There has been something eye-catching on the Scottish income tax front, writes Business Editor Ian McConnell.

You would just about have had to be off-planet to be unaware of the opposition of many business leaders to the greater income tax burden for higher earners in Scotland relative to their peers elsewhere in the UK.

So it was no surprise at all really to find out that a sizeable majority of members of the Institute of Directors (IoD) in Scotland expressed concern over this divergence on income tax in the business organisation’s latest State of the Nation survey published last Tuesday.

What was more eye-catching, particularly given the policy decisions of the Scottish Government since John Swinney was appointed First Minister and Kate Forbes became Deputy First Minister in May 2024, was the change in the proportion voicing concern.

And this movement was not a rise but a fall.

In IoD Scotland’s latest survey, 74.8% of respondents expressed concern with the way in which income tax policy diverged in Scotland from the rest of the UK.

This was down from 81% in the business organisation’s poll last year.

A rounded 43% expressed “serious” concern over this divergence in the latest survey. And a rounded 31% voiced “slight” concern. A rounded 25% declared “no concern”.

IoD Scotland said respondents had noted “the disparity between taxation in Scotland compared to the rest of the UK will seriously impact their abilities to attract investment and hire the necessary skilled workers”.

However, it was the fall in concern, even though the worry remained significant, which grabbed the attention most.

The issue of divergence on income tax was addressed by Ms Forbes when I interviewed her back in June 2024.

She declared then that the greater income tax burden for higher earners in Scotland relative to the rest of the UK would be kept “under review”, taking into account “how easy it is for taxpayers to shift”.

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Asked in June 2024 if she thought there had been too great a divergence in the income tax burden for higher earners in Scotland compared with those elsewhere in the UK as things stood, Ms Forbes replied: “No but I think we keep it under review…

“I was…public finance minister when income tax was first devolved and I recall at the time us making it clear that we would follow the Adam Smith principles of taxation and one of the commitments that we made was to always keep the divergence under review to understand the behavioural impact because I want to be independent but we are devolved and that has implications for how easy it is for taxpayers to shift.”

This looked like something of a signal at the time.

And it has therefore been no surprise that the Scottish Government, under the leadership installed in May 2024, has not gone down the road of further divergence on income tax for higher earners.

When I interviewed the Deputy First Minister again in June last year, Ms Forbes said: “The First Minister was very clear when he became leader that he didn't believe that you could continually raise income tax, and that we should provide certainty."

Declaring this was what the December 2024 Budget had delivered, for the 2025/26 financial year, she added: "And the Programme for Government then built on that in May - being very clear that there wouldn't be further divergence from the rest of the UK on income tax for the remainder of this parliament.

“And the reasons for that is because certainty matters in a world that seems to be constantly in flux with lots of global headwinds and challenges of recruitment for businesses. The more certainty that we can provide, the better. And the only changes to income tax was essentially a small reduction for the basic and intermediate rate-payers because of the above-inflationary increase to the thresholds.”

Given all of this, it is perhaps not a complete surprise that concern over income tax divergence among business leaders has fallen significantly.

In the IoD Scotland survey, there was also a fall in the proportion of respondents believing personal taxes in Scotland are too high, to less than 72% from 75% a year ago.

That was also very noteworthy.

The State of the Nation report meanwhile signalled strong discontent over business rates in Scotland.

Of the 123 IoD Scotland members who responded between January 14 and March 2 to the survey, 65% felt business taxes in Scotland were too high. IoD Scotland observed this was “a slight increase” from its 2025 survey, in which the figure was 63%.

This question related to non-domestic rates, land and buildings transaction tax, and landfill tax.

Also notable, but not particularly surprising given all that we have heard from business leaders not just in Scotland but throughout the UK, were the findings of the poll in relation to the UK Government’s hike in employers’ national insurance contributions.

Around 81% of respondents in IoD Scotland’s latest survey said increased employers’ national insurance contributions would have a negative impact on their businesses.

This rise in employers’ national insurance was announced in Chancellor Rachel Reeves’ debut Budget in October 2024, with the aim of raising £25 billion a year, and implemented in April last year.

There is no doubt that the grim 14 years of the Conservatives’ stewardship of the economy left Labour with a mountain to climb, albeit Sir Keir Starmer’s administration has not helped itself on this front with its self-imposed Brexit red lines.

© Herald Scotland