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Local tax plans to be published 'Challenging' local tax unveiled
(about 7 hours later)
The Scottish Government is set to publish plans to scrap the council tax and replace it with a local income tax. Plans to replace the "unfair" council tax with a local income tax have been published by the Scottish Government.
The proposal, which faces substantial political opposition at Holyrood, may struggle to win MSPs' approval. Finance Secretary John Swinney said passing the plans for the 3p charge would be "challenging".
The 3p local income tax is opposed by Labour and the Tories, while the Greens favour taxation on property. The minority Holyrood administration needs the backing of rival parties to pass the plans - and the UK Government's support to implement them.
Finance Secretary John Swinney held talks on the issue with the Liberal Democrats on Monday, but they broke up without agreement. Labour claimed the proposals would make workers in Scotland the highest taxed in the UK.
Both parties agree in principle that change is necessary and both believe a local income tax is the favoured option. Ministers hope to introduce the plans in 2011/12, around the time of the next Scottish Parliament election.
'Wrong message' The Scottish Government has been seeking support for the local income tax from the Liberal Democrats, who want councils to be able to set rates.
It is understood that the talks failed to reach an agreement because the SNP want all councils to levy a fixed 3p rate on income tax while the Lib Dems favour local variation. The proposals - opposed by Labour and the Tories - would see the tax rate applied to income falling under the basic and higher rates of UK income tax.
Meanwhile, the plans for a local income tax have been criticised by the director of CBI Scotland, Iain McMillan. LOCAL INCOME TAX - WHAT YOU WOULD PAY Single household, salary £20,000 - £443Single household, salary £33,675 - £854Single household, salary £62,000 - £1,703 Source: Scottish Government
The business chief welcomed the Scottish Government's move to freeze council tax but said the local income tax would lead to problems for the country. There would be exemptions for savings and investment income, while a tax for second homes would broadly stay in line with the current arrangements.
He said: "Higher levels of income tax in Scotland will send the wrong message to people in England and overseas about Scotland's tax regime because Scotland's effective basic and higher rates of tax will be the highest in the UK. It is hoped the new tax, if passed by parliament, would be collected through the existing PAYE system and self assessments.
Mr Swinney claimed that under the new system more than four out of five households would be better or no worse off.
"The council tax is unfair, regressive and penalises people on low incomes," said the finance secretary, whose government has just delivered a council tax freeze.
"The people of Scotland will be better off paying a fairer, local income tax, based solely on the ability to pay."
HIGHEST AND LOWEST COUNCIL TAX BILL AREAS (BAND D) Aberdeen - £1,230Glasgow - £1,213Dundee - £1,211Dum and Gall - £1,049Orkney - £1,037Western Isles - £1,024 Council tax bills 2008HIGHEST AND LOWEST COUNCIL TAX BILL AREAS (BAND D) Aberdeen - £1,230Glasgow - £1,213Dundee - £1,211Dum and Gall - £1,049Orkney - £1,037Western Isles - £1,024 Council tax bills 2008
"It will hit income tax payers who currently do not pay the council tax, and it is not even clear at this stage if Scottish Ministers are empowered to require her Majesty's Revenue and Customs and UK employers to assess and collect local taxes on their behalf." The local income tax plans, now part of a four-month consultation, were criticised by Scottish Labour leader Wendy Alexander.
A four-month consultation period will begin once the consultation document is made public. Ms Alexander said: "This Scottish jobs tax will hit the pay packets of every hardworking Scot.
Chancellor Alistair Darling is insisting that Scotland would lose out on £400m in council tax benefit if it scrapped the charge. "There is nothing fair about the super rich getting off Scot free.
However, First Minister Alex Salmond has insisted that this cash is "part and parcel" of the country's funding package. "And nothing just about making hardworking Scots pay at least 15% more in income tax than the rest of the UK."
"There can be no possible case for removing some £400m of Scotland's money because we take a democratic decision to scrap the council tax and move to a fair system of local government finance," he said. Tory finance spokesman Derek Brownlee called for a reformed council tax.
He said: "Under our plans to reform the council tax and cut it, 100% of council tax payers will see a reduction in their bills."
But Lib Dem finance spokesman Tavish Scott said the consultation was a "significant milestone" in ditching the council tax.
Mr Scott said: "At our meeting yesterday evening, the cabinet secretary for finance and I agreed that the opportunity to build a parliamentary majority in favour of change and overcome the Labour and Tory supporters of council tax made our continued discussions worthwhile."
CBI Scotland director Iain McMillan said: "Higher levels of income tax in Scotland will send the wrong message to people in England and overseas about Scotland's tax regime because Scotland's effective basic and higher rates of tax will be the highest in the UK."
Chancellor Alistair Darling has also said Scotland would lose out on £400m in council tax benefit if the charge was scrapped, but the Scottish Government has insisted the cash is "part and parcel" of the country's funding package.