Michael Kelly: If Salmond won't stop this council tax con, then Labour will

It was introduced as a temporary measure shortly after the 2007 Holyrood election, which resulted in the Scottish Tories (or Freedom Party or Also-Rans Anonymous or whatever they are considering calling themselves in a bid to detoxify the brand) sitting on their hands and broad bottoms to allow Alex Salmond to become First Minister.

Mr Salmond, in an attempt to fulfil at least one of his election promises, immediately announced his intention to introduce a local income tax. In the meantime, council tax was to be frozen. This was the basis of the concordat that he signed, not with the individual local authorities but with their representative body, the Convention of Scottish Local Authorities (Cosla).

The bait was that, in return, the local authorities would be allowed to keep any savings they made from efficiencies and that the ring-fencing of their funds would be ended, allowing them to decide spending priorities. This had been a particular point of issue between councils and the previous Lab-Lib coalition government.

That government had introduced services such as concessionary travel for which local authorities were the delivery mechanism and had dictated that extra central funds provided for health and social services be spent only in areas that Holyrood decided were deprived. The local authorities resented this intrusion into their decision-making. They wanted parity of esteem with Westminster and Holyrood. So they swallowed Salmond's bait right up to the float.

Unfortunately for them, they didn't check the size of the float and settled for a financial deal that has left them chronically underfunded — by as much as 300 million over the three years that the freeze has been in place. Dundee, for example, needed 7m extra to maintain its level of services. It got 1.5m. Belatedly, the local authorities realised they were trapped. Refusal to implement the freeze would cause the government to withhold funding.

The SNP government had a good reason for offering the funds that they did. Early calculations of the level of income tax needed to replace the revenues generated by the council tax suggested that it would have to be nearly 6p in the pound, whereas Salmond had promised a level of about 3p. By reducing the cost of local government through a freeze on council tax that was not fully funded, he could get nearer to his desired level of local income tax. That's the con.

Meanwhile, consultation over the proposed switch from council tax to local income tax was hitting the buffers.

Business, the trade unions and charities were among the many groups to come out against it. The only major organisation that came out in favour was Cosla. But that was after a meeting that took place in Aberdeen, and the Labour members from the Central Belt didn't bother to attend. Perhaps they were saving on expenses. If only Celtic had been at Pittodrie that evening.

Across the board, however, the local income tax proposal was condemned as unfair and unworkable, and particularly burdensome on hard-working families. With the recession, local authority income from charges such as leisure centres fell, as did fees for planning applications.

On the expenditure side, higher unemployment triggered more demand for council services and housing benefit. The black hole left by the freeze would have been even deeper if a local income tax had been in place, so dependent is the take from that tax on levels of economic activity.

One of the arguments in favour of local income tax was that it would be less regressive than a property-based tax. The freeze is even more regressive. So the SNP Cabinet (and me) who live in high-banded houses gain significantly, whereas the poor in their low-quality houses, often council-tax free, do not gain at all. And they suffer most from the reduction in local government services.

As the local income tax proposal rests in political limbo — in other words, abandoned — its unfairness is one good reason for lifting the freeze. The councils put more weight on another one. They feel that the freeze is just another step on the road to turning them from local government into local administration. Local councils used to be able to raise half of their income by their own means. In Glasgow, that has fallen to 15 per cent. Far from the concordat freeing them from ring-fencing, they have found virtually their whole budget is government-controlled. Councils do not like raising taxes and in an election year might well have been inhibited from doing so. But the largest ones, such as Glasgow, facing cuts of 115m over the next two years, would have liked the choice. So, too, would Glasgow taxpayers and beneficiaries of services.

Labour will be returned as the single biggest party after next May's Holyrood election. That's not a prediction; it is merely anticipating what will be a fact. The Lib Dems will stick to the principle enunciated by Nick Clegg before the last Westminster election — that they will support the party with the largest number of seats. So we'll have a Labour government in either major or minor key. It will be expected to remove the freeze. Certainly, it will stick to a property-based tax, which is seen as easily identifiable, easy to collect and stable throughout the economic cycle, removing the idea of a local income tax from limbo to oblivion.

Whether it can be persuaded to hand back powers to the local level is more in doubt. Its record in office suggests it is likely to resist decentralisation.. What it has to do is improve relations with local government, which were not always warm - one reason why Cosla negotiated itself in to this mess. A start would be abandoning the three-card trick the freeze has become and restoring honesty between the two levels of government.