SNP under fire on tax and schools

THE SNP government is facing an unprecedented assault on two fronts over its handling of the Scottish economy.

The Scotsman can reveal that a collection of powerful business groups will today meet John Swinney, the finance secretary, to deliver an ultimatum on his planned local income tax (LIT), saying it would be "disastrous" for Scotland in a recession.

The groups, CBI Scotland, the Institute of Directors, Scottish Chambers of Commerce, Scottish Council for Development and Industry, the Federation of Small Businesses and Scottish Financial Enterprise – known as the Group of Six – will warn Mr Swinney the "gloves will be off" if he does not act on their fears. There are likely to be threats over future co-operation.

In a separate development, councils were said to be furious after Mr Swinney insisted he would decide how the cash released by the Chancellor's Pre-Budget Report would be spent in Scotland.

Local authorities claimed the decision was theirs, and the £260 million would be spent according to local need, not government diktat.

Last night, it looked as if there was a real prospect of a breakdown in the historic concordat between councils and the Scottish Government.

It could lead to the first crisis the SNP has faced since coming to power last year and follows the party's determined efforts to garner the support of both businesses and local authorities.

The meeting with business leaders in Holyrood this afternoon follows the SNP's insistence that it will press ahead with LIT and introduce it in 2011.

The Group of Six are seriously concerned about the impact on jobs, the prospect of investment being driven away, and the viability of struggling businesses faced with the cost of extra bureaucracy.

A senior business figure told The Scotsman: "This is a bad idea, which will be a disastrous one in a recession. This is a very serious issue and Mr Swinney will be robustly told that he needs to drop this proposal."

The urgent meeting follows accusations that LIT will deliver a £1.5 billion tartan tax bombshell in 2011 – made up of a £300 million reduction in expected income tax yield, £500 million efficiency savings from the UK government, £400 million lost from council tax benefit and the £281 million which the SNP has said LIT would represent in terms of a tax cut.

The new tax has also been opposed by trade unions, academics, the National Union of Students, chartered accountants, local government finance directors, many councils (although it was supported by a vote in the Convention of Scottish Local Authorities) and Carers Scotland.

However, the Scottish Government has insisted that it will press ahead with the necessary legislation.

The row with local authorities follows a clash over whether they should provide free school meals and frustration surrounding delays to the Scottish Futures Trust, which has been blamed for a hold-up in capital projects such as schools.

Councils took real offence yesterday at Mr Swinney's claim in a statement to the Scottish Parliament, responding to Monday's Pre-Budget Report.

He said the £260 million of capital money he has now been allowed to bring forward will be prioritised on improving and building new schools.

But local authorities insist the money is theirs and they will decide how it should be prioritised.

A senior council source told The Scotsman: "It is difficult to describe the rage in local government circles felt about Mr Swinney's statement. This is further evidence of the relationship between the Scottish Government and local government falling apart."

But a source close to the finance secretary said: "This really is nonsense. This is Scottish Government money. We are actually in a better position than the UK government to decide, with our partners in local government, how the money should be spent because of the historic concordat. No equivalent of this exists in England."

Earlier, after his statement at Holyrood, Mr Swinney was criticised by opposition politicians for failing to provide any details on how the money would be spent. Andy Kerr, Labour's finance spokesman, said: "Given that the SNP have supposedly been asking for weeks for the capital money to be brought forward, you would have thought there would be a list of projects for them to spend the money on."

And Jeremy Purvis, his Liberal Democrat counterpart, claimed the current budget varied by only 0.3 per cent from that published last year.

But a spokesman for Mr Swinney pointed out that Alistair Darling, the Chancellor, had not brought forward any projects in his statement at Westminster on Monday.

The finance secretary also insisted the real danger to the Scottish economy came from the Labour government in Westminster.

He said proposed efficiency savings from 2010 to 2012 would take away up to £1 billion of Scotland's public spending. "This poses a real threat to vital public services in Scotland," he said.

Questions are also being raised at Holyrood over the SNP's prioritisation of business.

Mike Rumbles, the Liberal Democrat chief whip, has asked why there is a debate today on St Andrew's Day celebrations and not on the UK budget.

"Scots suffering through the recession will not be impressed by their MSPs 'debating' St Andrew's Day," he said. "Obviously, I do not begrudge a mention of our national day in the parliament, but this is the second time the SNP has debated St Andrew's Day. I feel that there are more pressing matters."


Businesses to make case for scrapping of local tax plan

SCOTTISH business leaders will today argue that the economic crisis has magnified the reasons why local income tax should be dropped.

They are expected to use many of the arguments they have previously outlined but will now say "a bad idea could become a disastrous one".

They believe the cost of the extra bureaucracy created by LIT is the last thing struggling firms need when they are just about keeping their heads above water.

They warn that Alistair Darling's new tax rate for those earning more than £150,000 will make the situation even more complicated.

They will also argue an extra 3p rate on income tax is a disincentive for businesses and investment to come into Scotland at a time when the country desperately needs to encourage as much economic growth as possible.

John Swinney, the finance secretary, will tell them today that LIT is actually an incentive because it is, in effect, a tax cut as it replaces the council tax. He will also repeat his claims that there will be little or no extra bureaucracy for businesses because it will be dealt with by Inland Revenue.

The issue is seen as the most significant test of the SNP's support for business to date. The party's decision to cut small business rates in the last budget helped promote the SNP as a pro-business party, but there are warnings this work will be undone if LIT goes ahead.

A Scotsman survey of businesses in May, a year on from their victory in the Holyrood elections, showed a 57.4 per cent approval rate for the SNP.