14 March 2008
Scots would get their biggest tax cut in a generation under the Scottish National Party government's plans for a local income tax, Finance Secretary John Swinney has claimed.
Launching a consultation paper on March 11, he said more than four out of five households would be better or no worse off if LIT replaced the 'unfair' council tax.
But Labour described the plan as a Scottish jobs tax. 'It will make Scots workers the highest taxed in the UK and will hit the pay packets of every hard-working Scot,' party leader Wendy Alexander warned.
Swinney said it would be possible for the new tax – a nationally set rate of 3p in the pound – to be introduced by the 2011 financial year, a month before the next Scottish Parliament election. But he admitted that getting a Bill through the Holyrood Parliament would be 'challenging', because of the SNP's minority position.
The nationalists have opened the way for a possible compromise with the Liberal Democrats by including in the consultation document the LibDem option of individual councils setting their own LIT within defined limits.
But Swinney stressed that he would continue to press for a uniform rate across the country, arguing that a locally variable rate would involve 'extensive and expensive bureaucracy.'
Swinney said scrapping the council tax would mean that those on low and middle incomes would be better off by an average of £350 to £535 a year.
He said: 'More than four out of five households will be better or no worse off. The proposals will mean the biggest tax cut in Scotland in a generation.'
Apart from the problems of the parliamentary arithmetic – support from the LibDems would not be enough to guarantee success – the SNP faces a number of cost and administrative hurdles.
He insisted Scotland was entitled to retain in the Scottish budget a sum of £400m in council tax benefit. However, UK ministers have made it clear that Scotland would no longer be entitled to the cash if there is no council tax.
Swinney admitted that a further £280m would need to be found from the Scottish budget to keep the tax down to 3p in the pound. Opposition parties said this suggested the possibility of a £680m 'black hole' in the tax plans.
Another hurdle follows a warning from Revenue & Customs that it would not take part in any LIT scheme. Swinney said he planned to carry out 'robust and sensible' discussions with R&C in an attempt to persuade it to co-operate.
An alternative in the paper is to set up a separate Scottish collection agency, although the paper pointed out that such a plan would create an extra tier of bureaucracy.