SNP tax plans 'scaring off firms'

THE SNP's controversial local income tax plans have dissuaded companies from moving their operations to Scotland, one of the country's top business leaders claimed last night.

Iain McMillan, director of the CBI in Scotland, said several firms had warned ministers about their concerns over the new charge. His comments will put fresh pressure on ministers over their plans, which would see the council tax replaced with a nationally set income tax of 3p in the pound.

The proposals have already been the subject of widespread criticism in the business community and are opposed by both Labour and the Conservatives.

The Liberal Democrats back a similar scheme, but want ministers to give councils the ability to set their own income tax levels, rather than having a national rate imposed by the Scottish Government.

The local income tax plans are set to come before the parliament later this year, but Mr McMillan's intervention has put the issue back on the immediate political agenda.

He said it was time the government "threw in the towel" and ditched the plan. He said: "We know of a number of businesses now that have warned the Scottish Government that operations and jobs that they would have brought to Scotland they have put on hold until this matter is determined."

He continued: "It could be very damaging and it really is time the Scottish Government threw in the towel on this and stopped telling business that they think a local income tax will be good for business. My answer to that is, 'Business knows what is best for business, not Alex Salmond and his government'."

Mr McMillan refused to give details of the companies involved or the scale of the business opportunities that had been put on hold.

A spokesman for John Swinney, the finance secretary, said: "We are not aware of any businesses in this position – what we are proposing is a substantial cut in local taxation in Scotland, which would be lower than in the rest of the UK.

"We have regular, very positive discussions with the business organisations in Scotland, including on the delivery of our six-point recovery plan to accelerate infrastructure investment, cut or abolish business rates for the smallest firms, and help families through measures such as the council tax freeze. We listen carefully to all views and, of course, parliament would need to agree to proposals to scrap the unfair council tax in favour of a local income tax based on ability to pay.

"We advocate our fairer system coming into effect in 2011-12, and believe that our LIT proposal contains key advantages for business."

One of the major problems for the SNP on this issue has been the refusal of the UK government to continue paying council tax benefit if the charge is abolished.

Scottish ministers believe that money – about £400 million a year – should continue to come to Scotland, but UK ministers disagree. Unless the money is paid to Scotland, the Scottish Government would have a funding deficit it would find hard to bridge.

Derek Brownlee, for the Conservatives, said: "As if there weren't enough already, this is yet another slap in the face for the SNP's unfair, unworkable and totally discredited local income tax. I'm not surprised by these developments, as businesses will rightly be concerned at the negative impact of such a measure."

He said there was already a serious problem with the local income tax as it would not raise enough money to fill the gap left by the abolition of council tax.


WHAT NEXT?

SNP ministers will bring the bill abolishing the council tax before parliament before the summer recess.

They need to get the Liberal Democrats on board first, which will probably mean the SNP agreeing to local flexibility on income tax rates – but only after giving the system a couple of years to bed in.

With the Tories and Labour opposed to the local income tax, ministers will need either the support or the abstention of the two Green MSPs to get their plans through the parliament.

The Greens want to see some form of land-value tax introduced and are unlikely to be persuaded to back a local income tax, in any form.

However, the SNP will still have to find some way of plugging the financial black hole caused by the withdrawal of council tax benefit if the new tax is to work. As yet, there is no prospect of the UK Treasury relenting on this key issue.