SNP signals U-turn on local income tax

THE Scottish Government has admitted for the first time local income tax rates could be varied locally – a major concession to get the proposal through the Scottish Parliament.

Until the weekend, the SNP administration had stuck hard and fast to its proposal to replace the council tax with a fixed, centrally set 3p income tax supplement.

But yesterday John Swinney, the finance secretary, said he was willing to consider allowing councils to vary the rate up to 3p, but not above.

He also confirmed the government was investigating how to tax unearned income. "We're certainly considering that as an option, I'm very happy to confirm that," he said.

The change of policy emerged in e-mails released under freedom of information legislation. Officials wrote to HM Revenue and Customs seeking information on how investment income would affect the proposed tax. In an e-mail dated 23 September, a Scottish Government official wrote: "You may remember that I got in touch with you over a year ago requesting information on Scotland for analysis we were carrying out re how much revenue we could raise from the local income tax.

"Following on from that we are now trying to assess how much money could be raised from investment income if a local income tax was applied to this."

The government previously decided it would be too costly and time-consuming to tax unearned income. That stance was criticised over concerns the rich would exploit the loophole by taking more dividends and pay less for local services.

Mr Swinney's indication that councils could vary the level is considered key to winning Liberal Democrat support.

The Liberal Democrats, who have been negotiating with the SNP on getting through a form of LIT acceptable to both parties, said the U-turns appeared to be an answer to the concerns they had raised.

Lib Dem finance spokesman Jeremy Purvis said: "We welcome the movement on dividend earnings and we will study their proposals on varying the rate."

Mr Swinney said he was simply reacting to the Scottish Government's consultation on LIT which had produced 500 responses. Although the Scottish Government is yet to publish full responses, most of those from organisations across Scotland oppose the proposal.

Mr Swinney said: "We have already indicated the possibility of exempting students, and we are also considering applying LIT to income from dividends. There was never an issue of principle here, merely one of practicality and cost-effectiveness

."

Scottish Labour leader Iain Gray, MSP, said: "This is a huge U-turn and a sign that the SNP's tax plans are in desperate trouble. The reality is that taxing unearned investment income is just tinkering with a bad policy.

"A local income tax would be bad for hard-working families who would have to pay more, such as a couple like a fireman and a nurse."