Scotland's tax gap with rest of UK 'barrier to attracting talent and investment', warns IoD

Releasing its latest “state of the nation” study, the Institute of Directors (IoD) Scotland said business chiefs were worried over the introduction of an additional tax band in December’s Scottish Budget. The launch of a sixth tax bracket, compared to the rest of the UK’s three, means those earning over £75,000 annually will be taxed at a rate of 45 per cent as of next month.

Some 82 per cent of directors expressed concern over this tax divergence with the UK, and of those, 39 per cent noted that staff recruitment was likely to be impacted the most, 34 per cent said employees’ choice of location would be a concern, while 27 per cent are worried about the impact on inward investment. While 61 per cent of IoD Scotland members said they have the right number of skilled people for current jobs, up from 54 per cent in last year’s survey, only half reported that they were confident of being able to recruit sufficient skilled staff in the next 12 months.

The warning comes just days after the City of London - the governing body for the UK capital’s financial district - said the income tax gap between Scotland and England was a source of “significant concern” in the financial sector and potentially putting people off working north of the Border.

Catherine McWilliam, nations director, Scotland, at the IoD, said: “The skills gap continues to be a key concern for our members. Future recruitment and staff retention are key when business planning, and our data shows business leaders think that the introduction of the new tax band in Scotland will make things even more difficult for them. Responses show that leaders clearly see Scotland’s tax regime as yet another barrier to attracting and retaining talent - and encouraging investment.”

Results were more positive across other key areas, with 69 per cent of respondents stating their intention to grow in the next 12 months. Employment and cybersecurity were identified as key priorities for the next five years, while there appeared to be an appetite for embedding AI tools into businesses, with 80 per cent of respondents feeling optimistic about those opportunities. Some 46 per cent noted that AI was already being used within their organisation.

When it comes to Scottish Government economic policy, 76 per cent of respondents felt there has been insufficient attention to growing the economy in the long term, while 50 per cent of members need more support to meet the country’s net zero ambitions.

McWilliam added: “Compared to 2020, today’s business landscape is very different. Leaders have an abundance of opportunities to better their businesses through AI, net zero, fair work, inclusivity and diversity, and many of them are keen to tackle these areas alongside working towards growth. But these areas are at the risk of being seen as ‘nice to have’, remaining simply as ambitions, if we don’t get the fundamentals like access to skilled workers and policy implementation right.”