SNP unveils scheme to replace council tax

Key quote

"Not only have the SNP completely removed local discretion in the setting of tax, they are now reintroducing elements of Margaret Thatcher's poll tax, in that every worker in a household will now pay this tax." - Tom McCabe, Labour finance minister

Story in full PLANS to abolish the council tax and replace it with a Scotland-wide local income tax pegged at three pence in the pound were unveiled yesterday by the Scottish National Party.

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Nicola Sturgeon, the SNP's deputy leader, described the proposal as "the biggest tax cut for middle Scotland in a generation" and claimed that nine out of ten Scots would be better off under the new council funding system.

But the Nationalists' plan came under immediate attack from Labour - which compared it to the poll tax - and was questioned by public finance experts.

Under the scheme, council tax will be frozen at 2007-08 levels for two years until local income tax is introduced.

The SNP produced detailed tables which it said demonstrated that taxpayers on low and middle incomes would benefit by between 260 and 350 a year, and only the top tenth of income earners would lose out. Ms Sturgeon said the point at which people would be worse off under the SNP was about 33,000 for a single earner or 64,500 for a two-income couple.

She added: "This represents the biggest tax cut in a generation and is directed to particularly benefit pensioners and middle Scotland."

But the SNP's claim that the plans had been endorsed by the respected Institute for Fiscal Studies were called into question when the think-tank itself cast doubt over some of the assumptions.

The SNP claimed the 1.25 billion the IFS said can be raised in local income tax would need an extra 450 million from the Executive - as well as 380 million from the Treasury to compensate for the abolition of council tax benefit - to make up the total 2.13 billion which currently comes from the council tax.

However, Stuart Adam, a senior research economist at the IFS, said the 450 million would leave a "hole in local authorities' finances". And he questioned the SNP's claims that the money would be found from efficiency savings made in the Executive.

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Mr Adam added: "Whether voters would see the spending cuts as a price worth paying for the tax cuts remains to be seen - the effects would be very different for different families and in different areas - but the trade-off would no longer be at the discretion of local decision-makers."

Labour at Westminster last night increased the pressure on the SNP over council tax benefits.

Jim Murphy, Labour's work and pensions minister, said: "It is simple - if there was no council tax in Scotland there could be no council tax benefit.

"It is either naive or disingenuous of the SNP to assert that they would be entitled to this money to bail them out of the disastrous consequences of their tax plans," he claimed. If this is the case, the SNP plans will have a "black hole" of 840 million , a verdict that was backed by a leading academic.

David Bell, of Stirling University, said that when free personal care was introduced, the Executive had to meet the cost of the Treasury-funded attendance allowance benefits it replaced.

Prof Bell said: "That's the killer for local income tax. Unless it is introduced on a UK basis, there is an enormous problem over council tax benefit."

But Ms Sturgeon insisted: "If the Scottish people indicate through the election that they want to move to a fairer system of local taxation, they have every right to expect that that money that comes from their taxes will be available to fund that new system." This would be "easily negotiated" with Westminster.

Tom McCabe, Labour's finance minister, said yesterday: "Not only have the SNP completely removed local discretion in the setting of tax, they are now reintroducing elements of Margaret Thatcher's poll tax, in that every worker in a household will now pay this tax."

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He claimed local income tax could hit households where couples had wage-earning youngsters living at home.

Mr McCabe added: "Effectively, every working individual in that house, irrespective of the value of that house, would have to pay the tax."

U-turn will 'sever local accountability'

THE SNP's plans to set the local income tax centrally for all 32 Scottish councils directly contradicts the party's previous policy on local government funding.

In 2004, the Nationalists' policy unit produced a document, Proposal for a Local Income Tax, which said the system "must be local, putting communities in control of their own revenue".

The document added: "In order to prevent local financial control and accountability being further eroded, it is vital that each council is able to take responsibility for setting its own rate of local income tax. The SNP proposal for a local income tax protects local accountability and the principle of local government."

Nicola Sturgeon, the SNP's depute leader, conceded yesterday that the rate of the local income would be fixed "across the country in the short to medium term".

She said that the rate would be set for the four-year term of the next Scottish Parliament, if the SNP were in government.

Ms Sturgeon added: "In the longer term we have said that when the system is up and running we would look at introducing some flexibility for local authorities - flexibility down the way, not up the way.

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"For the lifetime of the next parliament, our judgment is that the smooth transition to a local income tax is what is most important, and this is the best way to bring that about."

Tom McCabe, the Labour minister for finance, said: "The SNP proposal will sever accountability between councils and taxpayers by abandoning their long-held principle that this should be a local tax set by local authorities."