In 2018-19, the Scottish Government extended the number of tax bands from 3 to 5.  The effects of the changes meant people on lower incomes would pay less in income tax, while higher earners would pay a bit more.

The impact on most would have been modest; a person earning £30k a year finding themselves £30 better off.  Meanwhile, someone earning £40k a year would have seen their annual tax bill rise £70 (or almost £6 per month). Even someone earning £1m could expect to see their income tax rise by just 1%.

So it is surprising to see a story in The Telegraph declare:

“More than 1,000 top earners flee Scotland after tax rises… Changes introduced in 2018-19 led to the country losing £61 million in tax receipts in that year, analysis finds.”

If the impact of modest tax rises is a £61m hit to public funds and a movement of citizens out of the country, this ought to concern legislators involved in tax policy. However, the truth is not as simple as The Telegraph’s coverage implies, for the following reasons.

1. Overall income tax receipts grew in the year the changes were introduced:

The research which The Telegraph’s story is based on looked at the impact of the tax changes on (a) intra-UK migration and (b) labour market participation.  It did not look at the overall impact on tax receipts. So, while it did estimate that, after the changes, Scotland had 1000 fewer higher earners than it might otherwise have done, and that those earners might have represented £61m in tax revenue (although it gives a wide margin of error for this estimate), it did not find that the policy resulted in lower tax receipts overall. Indeed, the National Audit Office has reported Scottish income tax returns grew by £600 million, or around 6%, between 2017-18 and 2018-19, putting £61m into perspective.  Returns grew by another £300m over the following year. In other words, the implication in the headline and subtitle – that raising tax rates produced lower overall returns – was misleading.

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2. Those leaving would be a tiny fraction of the population:

1000 high earners may sound significant, but this is a tiny fraction of the Scottish population. Even among high earners, this would be a movement of just 0.3% of the (already small) population of wealthier residents. The research also shows any marginal tax-based deterring effect on this group was short-lived and not repeated in the following years.

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3. Following the tax changes, in-migration to Scotland appears to have increased by at least one estimation for those on lower incomes:

It reports,

“However, for the other income bands we find an increase in in-migration ([from the rest of the] UK to Scotland) following the Income Tax changes”.

But The Telegraph’s spin makes no reference to this; focusing instead on the relatively small number of higher earners moving away, rather than the numbers of lower earners entering the country.

In summary, the misleading headline implied that as a result of tax changes there had been an exodus of Scottish residents at great cost to the public purse.  The reality was that a very small group of higher earners had opted to move out of the country but most had not, more lower-earning individuals had entered the country, and other data had shown that income tax receipts had increased overall.

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Why does it matter?

In the coming months there will be a UK General Election, and tax is always a campaigning issue.  There is a risk that people reading coverage like The Telegraph’s will come away with the understanding that the impact of higher taxes would be uniformly negative.  This may inform their voting decisions and is likely to have other effects on public debate and political thought.

Of course, it’s no coincidence that The Telegraph is a conservative-leaning newspaper, which tends to endorse low tax policy.

Tax is a complicated issue, and it is vital that there is a fact-based debate on the advantages and disadvantages of changes in tax rates.  But that debate is not helped by newspapers misrepresenting the impact of tax reform.