Ian Swanson: Swinney's still got a real fight on his hands

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BUSINESS and union leaders are against it, Chancellor Alistair Darling has branded it "ridiculous" and the people who would be expected to collect it say it's "pie in the sky".

But the SNP is pressing ahead with its plans for a local income tax to replace the council tax – and this week John Swinney signalled key concessions in a bid to win more support for the flagship policy.

The Finance Secretary's shift of position increases the prospects of bringing the Liberal Democrats on board for the scheme and so takes the Nationalists closer to securing the majority in parliament they need to get it passed.

But there are still big holes in the policy and serious doubts about whether it will ever come about.

Mr Swinney indicated he was ready to compromise on the plan for a centrally-set 3p tax rate across the whole country, which has been the main stumbling block in getting the Lib Dems, who back local income tax in principle, to sign up for the Scottish Government scheme.

Along with the other opposition parties, the Lib Dems point out there's not much that is local about a tax that is fixed by the Government.

But now it looks as if Mr Swinney could agree that after a period when the tax rate was set centrally, councils could then be given the power to vary the tax – but only downwards.

The Lib Dems say that's "a step in the right direction" but argue councils should be given the freedom to vary the tax up or down and answer to their own electorate for their decision.

Mr Swinney has also said the Scottish Government is considering excluding students from liability for the local income tax – effectively continuing the exemption they currently enjoy under the council tax.

Forcing students to pay the new tax would risk alienating even further a group which has already seen the SNP sideline its election promise to write off student debt.

And thirdly, Mr Swinney said he was willing to look again at how dividend income could be brought within the scope of the tax.

The idea that wealthy people who live off their investments would escape without paying a penny under the new tax was an obvious flaw on a policy supposed to be based on "ability to pay". Up until now the SNP – and the Lib Dems – had argued the tiny number of people involved and the extra costs involved meant it was simply not worth it. But now it looks as if the Government has recognised their appeal to "fairness" demands a different approach.

Mr Swinney's concessions tackle key concerns raised about the Government's original proposals and are designed to make the policy more palatable.

But Mr Darling poured scorn on the plan to allow councils to set 32 different rates. "Making a bad idea even worse" he called it.

The CBI called the move "a charter for complexity and cost".

And to cap that, HM Revenues & Customs denied SNP claims they had been in talks about collecting the new tax. One senior HMRC source was quoted saying: "This is pie in the sky. The logistical arrangements for collecting this tax would be incredible."

The SNP might be close to a deal with the Lib Dems on local income tax, but parliamentary arithmetic means the Government would still be short of a majority – and the votes of the two Green MSPs and independent Lothian MSP Margo MacDonald could be crucial.

The Greens are likely to prove more difficult to win over than the Lib Dems because a local income tax is not their own starting point. The Greens prefer land value tax – a levy on the value of the land where a property is built. They have yet to have detailed talks with the Government but they would almost certainly press for an element of land tax to be part of any package.

However, Labour – which has promised to come up with its own plans to replace or reform the council tax – has already said it is also willing to discuss land value taxation.

A Green source says: "The SNP's local income tax is not the only game in town."

Ms MacDonald is also still "not convinced" about the Government's proposals. "I just think it might not be do-able," she says.

On top of the tricky task of constructing a parliamentary majority to get the necessary legislation passed, the SNP still faces the UK Government's insistence that a local income tax would mean it clawed back over 400 million currently paid to Scots in council tax benefits – money which the Nationalists need to make their scheme work.

And a new problem has now arisen thanks to the financial crisis. Rising unemployment is expected to mean the new tax will raise around 500m less than the SNP had calculated.

Alex Salmond included the local income tax in the list of legislation he announced for the current parliamentary year back at the beginning of last month.

But the Bill is not expected to be introduced until near the end of the session – probably June next year – and may not be voted on until 2010.

The objective remains to introduce the new tax in 2011. But despite Mr Swinney's concessions, it looks as if the SNP will struggle to make that happen.

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