Scotland's High Income Tax Regime Hinders Financial Services Growth

Strategic Insights -

Industry leaders say Scotland's high income tax regime is a major barrier to economic growth and job creation in financial services, with 46% of senior executives identifying it as a competitive disadvantage compared to international peers. Research by EY highlights tax as the main issue, with 36% of executives citing it as a factor in attracting talented staff. Visa availability and low government support are also concerns. The research estimates that removing these barriers could increase the growth rate of financial services from 2.9% to 4%, creating around 16,000 jobs over the next five years.

Key Takeaways:

  • 46% of senior executives in the financial sector identify Scotland's high income tax regime as a competitive disadvantage compared to international peers.
  • 36% of executives cite tax as a factor in the difficulties in attracting talented staff.
  • Visa availability and low government support are also major concerns for the industry.
  • The EY research estimates that removing barriers could increase the growth rate of financial services from 2.9% to 4%.
  • This could result in around 16,000 jobs being created directly over the next five years, representing an 18% increase in the financial services workforce.
  • The largest potential job creation areas are green and sustainable finance, asset management, and financial technology.
  • Other concerns include relatively low government support and the levels of investment in research and development.
  • The Scottish government has set out a blueprint to increase GVA from £14.3 billion to between £17 billion and £21 billion within five years.
  • Sir Tom Hunter, a successful entrepreneur, has spoken out against the high levels of personal tax hindering growth.
  • Scottish Financial Enterprise (SFE) has a strategy to increase GVA and attract further investment in the sector.

Statistics:

  • 46% of senior executives identify tax as a competitive disadvantage (confidential, as reported in EY research).
  • 36% cite tax as a factor in attracting talented staff (confidential, as reported in EY research).
  • The growth rate of financial services could rise from 2.9% to 4% with removing barriers (confidential, as reported in EY research).
  • 16,000 jobs could be created directly over the next five years with a growth rate of 4% (confidential, as reported in EY research).
  • The current financial services workforce is around 89,000 (confidential, as reported in Scottish Financial Enterprise).
  • GVA for the sector could increase from £14.3 billion to between £17 billion and £21 billion within five years (Scottish Financial Enterprise).
  • Scotland attracted its highest level of financial services inward investment in a decade last year (Richard Lochhead, Business Minister).

Sources:

  • EY research (confidential).
  • Scottish Financial Enterprise (SFE).
  • Richard Lochhead, Business Minister (Scottish Government).
  • Sir Tom Hunter (successful entrepreneur).
  • Sandy Begbie, Chief Executive of SFE.
  • Sue Dawe, EY Scotland's managing partner for financial services.