More than half of Scottish businesses have experienced “little to no impact” from the Scottish Government's income tax policy, a key survey has revealed, although a few say they are considering moving operations or investments south of the Border.

The second-quarter Scottish business monitor from the University of Strathclyde’s highly regarded Fraser of Allander Institute, published today, shows that 28% of firms reported no impact from the policy, while 29% felt only "a little” effect. Meanwhile, 17% of respondents experienced a "fair amount" of impact, with another 17% stating that the policy had a "significant" effect on their operations.

The Scottish Government has used its devolved tax powers in a way that means there is a greater tax burden for higher earners north of the Border relative to those in the rest of the UK.

The Fraser of Allander Institute survey, conducted in May, gathered responses from more than 300 firms across various sectors of the Scottish economy.

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Construction emerged as the most affected by the Scottish Government’s income tax policy, with 27% of firms in this sector reporting a significant impact, the Fraser of Allander Institute noted.

In contrast, the wholesale and retail sector saw the least effect, with 34% of businesses indicating no impact, the research institute observed.

Professor Mairi Spowage, director of the Fraser of Allander Institute, said: "These results shed light into the ongoing debate on how tax policies are affecting businesses and the broader Scottish economy. While most firms report minimal impact from the current tax policy, a notable minority are experiencing challenges, especially in areas like staffing and investment.

"This divide underlines that taxation is a particularly contentious issue, and ties into the discussion happening across Scotland about how diverging rates of income tax are affecting the economy.”

She added: "As the Scottish Budget approaches on December 4, the Deputy First Minister will need to weigh whether the current tax balance is right – or if there's any scope for change."

In an exclusive interview with The Herald in June, Deputy First Minister and Cabinet Secretary for Economy and Gaelic Kate Forbes said the greater income tax burden for higher earners in Scotland relative to the rest of the UK will be kept “under review”, taking into account “how easy it is for taxpayers to shift”.

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The differential between the tax burden on higher earners in Scotland and the rest of the UK was increased further in the Scottish Budget last December, for the current 2024/25 tax year. This move prompted warnings from various quarters that some taxpayers would move away from Scotland as a result of the greater burden north of the Border.

The Fraser of Allander Institute said key issues identified from firms' responses in the survey included recruitment and retention, wage pressures, and competitiveness and investment.

Going through each of these three areas in turn, it added: “Many businesses say they are struggling to attract and retain talent, citing higher taxes as a cause of employee dissatisfaction, leading to increased wage demands and reluctance to relocate to or remain in Scotland.

“A number of respondents reported raising wages to compensate for the reduced take-home pay of employees due to the higher tax rates.

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“Some businesses perceive Scotland’s higher tax regime as a competitive disadvantage compared to the rest of the UK, with a few considering moving operations or investments south of the Border.”

However, the Fraser of Allander Institute also highlighted “neutral or positive responses”.

It noted "many firms [are] telling us there was no impact from the change”, adding: “Others recognised that the higher tax rates play a role in funding public services in Scotland, such as healthcare and education.”

Ms Forbes, when asked by The Herald in June if she thinks there has been too great a divergence in the income tax burden for higher earners in Scotland compared with those elsewhere in the UK as things stand, replied: “No but I think we keep it under review.

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“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.”

However, Ms Forbes also flagged figures from HM Revenue & Customs showing more people had come to Scotland from the rest of the UK than had moved in the opposite direction, against the backdrop of devolved income tax. And she highlighted the part “progressive” taxation played in funding the £26.70-a-week Scottish child payment for lower-income households north of the Border amid UK austerity.