the evidence falls well short of proving that Scotland’s 48% top rate has reduced revenue. At most, it presents a plausible but highly uncertain guesstimate, built on assumptions that are not well supported by the historical data. Given these methodological concerns, no major policy decision should be taken based on this analysis alone until further data is available.
In practice however, the debate has created a useful opportunity to reflect on Scotland’s tax reform journey so far and where it may go next. Future Economy Scotland believes that fiscal policy should always be evidence-led, and we welcome the opportunity to subject claims of this importance to serious scrutiny, and consider what a fair and sustainable tax system should look like in the years ahead.
Beyond the headlines
Judging by the newspaper headlines, the story is simple: a tax reform that should have raised £53 million instead lost £22 million, representing an embarrassing own goal for the Scottish Government. Neidle’s own analysis was considerably more nuanced. But before turning to it, it is important to clear up some of the more misleading claims made in the coverage.
First, the Scottish Government did not claim that increasing the top rate to 48% would raise £53 million, as was widely reported. That was the Scottish Fiscal Commission’s (SFC) estimate of the revenue that would be raised on a purely static basis, before taking account of behavioural change. Once behavioural responses were included, the estimated yield fell to £8 million, as part of a wider package of reforms expected to raise £82 million.
In comparison to the Scottish Government’s £60 billion budget however, £8 million is a trivial rounding error – amounting to 0.013% of all spending. Why bother making a tax change that's expected to raise such a trivial sum? This is an important question, which we’ll return to later. At the same time however, Neidle’s estimated £22 million loss is also trivial in comparison to the Scottish Budget. More importantly, this figure has often been reported in a misleading way.
Although widely reported as a definitive figure, the £22 million revenue loss is not official outturn data – it is a modelled estimate based on a set of assumptions. The most critical of these is that without Scotland’s tax changes, the average income of Scottish top rate taxpayers would have grown in line with that of top rate taxpayers in the rest of the UK. The gap between that counterfactual and the observed Scottish outcome is then attributed to Scotland raising the rate of tax on high earners.
This is a legitimate modelling exercise, and Neidle is careful to present it as such rather than a provable fact. Unfortunately, however, many newspapers, public figures and commentators were not so diligent. In reality, any modelled counterfactual is only as reliable as the assumptions on which it rests.
Shaky assumptions
Neidle’s analysis begins by noting that, in 2024-25, the average income of Scottish top-rate taxpayers fell by 8%, while it rose by 5% across the rest of the UK (rUK). His hypothesis is that this divergence largely reflects tax-related behavioural change by high earners in response to Scotland’s higher rates. He calculates the £22 million figure by estimating what Scottish top-rate incomes would have been had they grown in line with rUK, applying a 45% tax rate to that counterfactual income, and comparing the result with the actual amount raised in Scotland at 48%.
The central question is therefore whether it is reasonable to assume that the average income of Scottish top rate taxpayers would otherwise have grown in line with the rest of the UK. This is the key assumption underpinning Neidle’s argument that is doing all the heavy lifting. Thankfully, we can examine whether this relationship has held historically.
As the chart below shows, growth of average top band incomes in Scotland empirically has not matched the rest of the UK. The Scottish series is markedly more volatile in both directions.
One complicating factor is that the top rate threshold in both Scotland and the rest of the UK fell from £150,000 to £125,140 in 2023-24, which saw the growth of average top band incomes fall sharply. This creates a structural break in the historical comparison – data before and after 2023-24 are not directly comparable. But it is clear that average top incomes in Scotland have never grown neatly in line with the rest of the UK – either before or after the 2023-24 threshold change.
In 2021-22, average top-band income in Scotland rose by 10%, compared with 4% in the rest of the UK. The following year, it fell by 11%, compared with a 5% decline in rUK. As above, in 2023-24 growth of average top band incomes in Scotland and the UK fell sharply, as taxpayers earning between £125,140 and £150,000 entered into the picture. We will return to the significance of this later, as it relates to another issue with Neidle’s analysis. However, the large year-to-year divergences in the data suggest that growth in rUK top rate incomes is an empirically weak counterfactual for what would otherwise have happened in Scotland without the tax changes. This doesn’t make rUK irrelevant as a comparator, but it does make exact one-year matching an unreliable basis for such a precise estimate.
Given how critical this assumption is to Neidle’s analysis, this alone should be enough to make us extremely cautious about treating the £22 million estimate as a reliable measure of anything aside from his modelled scenario – far less as proof that the 48% tax rate reduced public revenue.
An alternative sense check
There is another way to sense-check Neidle’s central assumption without relying on a series whose definition changes midway through the comparison. Using HMRC data, it is possible to construct a consistent historical series for taxpayers with a total income of at least £150,000, covering 2010-11 to 2023-24. Using this data, it is possible to compare the average total income among high earners for both Scotland and the UK.
This is not an exact match with Neidle’s data. The analysis here uses total income and residence-based geography, whereas the Scottish outturn statistics use the Scottish-taxpayer definition and focus on Scottish non-savings, non-dividend income. It also compares Scotland and the UK as a whole, rather than the rest of the UK (excluding Scotland). This alternative series should therefore be treated as a broad sense check, rather than a definitive test of Neidle's findings.
But this approach has two important advantages: it compares like with like, and allows us to look further back in time. The threshold remains fixed at £150,000 for every year, so the population does not suddenly expand in 2023-24 to include taxpayers earning between £125,140 and £150,000.
The chart below shows the annual change in the average total income among taxpayers earning at least £150,000. The pattern is striking. Scotland’s performance (shown in green) frequently moved very differently from the UK (shown in yellow), long before Scotland diverged from the UK on income tax.
In 2011-12, Scottish average income rose by 11.4%, while the UK average fell by 0.7%. In 2018-19, Scotland rose by 7.9%, while the UK was essentially flat. The following year, Scotland fell by 6.9%, compared with a fall of only 0.7% across the UK. These are not small deviations around an otherwise stable relationship. They are large swings in both directions, echoing the volatility observed in Neidle's own dataset above.
The second chart below shows the annual gap between Scotland and the UK in the growth of average total income among taxpayers earning at least £150,000. A value of zero would mean that Scotland tracked the UK perfectly. Positive values mean Scotland outperformed the UK, negative values mean it underperformed.
In several years, the forecasting error would have exceeded 5%. Sometimes Scotland did much better than the UK, and sometimes it did much worse. There is no stable pattern in which Scottish high incomes simply rise and fall in step with the UK.
As noted above, these figures are not directly comparable with Scottish income tax data and should also be treated with caution. The trends may be influenced by differences in dividend and savings income, taxpayer classification and residence. But especially when similar historical volatility is observed in Neidle’s own dataset, there are strong grounds to question the assumption that Scottish top incomes would otherwise have grown in line with the UK.
Historically, this has simply not been the case – including in the years preceding tax divergence. And because this is the key assumption underpinning Neidle’s hypothesis that the 48% rate lost the Scottish Government revenue, this conclusion should be treated with considerable caution.
Sensitivity analysis
If Neidle’s assumption that Scottish top incomes would otherwise have grown in line with the UK isn’t credible, what assumption would be?
Over the period covered by his dataset, Scottish top incomes have been substantially more volatile, and have also grown more slowly on average: around −4.1% a year in Scotland, compared with −1.9% in rUK. This average is influenced by the sharp falls following the 2023-24 threshold change, and can't explain why growth was weaker – but it does show that assuming Scotland would otherwise match rUK is not obviously supported by the data.
More importantly, the £22 million revenue loss is highly sensitive to even small changes to that assumption. On Neidle’s central calculation, the revenue loss disappears if Scottish top incomes would otherwise have grown only around 1.2% more slowly than those in rUK. If the gap were 2%, the model would instead deliver a revenue gain of £14 million. In other words: a relatively small adjustment to the assumed counterfactual is enough to reverse the apparent "revenue loss".
This sensitivity also works the other way, of course. If Scottish top incomes would otherwise have grown faster than those in rUK, Neidle’s estimated revenue loss would be even larger. The point is not that slower Scottish growth is necessarily the "correct" counterfactual, but that the result changes materially under relatively small departures from Neidle's central assumption. Given the revenue figures are so small, this highlights why it makes little sense for a figure as precise as a £22 million “revenue loss” to shape public policy in any way.
Behavioural change
After assuming a relationship between the growth of average top incomes in Scotland and the rest of the UK which historically has not existed, Neidle then implies that any subsequent gap can be attributed primarily to behavioural responses to Scottish tax policy. Here we find the second shaky assumption.
To support this, he presents a chart showing the ratio of average top incomes in Scotland to those in the rest of the UK. The ratio had been relatively stable for several years, but then fell in 2023-24 and again in 2024-25. Neidle argues that this apparent break from the previous relationship, coinciding with increases in Scotland’s top income tax rates, is strongly suggestive of a behavioural response. The force of that conclusion therefore depends on how stable the earlier relationship really was, and whether other factors could explain the subsequent divergence.
Source: Tax Policy Associates
As mentioned above however, there is an important complication. The top rate threshold in both Scotland and the rest of the UK fell from £150,000 to £125,140 in 2023-24. Before 2023-24, the top rate population excluded taxpayers earning between £125,140 and £150,000. Afterwards, it included them. So the problem is not quite that Neidle compares Scottish apples with UK pears in the same year. It is that he risks comparing pre-2023 apples with post-2023 pears in both countries, and then interprets the movement in the Scotland-to-UK ratio as though nothing had changed.
But in reality this could materially affect the ratio, particularly if the threshold change did not expand the two top-rate populations by the same proportion. And when we look at the data, this is exactly what happened. Lowering the threshold from £150,000 to £125,140 increased the number of taxpayers in Scotland’s top band by around 70%, compared with roughly 55% in the rest of the UK. This suggests that Scotland had a larger group of taxpayers in the newly included £125,140 to £150,000 range relative to its existing top-rate population.
Because these new entrants would, by definition, have lower average incomes than those already earning above £150,000, their inclusion could have mechanically reduced Scotland’s average top-band income more sharply than in rUK. It is therefore difficult to know how much of the fall in the ratio reflects genuine behavioural change and how much reflects differing compositional effects.
Neidle acknowledges the threshold issue in a footnote and argues that the ratio should not depend materially on where the threshold is drawn, citing a standard Pareto-distribution assumption. That is a legitimate assumption for quick analysis, but the markedly different increases in taxpayer numbers show that the composition of the two top-rate populations changed differently. This does not by itself invalidate Neidle’s argument, but it means that the assumption that the threshold effects cancel out in the ratio can't be taken for granted, and this hasn't been tested separately. This uncertainty in turn merits caution when using Scotland’s declining ratio as evidence of a strong behavioural response.
Using our alternative HMRC data from the previous section, it is possible to construct a closely related ratio using a fixed £150,000 threshold throughout. This measures the average amount of total income above £150,000 received by a Scottish high-income taxpayer, expressed as a share of the equivalent UK average. As before it is not a like-for-like replication of Neidle’s measure: it includes savings and dividend income, uses a residence-based definition of Scottish taxpayers, and compares Scotland with the whole UK rather than rUK. But it has the advantage of applying the same threshold and definition in every year.
As the chart below shows, this alternative ratio is also volatile, but it does not reproduce the sharp deterioration in 2023-24 as Neidle's chart did, which he interpreted as evidence of behavioural response. Instead, Scotland’s ratio rises from 76.6% in 2022-23 to 79.2% in 2023-24. This does not disprove a behavioural response, and the series does not yet extend to 2024-25. But it does show that the apparent fall in Scotland’s relative position is sensitive to how the high-income population and income measure are defined. This further weakens the case that Neidle’s declining ratio is decisive evidence that higher tax rates caused the divergence.
The tax theory of everything
What might explain the divergence in high-income growth between Scotland and the UK? The honest answer is that we simply do not know. What we do know however is that large divergences occurred repeatedly before Scotland’s tax system began to diverge from the rest of the UK.
That is a serious problem for Neidle’s interpretation. His model first assumes that Scottish top incomes would otherwise have grown in line with rUK, then treats the subsequent shortfall as evidence of tax-related behavioural change. But the historical data show that Scotland has often diverged from the UK for reasons that clearly can't be attributed to Scottish tax policy. Those same non-tax forces must therefore remain credible explanations for at least part of the recent divergence.
This does not mean tax played no role. It means the data do not allow us to identify how much of the one-year gap was caused by tax, rather than by wider factors that have produced similar gaps in the past. Saying that behavioural change is the hypothesis that “best fits the data” does not solve this problem when the historical relationship is so unstable. The central weakness is therefore not simply that alternative explanations exist – it's that Neidle’s model effectively assumes them away, enabling him to assert that everything relates to tax rates. This is little more than sleight of hand dressed up as economics.
What might these other factors be? One potential explanation is simply that the structure of Scotland's economy is materially different to that of England. For example, Scotland has a relatively large oil and gas sector with many high-paid workers. Large swings in the fortunes of one lucrative sector could have a major impact on top rate incomes and tax paid in any single year. Similarly, the rest of the UK includes London, which has a uniquely large concentration of very high earners in finance and professional services. Strong growth in a relatively small number of London's highest incomes could therefore make Scotland's relative performance appear weaker, even if part of the difference reflected economic structure rather than tax. These are also mere speculations, but in reality there are dozens of plausible structural factors that may cause top incomes in Scotland to grow at a different rate to the UK that have absolutely nothing to do with tax.
When hypothesising about the impact of tax changes, we need to be careful against deploying what we can call a “tax theory of everything” – that any change to complex outcomes (e.g. top rate incomes) can be attributed solely to changes in tax rates. While Neidle himself acknowledges that non-tax factors could also be playing a role, much of the media coverage did not.
To see why this logic is flawed, we can also apply it in reverse. In contrast to warnings of “capital flight” and “brain drain”, since Scottish income tax began to diverge from the rest of the UK, Scotland has generally experienced positive net inward migration of taxpayers – including among top rate taxpayers. The chart below from HMRC shows that in every year since 2017, more additional and top rate taxpayers have moved to Scotland than the rest of the UK than the other way around. The important caveat is that the data currently run only to 2023, so they cannot tell us what happened after the most recent increases in the top rate, which is the focus of Neidle's analysis.
Source: HMRC
It would, of course, be absurd to argue that people in England are moving to Scotland because top rate taxes are higher. Correlation does not equal causation. In practice, people move for many reasons: employment, family, housing, quality of life, etc. If we rightly reject the claim that positive net migration proves higher taxes attract people to Scotland, we should be equally cautious about claiming that weaker growth in average top incomes proves that higher taxes lost public revenue. In both cases, the counterfactual is unobservable.
Crucially, none of this means that the 48% rate had no behavioural effect. The weakness in Scottish top incomes in 2024-25 may well reflect some combination of income shifting, changes in working patterns or other tax responses. That this is happening to some extent is a near-certainty, as the SFC predicted in its initial modelling. The problem is that we simply do not know just how big a role it is playing.
Another problem with the £22 million
One final problem relates to the interpretation of what Neidle’s £22 million figure actually represents. Media reporting widely implied that it was the direct result of Scotland raising the top rate of tax from 47% to 48%. However, the £22 million calculation compares the actual Scottish outcome at 48% with a hypothetical scenario in which the Scottish tax base grew like the rest of the UK’s and was taxed at 45%. It therefore captures a possible response to Scotland’s wider 3% tax differential, not simply the latest 1% increase.
In a separate footnote, Neidle estimates that the move from 47% to 48% alone may have reduced revenue by just £9 million. This is the appropriate comparison with the SFC’s £53 million static estimate and £8 million behaviour-adjusted forecast.
Once the comparison is narrowed to the specific rise from 47% to 48%, the argument is not that a policy expected to raise £53 million instead lost £22 million. It is that a policy forecast to raise around £8 million may instead have lost around£9 million. And crucially, this £9 million is itself a modelled estimate, resting on a critical assumption that is empirically weak.
The difference between the SFC’s forecast of an £8 million gain and Neidle’s estimate of a £9 million loss is fiscally negligible, and likely well within the uncertainty surrounding both calculations. In other words: it is statistical noise, not a fiscal crisis. Again, this criticism applies more to the way Neidle’s analysis was reported than to the analysis itself. But it is the media presentation that has largely shaped the political debate, and so also needs to be challenged.
All we can say with reasonable confidence is that the new 48% top rate tax is likely not raising much revenue. But of course, it wasn’t expected to in the first place.
What about self-assessment?
To bolster his hypothesis that high earners in Scotland are shifting income to minimise tax, Neidle also points to Scotland’s share of UK Self Assessment liability. His chart shows this fell from its previous range in 2024-25 while the mostly-PAYE share remained within normal historical variation. If true, this could be consistent with a behavioural response, since taxpayers using Self Assessment may have greater control over the timing and form of their income.
Source: Tax Policy Associates
But the evidence is less conclusive than it first appears. The data covers all Self Assessment taxpayers, not only high-earners paying the 48% rate. It is also sensitive to how the historical baseline is defined. The Self Assessment share appears significant only when 2024-25 is compared with the average of the prior eight years. But in reality, the series already shows a downward trend (the blue line in the chart above). And notably, this period included the Covid-19 shock, its uneven recovery, and several earlier changes to Scottish income tax. As Neidle himself notes in a footnote, once the pre-existing downward trend is allowed for, the result is no longer statistically significant.
In practice this downward trend could itself reflect earlier tax responses, pandemic-related disruption or other changes in the profits and composition of Self Assessment taxpayers. The data we have cannot distinguish between them. As such Neidle's chart could be consistent with behavioural response, but it does not tell us anything about the extent to which any trends were caused by the new top rate.
A quick recap
So where does this leave us? At this stage it is useful to do a quick recap of the key issues identified with Neidle’s analysis and the wider media reporting so far:
The 48% rate was not expected to raise £53 million in practice. That was the SFC’s static estimate, before allowing for behavioural change. Its behaviour-adjusted forecast was only £8 million.
Neidle’s £22 million loss is not an observed HMRC outturn. It is a modelled estimate based on a counterfactual: the amount that could have been lost if the income of Scottish top rate taxpayers had grown in line with their equivalents in the rest of the UK.
This critical assumption is empirically weak. Neidle’s own data show that Scottish top incomes are substantially more volatile than those in the rest of the UK and have grown more slowly on average. The resulting "revenue loss" is highly sensitive to small changes in the growth assumed for top incomes in Scotland versus rUK.
A separate HMRC dataset points in the same direction. Using a fixed £150,000 income threshold, Scotland’s high-income growth has again been more volatile and has not neatly matched the UK's. Historically, assuming the two would move in lockstep would have produced major forecasting errors.
Neidle’s evidence in support behavioural change is weak. The Scotland-to-rUK ratio is not a fully consistent time series because the top rate threshold fell from £150,000 to £125,140 in 2023-24, changing both the population and the income measure. Neidle argues that this should cancel out in the ratio, but that depends on an untested assumption about the shape of the income distribution.
The threshold change also affected Scotland and rUK differently. Lowering the top-rate threshold in 2023–24 increased the number of taxpayers in Scotland’s top band by around 70%, compared with roughly 55% in rUK. This suggests that the newly included £125,140 to £150,000 group was relatively larger in Scotland, potentially depressing average top-band income more sharply for compositional reasons alone. Our alternative HMRC series that is unaffected by the threshold change does not reproduce the same 2023-24 decline.
Self Assessment evidence is also only suggestive: The data covers all Self Assessment taxpayers, not only those paying the 48% rate – and once the series’ pre-existing downward trend is taken into account, the fall is no longer statistically significant.
The headline £22 million loss does not relate to top rates rising from 47% to 48%. It compares the actual Scottish outcome at 48% with a broader counterfactual where top-earners are taxed at a 45% rate.
For the specific rise from 47% to 48%, Neidle’s central estimate is a £9 million loss. The meaningful comparison is therefore between the SFC’s projected £8 million gain and Neidle’s modelled £9 million loss – a small and insignificant difference, not evidence of a major fiscal collapse.
For all these reasons, anyone concerned with evidence should be extremely cautious about interpreting Neidle’s figures as anything other than plausible but highly uncertain modelling. It is a reasonable guesstimate, but it is definitely not proof that Scotland’s 48% rate reduced revenue, as has been widely reported in the media.
Why tax the rich at all?
Leaving the methodological limitations of Neidle’s analysis aside, one important question remains. If increasing the tax rate on the highest earners raises very little – and may even lose revenue – why do it at all?
The Scottish Government’s exact reasoning for doing so remains unclear, so we can only speculate. Importantly however, the 48% top rate was not introduced in isolation. The 2024-25 reforms also created a new 45% Advanced Rate on income between £75,000 and £125,140. Together, the two changes were expected to raise around £82 million, with the overwhelming majority coming from the new Advanced Rate rather than the 1% increase in the Top Rate.
This political context matters. It is possible that ministers feared that increasing tax for those on high incomes, while leaving the very highest earners untouched, would be seen as arbitrary or unfair. Raising the top rate at the same time may therefore have been intended to make the wider package more coherent and easier to defend.
This highlights a wider truth: tax is as much about politics as economics. Governments must consider not only how much revenue a reform will raise, but whether the public will regard it as fair and just. Perceived fairness – and actual fairness – matter a lot, because it determines whether wider reform is politically sustainable.
That is especially important given the scale of Scotland’s fiscal challenge. For critics such as Dan Neidle and Sandy Begbie, reversing the 48% top rate may be an obvious priority. But the Scottish Government is facing an annual budget gap for day-to-day spending of around £2.6 billion. Without substantial additional revenue, deep cuts to frontline public services are unavoidable.
One thing is clear: Scotland cannot close that gap by taxing high earners alone. There are simply not enough of them. As argued in Future Economy Scotland’s recent paper, Funding Scotland’s Future, raising the sums required means confronting an uncomfortable truth: most Scots will need to pay a little more.
That does not make taxes on higher earners irrelevant. Their importance is not only fiscal, but political. A core pillar of any well-functioning tax system should be redistribution. Asking those with the broadest shoulders to contribute more will likely be necessary to build public consent for wider tax rises across the income distribution.
Whether you agree or not, a government that asks a middle-earning nurse to pay more while cutting tax for a millionaire is unlikely to be received warmly at a time when many are struggling. Whatever its other merits, such an approach risks raising nothing for the NHS for the simple reason that it is unlikely to win popular support.
In the end, this may be where the Scottish Government’s strategy has fallen short. Rather than using higher taxes at the top to help secure public consent for broader-based tax rises, it chose to cut the starter rate to 19%. That may have delivered a short-term political dividend, but it also narrowed the tax base and made future reform much more difficult.
In practice, reducing the 48% rate would not make much difference to Scotland’s public finances. But it could make it considerably harder to win support for the broader tax rises that will be needed to deliver on the Scottish Government’s core objectives.
The most important takeaway however is that tax policy should always be based on evidence. It is entirely possible that the 48% tax rate has reduced revenue, but it’s equally possible that it has not – and it was never supposed to raise much in the first place. The reality is that we simply don’t have the data to prove it either way. So before making any rash decisions, the Scottish Government should ignore the media hype, focus on the evidence, and consider carefully how any changes might impact the ability to raise revenue in the future.
