ALEX Salmond's plans for a local income tax in Scotland suffered have a serious blow after a senior UK government minister issued an unprecedented formal warning of a £750 million black hole in the Scottish Government's plans.
Yvette Cooper, Chief Secretary to the Treasury, has written to Scotland's finance secretary, John Swinney, asking for a detailed explanation surrounding the controversial local income tax plans.
The Scotsman has seen a copy of Ms Cooper's letter,
which states that UK Treasury officials believe there is a £750 million gap between what is raised now by council tax and what would be raised by the local income tax. Ms Cooper asks Mr Swinney to explain that discrepancy and she also expresses her concern about the potential damage to public services in Scotland if that amount of money is lost from council finances.
Ms Cooper states: "Although you don't say what you expect a local income tax of 3p to raise, I understand that it is around £1.35 billion, which compares to around £2.1 billion currently raised by council tax, and that makes an annual shortfall in the region of £750 million.
"This loss would have a serious impact on local council services across Scotland."
There are already concerns that the SNP's flagship policy on freezing council tax could strain local services. Ms Cooper's intervention suggests a move to a local income tax could add further pressure.
Ms Cooper is due to meet Mr Swinney in London tomorrow.
This is the first time that a UK government minister has intervened in a policy area devolved to the Scottish Parliament. Ms Cooper believes she can do so because the introduction of local income tax would need legislation at Westminster to authorise Her Majesty's Revenue and Customs to collect the new tax.
She also believes that the UK government has the right to express its concerns if it believes there is a threat to public services in any part of the UK.
Ms Cooper stresses that she wants to form a good working relationship with Mr Swinney, although she does express her "disappointment" that they have not managed to meet sooner.
However, her decision to oppose a Scottish Government flagship policy so strongly will cause further problems between the two governments.
Mr Salmond has already clashed with the UK government over a deal which, he believed, could see the return of the Lockerbie bomber to Libya; over the refusal to allow Scottish ministers to lead fisheries negotiations; and over differences of opinion on firearms legislation.
Since he announced the local income tax proposals earlier this month, Mr Swinney has had to defend them against the concerted opposition of the Tories, the Labour Party, the business community and some unions.
All have warned of a black hole in the finances and all have branded the tax unfair because it will not affect those who live on unearned income, allowing wealthy landowners or private investors to escape paying the tax, but penalising all those households with more than one earner.
At the heart of the dispute between the two administrations over the local income tax is £400 million in annual council-tax benefit, which comes to Scotland from the Treasury to cover the costs of those who cannot pay the council tax.
Mr Swinney is adamant that the £400 million should continue to come to Scotland, even if the council tax is axed, because it is part of the Scottish block grant and he has included the money in his tax calculations.
The UK government is equally convinced that the money is not part of the Scottish block grant so will not be paid out if council tax is abolished.
A spokesman for the First Minister said Mr Swinney would raise the same issue and demand to know that the money would continue to come to Scotland.
The spokesman said: "There can be no question of the council-tax cash being removed from Scotland because Treasury documents show it comes within the Scottish block grant."
The spokesman added that any gap in funding between what is raised by the council tax and what could be raised by the local income tax would be funded centrally by the Scottish Government.
"That is an issue for the Scottish Government. That is not an issue for the Westminster government in any shape or form," he said.
"The issue for the Westminster government is to provide a reassurance that they will not do a cash-grab because of a democratic decision of the Scottish Parliament (to introduce a local income tax]."
KEY QUERIESIN HER letter, Cooper asks the questions:
• What is the shortfall between council tax and local income tax, and how would this be met?
• Where is the evidence that local income tax is better than council tax?
• How much will administration cost?
• As it is a centrally imposed tax, how does this improve local accountability?
• How do you avoid adverse labour-market effects from higher marginal rates of tax?
• How can ministers be sure it will only impact adversely on the top 10 per cent of earners?
Radical overhaul of election tactics plannedLABOUR leaders are considering changes both to the way they select candidates and to their list of target seats in an attempt to win back power from the SNP, it emerged last night.
Stuart Clark, chair of the Scottish executive committee of the Labour Party, said the party had to examine radical changes to the way it campaigns and fights elections.
He said Labour had to accept that the next election would be won and lost over a much wider spread of marginal seats than had been the case in the past, and Labour should consider changing its "key seats strategy".
He added that the party should also think about changing the rule which prevents candidates from standing on both the constituency ballot and the regional lists. Scottish Labour does not allow candidates to stand on both parts of the ballot, even though all the other main parties do allow this.
Labour has traditionally been dominant on the constituency vote and it has been felt for some time that it would not be right for candidates to be defeated in one part of the election only to secure a seat on another.
Mr Clark told delegates: "We have had some excellent list candidates standing against sitting MSPs from other parties. This has given the others an advantage and this is something we will consult on."
Gavin Strang, Labour MP for Edinburgh East and Musselburgh, agreed: "This is something we may have to change."
Browne in devolution pledgeSCOTTISH Secretary Des Browne gave his backing to Wendy Alexander's Devolution Commission yesterday, telling Labour activists they have "nothing to fear" from it.
Mr Browne had been cool in his response to calls for changes to the devolution settlement in the past and his junior minister, David Cairns, caused uproar when he described the debate over Holyrood powers as something only for the "McChattering classes" earlier this year.
But yesterday Mr Browne tried to put all this behind him by using the closing speech to the Scottish Labour Conference to give the commission his public support.
The Scottish Secretary said: "We have nothing to fear from looking afresh at the devolution settlement, looking afresh at it to strengthen it, so that it can continue to serve the interests of the people of Scotland within a strong United Kingdom."
And he added: "That is not just my position, or the position of this party, but the position of the vast majority of the people of Scotland. The fixation of the SNP on a narrow, parochial vision of Scotland is that of a dwindling minority."
Mr Browne's endorsement of the Constitutional Commission was not as as the Prime Minister's last Friday but it did represent a change in tone from the Scotland Office.
Mr Browne told delegates they had to move on from inquests into last year's election defeat and start fighting back against the Nationalists.
"Scottish Labour is back in business," he said. "As a party we have had our period of reflection. That was right, but that time is over now. It's time to get back to work. The fight-back has begun."
Mr Browne told the conference that although the party had lost the last Scottish election, it was still in power and legislating for Scotland at Westminster.
"We may be in opposition in the Scottish Parliament but we are still in government in Scotland. Every month we are legislating for Scotland."
The full article contains 1440 words and appears in The Scotsman newspaper.
