Scottish Government ditches controversial local income tax plans

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The Scottish Government today announced it is ditching plans to replace the council tax with a local income tax.

Finance secretary John Swinney told MSPs it was clear there was "no consensus" in Parliament for the measure during a Holyrood debate today.

Poll: Was the Scottish Government right to shelve its local income tax plans?

"The cabinet has therefore decided not to introduce legislation to abolish the unfair council tax and replace with a local income tax until after the election in 2011," he said.

Proposals for a local income tax had been a key manifesto pledge of the SNP in its victory at the Scottish elections two years ago.

The announcement of the party's biggest policy climbdown to date came when Mr Swinney gave details of the coming year's local government settlement.

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Labour finance spokesman Andy Kerr later told MSPs it was "the biggest retreat in the history of this Parliament."

Mr Swinney announced plans for the council tax freeze to continue next year for a third consecutive year.

He blamed a combination of parliamentary voting arithmetic – as shown in the SNP's budget defeat – and looming Westminster-driven cuts of 500 million, as the reason for dumping the plan.

"We cannot put together a stable majority to enable us successfully to steer detailed local income legislation through this Parliament," he told MSPs.

A parliamentary debate in December had shown there was no consensus on the best way forward for local taxation.

But he told MSPs that the SNP would fight the next election to win a parliamentary majority that backs the abolition of the "unfair" council tax.

He went on: "We look forward to a financial environment at that time more suitable to the introduction of a fairer local income tax."

Scottish Labour leader Iain Gray said outside Parliament: "This is the day that Alex Salmond's credibility died.

"The SNP government wasted two years promoting an unworkable tax that would have simultaneously damaged services and made Scotland the highest taxed part of the UK."

Mr Gray said "almost every" organisation consulted, from the STUC to the CBI, had been against the tax.

"They need to confirm that they will dump the local income tax altogether – and while they're at it drop the equally damaging Scottish Futures Trust," said Mr Gray.

Before dropping his income tax bombshell, Mr Swinney told MSPs that local authorities will receive 11.8 billion from the Scottish Government for the coming year.

This, he said, was an increase of 658 million or 5.9% on the present financial year.

The total was made up of 10.8 billion in revenue funding and more than 1 billion for capital spending.

The package includes 70 million for freezing the council tax, and grant funding of 820 million, mainly for the police.

The capital spending also includes 90 million of accelerated spending agreed in the budget negotiations.

On local income tax, Mr Swinney said that when the SNP launched the plan in 2007, it identified a saving of 450 million, with two thirds of Scots better off and fewer than two in 10 paying more .

But he went on to tell MSPs: "The financial context has changed."

Scotland was facing a 500 million reduction in its spending next year and the same again the following year – "a planned 1 billion raid on Scottish public services."

"It would not be wise, and indeed would not be possible, to introduce a tax reduction of the scale we propose in the face of such swingeing Westminster-imposed cuts," he said.

Ministers had also "taken account a Holyrood vote in December, and recent events in the budget process.

"Those events highlighted in the starkest possible terms the realities of minority government.

"The parliamentary arithmetic means that while we might get the support of the Liberal Democrats for our proposals to introduce a local income tax, the Labour and Conservative parties are united in opposition," said Mr Swinney.

Greens did not support it, and independent Margo MacDonald believed such radical reform should only be considered only when Parliament had full taxation powers.

"In short, we cannot put together a stable majority to enable us successfully to steer detailed local income tax legislation through this Parliament," he said.

Mr Swinney went on to hold out the prospect of extending the council tax freeze.

"We believe in lower tax and fairer tax, and we will continue to act to support individuals and families," he said.

Today's announcement included 70 million for 2010-11 so council tax could be frozen for a third year.

"And it is also why we will also work with local government to freeze council tax for the remainder of the current session of this Parliament into 2011-12," he said.

"The council tax will be no higher than it was when this government came to office – that is what we will deliver for the people of Scotland."

Mr Kerr said the reasons the finance secretary had put forward for ditching its local income tax plans were "downright laughable".

The Labour MSP said: "The reason they have not brought forward a Bill is because this is a bad policy.

But he added: "I am pleased for the hard-working families of Scotland who won't have to pay this ludicrous tax."

Mr Kerr hit out at the SNP administration following the U-turn, claiming the Nationalists had been "elected on a false prospectus".

They made a promise to the people of Scotland they were going to abolish the council tax, they know their proposals are nonsense and therefore they have simply retreated on that basis."

He went on: "We have at the heart of this government policy direction in chaos. It is staggering incompetence to find ourselves in this situation today.

"We hear retreat after retreat in relation to the big promises and big pledges of this government. It is simply unacceptable."

And Mr Kerr said: "I would call at the earliest possible opportunity for the government to bring forward plan B in relation to local taxation, because clearly plan A does not work."

He also claimed Mr Swinney had announced the move today to "mask what is a very poor local government settlement".

Mr Kerr said: "Up and down the country we see more evidence of real cuts, real closures, increased charges and jobs being lost in our local authorities.

"It is a bad settlement for local government. People in towns, villages and cities all across Scotland will still feel the cold chill of the cuts the SNP have announced in the last budget, this budget and for next year."

The Labour politician claimed under the SNP, the average share of the budget that went to councils was 33.6%.

But he said Labour had provided an average of 35.5% of the budget to local authorities.

And he added: "That's exactly why we have the crisis in our local authorities."

Tory finance spokesman Derek Brownlee claimed local income tax was a "very, very flawed policy".

And he said ditching the proposals was "long overdue".

The Tory argued that the real "killer" for local income tax plans was the impact of the recession on income tax revenues.

He said: "If we accept what the Governor of the Bank of England said today that the recession could lead to a 6% decline even this year, and apply that to tax revenues, you realise why there was a very significant problem with local income tax from the start.

"So there were very serious flaws there."

Mr Brownlee urged the government to get round the table and have talks about how the council tax could be reformed.

The Tory said: "We are very happy to have constructive discussions with the government, with any other party, about reform of the council tax. We do not accept that the status quo is the right option.

"We are perfectly happy to discuss reform of the council tax and I would now hope the government would now be receptive to such discussions, which would be in the broader national interests."

Mr Brownlee said his party backed the continued council tax freeze.

He told MSPs: "We strongly welcome the council tax freeze, we welcome what the government has said about extending it next year, that will be a real help to people struggling in these very difficult economic circumstances."

But he stressed the need to reform the method of funding councils, stating: "In relation to local government finance the biggest issue we have had in this Parliament has been a failure for people to discuss options for change.

"If the government has now accepted that local income tax will not happen in this session of Parliament, we should be mature enough to sit down and have a discussion about how we can reform the council tax and how we can move forward together with a form of local government finance which can be the basis of a stable framework for local authorities."

The Lib Dems support a local income tax and party finance spokesman Jeremy Purvis hit out at today's climbdown from the Nationalist government.

He said the "perpetual freezing" of the council tax now seemed to be the adopted policy of the SNP but that it will put money in the pockets of people in the biggest houses.

"It is a scandal," he said.

"As council tax is not progressive, nor is the perpetual freezing of council tax."

He rounded on the Tory position that the only problem with the council tax was the level it is set at.

"Constituents of mine who are elderly, who are on fixed incomes, who are on lower incomes or who may well be losing their jobs know that they are wrong," he said.

He branded the local income tax as the SNP's "flagship policy" and said it had been dropped.

Mr Swinney's claims that the local income tax would not have commanded a parliamentary majority also came under fire by the Lib Dem.

"I suspect we will not hear that argument when it comes to the referendum on independence," he said.

SNP backbencher Brian Adam said that a "record local government settlement" had been announced by Mr Swinney today.

"The share that local government gets of the cake is rather larger now under this administration than it was at the end of the previous administration," he said.

"There is no doubt whatsoever that the council tax freezes are exactly what our constituents are looking for."

He added that if Labour wanted to give more money to local government, they have not said where it would come from.

Labour's Des McNulty said the damage to Mr Swinney's reputation done by the climbdown will be "long lasting".

He recited a series of previous quotes from Mr Swinney and the First Minister setting out their determination to abolish the council tax.

"There cannot be a core policy brought forward by any government that has had so little substance and has been so comprehensively rubbished," Mr McNulty told MSPs.

"Think of all the people that you went to on the doorsteps who said the SNP stand for the abolition of council tax," Mr McNulty went on.

"All of those people have been let down by the SNP, by Mr Swinney and by Mr Salmond."