Local income tax on way as early as 2010

COUNCIL tax will be scrapped and replaced with local income tax as early as April 2010 under an SNP government plan that is certain to cause a massive cross-Border conflict with Westminster.

The Nationalist administration has confirmed that plans to introduce local income tax north of the Border will be introduced next year, despite the fact that double-income households and the wealthy face big increases in annual bills. A family earning 200,000 a year could pay around 3,500 more than their current tax.

The abolition of council tax was a key SNP pledge in the Holyrood election and will result in huge savings for many low earners and pensioners, particularly those in big houses.

After Parliament narrowly backed the principle of the plan in June, ministers are now said to be "determined" to press on. But the move will ignite a dispute with the UK Treasury over 400m of council tax benefit which is currently paid to low-income Scots.

Scottish government Finance Secretary John Swinney is banking on the cash to help cover most of the 450m overall tax cut he says the new local income tax (LIT) will deliver.

But Whitehall ministers insist that once council tax is scrapped, so is the benefit they pay to Scotland. Scottish ministers are understood to have decided to press on regardless, finding the missing cash elsewhere if Whitehall refuses to back down.

One senior source in the Scottish government said: "We are not going to get into a position where the Treasury can second-guess the legitimate responsibilities of the Scottish Parliament."

Swinney received a boost last night after the Scottish Lib Dems confirmed that they would back the principle of the LIT.

But with the Scottish Parliament still balanced precariously between those in favour and those opposed, the entire policy could rest on the decision of independent MSP Margo MacDonald. Last night, she said she was behind the plan "in principle".

The timetable for the LIT was unveiled in a parliamentary answer. Ministers will put forward a bill this time next year, with the aim of passing it into law by summer 2009.

The changeover from council tax to local income tax is therefore possible by April 2010.

A spokesman for Swinney said: "We are determined to abolish council tax in this Parliament. We will introduce legislation in the next parliamentary year and will work with Parliament to scrap this unfair and unwanted tax.

"Our new, fairer system will be introduced as part of the legislation to scrap council tax, so our detailed proposals will be brought forward in the next parliamentary year."

Labour MSP Des McNulty said: "At last we have flushed out from ministers the timetable for bringing forward the proposals on a local income tax. We believe that the implementation of this will penalise a majority of working families in Scotland and that the costs of collection and the risks of people not paying are so great that it will be less efficient and less fair."

In a study commissioned by the SNP, the Institute of Fiscal Studies found that, even with the Treasury money, there would still be a 450m shortfall in council funding when compared with current figures.

Swinney says that efficiency savings can bridge the gap, but the IFS declared these would be "difficult to achieve".

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