SNP to woo Lib Dems on local income tax plans

SNP ministers are prepared to do a deal with the Liberal Democrats which could see every council in Scotland set its own income tax rate, it emerged yesterday.

The Scottish Government wants to introduce a nationally-set local income tax of 3p in the pound to replace the council tax, but its proposals have come in for heavy and sustained criticism since their publication earlier this year.

Business groups, councils, some unions, student groups and opposition politicians have all railed against the proposals, championed by John Swinney, the finance secretary, claiming that they will not raise enough money and will damage the economy.

However, it is now understood that ministers are prepared to change their plans to secure the parliamentary backing they need.

As the SNP is running the Scottish Government as a minority administration, it needs the support of one of the other main parties to get its plans through. The Lib Dems support the principle of a local income tax, but are adamant that it must be set locally, by individual councils, rather than by the Scottish Government at 3p in the pound.

All three contenders for the leadership of the Scottish Lib Dems confirmed yesterday that this remained their position, and all insisted that they would not compromise on the principle of a "local" income tax.

But the Scottish Government, which is currently digesting the results of the highly critical consultation process on its tax plans, appears to be ready to move in the Lib Dems' direction.

A senior government source yesterday told The Scotsman that there was room for compromise on the issue.

He said Scottish ministers were "very keen" to sit down and debate the issue with the new Lib Dem leader and "discuss where this issue might go".

The source added that ministers might be prepared to accept a locally-set tax after the national tax has been allowed to "bed in" for a few years.

While the source refused to go further, his comments give an indication of the Scottish Government's willingness to move, at least some way, towards the Lib Dems' position.

However, ministers were warned by business leaders last night that this would be "even worse" for the country because it would lead to more bureaucracy and confusion.

Colin Borland, from the Federation of Small Businesses in Scotland, said his organisation was already opposed to the SNP's plans for a nationally-set tax, because of the impact it would have on businesses and taxpayers.

But he said that, if the SNP compromised its plans and agreed to the Lib Dems' demands for a locally-set tax, it could lead to 32 different rates, one for each council area in the country.

Mr Borland said: "The big fear is over the cost of bureaucracy. It will be bad enough with one rate for the entire country, but there could be 32 different rates.

"If you have a business in Glasgow you could have three employees, one from Glasgow, one from Renfrewshire and one from East Renfrewshire. That's three different sets of paperwork."

The Lib Dems have backed the idea of a local income tax for many years. However, there were suggestions yesterday that this position might be about to change south of the Border.

Vince Cable, the party's UK Treasury spokesman, was reported to be keen on reforming the council tax, rather than introducing a whole new tax system.

But even if Mr Cable did manage to change party policy in England, it would not alter the position of the party in Scotland.

Parties agree on principle but differ on details of tax

What are the SNP's plans for a local income tax?

The SNP wants to scrap the council tax and replace it with a local income tax, set nationally at 3p in the pound.

What are the Liberal Democrats proposing?

The Liberal Democrats also favour a local income tax, but want each council to set its own rate for the tax.

What are the advantages of this?

The Lib Dems argue that there needs to be local accountability and the best way to do this is for councils to have responsibility for setting the tax rate.

What are the disadvantages?

Critics have warned that this will lead to increased bureaucracy and confusion over who should be paying which rate. There are 32 local authorities in Scotland, and it is feasible that all councils set different rates from their neighbours.

What will it mean for someone who works in one council area and lives in another?

People will pay the tax at their home address, with the information coming from their business in another area, which will inevitably lead to increased bureaucracy.