THE UK government is likely to withhold £400 million in benefits if the SNP Executive scraps council tax, according to Des Browne, the Scottish Secretary.
The SNP administration wants to scrap council tax and replace it with a local income tax.
Alex Salmond is hoping for Liberal Democrat support to get the plans through and is planning to introduce the measure to parliament as early as next year.
But Mr Browne warned in an interview with The Scotsman that the Scottish Executive was likely to lose about 400 million in council tax benefits if it went ahead with its plans.
Mr Browne said there would obviously be a debate about the issue, but he stressed that the UK government's position as clear.
"You can't start off the negotiations on the basis that the council tax rebate can continue when there is no council tax being charged," he said.
If the Treasury withholds the money, it would leave the Executive needing to find nearly 1 billion in new money to finance its plans.