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Claim: “It is embarrassing and telling that so many Scottish Government staff should be paying the [income tax] rate that applies south of the Border to avoid the punitive tax imposed by the SNP" Liz Smith MSP

Doorstep answer: The number of civil servants in Scotland is going up, not falling.  The vast majority of the highest paid civil servants are still located in London, where the UK Treasury – which sets most taxes – is located.

Who is Liz Smith?

Liz Smith MSP is the Tory shadow finance secretary at Holyrood and a failed Westminster candidate. 

On January 16, Smith published figures obtained by the Conservative Party under the Freedom of Information procedure ostensibly showing that 280 Scottish Government employees pay tax in England, presumably because that is their place of domicile.

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In total, some 16,345 people work in Scottish Government departments. On the face of it, this suggests 1.7% of those working for the Scottish Government pay taxes to the UK Government.

Smith puts this down to civil servants avoiding paying higher income tax rates applicable in Scotland, which she calls “embarrassing”.  She implies this is only the start of a labour exodus from Scotland caused by high taxes.

Under recent Scottish Government plans, the top rate of income tax will increase by 1p in the pound, while a new rate for those earning above £75,000 will be introduced.  According to the Scottish Fiscal Commission (SFC), those living in Scotland and earning more than £28,850 pay more tax than in the rest of the UK, with the impact largely seen in those earning more than £50,000. 

Smith calls this “punitive” and a “huge disincentive” for people to live and work in Scotland.  The figures, she added, “are a portent of the growing behavioural change we can expect in the wider workforce”.

READ MORE: Scottish tax bands: How the new budget change affects me

Civil Service jobs rising in Scotland

Income tax rates diverged between Scotland and England before the latest Budget. If there is any sign of “behavioural change” it should already be apparent.

However, according to the most recent UK data (Civil Service Statistics 2023) Civil Service employment in Scotland increased in the year to March 2023 – by 2480.  

In fact, the Civil Service headcount increased across all regions except for London and east of England. Scotland has the third highest concentration of civil servants after London and the north west of England. (These numbers include those working for UK Government departments as well as Holyrood.)

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The figures obtained by Smith do not reveal why there are 280 Scottish Government employees registered as living outside of Scotland. But her inference that they are doing so to deliberately avoid paying Scottish taxes is just that – inference without evidence. They might, for instance, be in the process of moving, or temporarily working in Scotland, or working for the Scottish Government in London, or have other reasons for having an English address.

Smith is implying that higher income taxes are alienating Scottish civil servants. One way of testing this proposition is to look at how civil servants describe themselves. Each year the UK Civil Service asks employees to self-identify their “nationality”. Not all respond but of those who did in 2023, 22,365 gave their “nationality” as primarily Scottish rather than British. Down south, out of nearly half a million, only 66,800 said they were English. This suggests a high degree of loyalty to the Scottish Parliament.

Again, Smith shoots herself in the foot by implying that by raising the very top rate of income tax in Scotland, high-flyers will move south. However, it remains the case that London and Whitehall still retain the majority of senior Civil Service jobs despite departmental decentralisation. 

Outside of London, 31.8% of all civil servants are in lower-level administrative grades, compared to just 11.7% in London. But the percentage of those in high level grades outside of London is only 12.3% compared to a massive 34.0% in London. Smith’s high-flyers are based predominantly in London already – as a result of Tory policy.

READ MORE: Ross Greer: Scotland’s tax system is what makes us better

Taxes and public sector employment

Smith’s worries about high taxes disrupting the Scottish public sector labour market are somewhat contradictory given general Tory opposition to expanding the public services. The Tories have long argued for a smaller public sector.  

On the other hand, devolved Scottish governments have used their spending powers to expand public services. Since the Scottish Parliament was established, the Scottish Government’s total workforce numbers have increased significantly from under 150,000 in 1999/00, to over 245,000 by 2022/23, an increase of around 65%. That includes education, the NHS and the police and fire services. Those extra workers also pay taxes.

Internal migration and tax competition

The British debate on internal tax competition almost completely ignores the fact that such regional variations in income and business taxes are actually the norm in many big Western economies.  

In particular, the United States and Germany both have wide regional variations in tax levels. Commentators in both countries generally point to internal tax competition as a useful way of attracting scarce resources, promoting social and labour mobility, and testing alternative economic policies.

In America, there is a significant body of research on the outcomes of internal tax competition. This work indicates that a complex web of factors influences the decision to move from one part of the country to another, for example weather, crime, health care, housing availability and cost. The demographic of movers plays a major role, like retirees seeking sunshine, young singles seeking work, young families seeking better housing. Marginal tax rates – especially property taxes – do pay a part but are not dominant factors.

What is undeniable is that there has been a steady decline in US interstate migration rates - from 3% in 1980 to 1.5% today. This despite an intensification of tax competition from pro-Trump, right-wing states. This suggests that when it comes to internal migration, quality of life factors – which Scotland offers - outweigh tax rates. Except perhaps for the billionaire class.

Fact check rating:

The National:

Smith has cherry-picked data to fit her arguments. All inference, no evidence.