Salmond tax plan in tatters

THE SNP's flagship plan to scrap council tax has been wrecked by the UK Government after ministers categorically ruled out helping to fund the radical reform.

UK Work and Pensions Secretary James Purnell infuriated Nationalists by declaring there would be no financial assistance for the policy from south of the border, and accused First Minister Alex Salmond of wanting English taxpayers to "subsidise" his government.

Salmond came to power last year pledging to replace council tax with what he described as "fairer" local income tax (LIT), with all earners being charged 3p in the pound.

The SNP can only fund the changes if the current £400m-a-year council tax rebate from Westminster continues. Salmond predicted during last year's election campaign that UK ministers would not want to "sabotage" the reform and would continue to pay up.

But Purnell last night effectively killed off the plan. In an exclusive interview with Scotland on Sunday, he said: "They are basically asking us to subsidise them for having a different system. That would seem to me to be pretty hard to justify."

Purnell said the SNP could not claim the local income tax was fair and, at the same time, ask for a UK benefit to help off-set its costs. He said: "If they are promoting a system which is income related and based on the ability to pay then there is no need for a benefit on top of that. They can't have it both ways. They are trying to have their cake and eat it.

"If someone's council tax is £200, council tax benefit will take, say, £100 off that... but the SNP is saying that they now want another £100 on top of that as well. They are saying they want to spend the money anyhow. That is what they are asking for – to give us extra money because of a system that is different to the rest of the country. If there is no council tax then there is no council tax benefit."

Purnell's comments are a major blow to the Government, whose pledge to 'axe the council tax' was one of the major policies in last year's election campaign. The Nationalists claim the tax would leave thousands more Scots better off. People without an income – such as pensioners – would pay no tax at all. The SNP claimed only the wealthiest 10% of the country would have to pay more, and then only face a 1% increase.

However, a 3p rate would leave councils nearly £1bn short of the sums they currently take from council tax. The SNP claimed it could plug this gap by £450m efficiency savings, and from the £400m Westminster rebate.

Former ITN chairman Sir Peter Burt, who chaired a committee of investigation into local taxation, estimated that without the extra sums, the tax would need to be fixed at 6.5p in the pound to maintain local government revenues.

One senior insider in the UK Government said: "We'll say to them (the SNP], 'You have come up with this policy so you have got to sort it out'. It isn't our job to do that. They say they are the Government. They shouldn't be acting like big babies."

The source added: "If your core argument is that this tax will be based on the ability to pay and that it is a fairer tax, then why do you need this money?

"This isn't our problem. It isn't our policy. If you can't make it come out at a level which is acceptable to voters, then maybe it's a problem with your policy."

A spokesman for Finance Secretary John Swinney said: "Hopefully, once Mr Purnell has had the opportunity to read our consultation document on local income tax very shortly, he will understand the issues."

He added: "The council tax benefit is Scotland's money, plain and simple. It is part and parcel of the system of locally raised tax to help fund local government services."

Salmond gained support from the Scottish Liberal Democrat leader Nicol Stephen yesterday. In a speech to his party conference in Aviemore, Stephen said he wanted to work with Salmond to bring about the reform. Addressing the First Minister, he said: "If you are serious about a local income tax, work with us, bring together now, in good faith, those in Scotland who want to see the council tax scrapped and replaced by a local income tax."

However, the Confederation of British Industry in Scotland last night reiterated its opposition to the plans.

Director Iain McMillan said: "Firstly, we believe a tax on property is a legitimate one. Secondly, we are concerned about the bureaucracy that would arise with having to amend the PAYE system."