Plenary, 02 Oct 2008

Meeting date: Thursday, October 2, 2008

Official Report 774KB pdf

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Local Government Finance

Good morning. The first item of business is a debate on motion S3M-2631, in the name of Derek Brownlee, on local government finance.

The intention behind the debate is for us to reach a consensus. I have deleted all references to the local income tax being discredited and unworkable, and we have even ensured that the students who are demonstrating outside the Parliament are complaining about the Scottish National Party Government's plans on alcohol rather than its plans to increase the tax bills of students who have to work to fund their studies.

Our motion is simple: we ask for clarity from the Scottish Government on the detail of the local income tax plans. We do not ask Parliament to come to a view on local income tax—our opinion on that subject is well known—nor do we seek to prescribe which method is used to allocate tax revenues or Government grant. We seek only to ensure that Parliament is not asked to take a decision on local income tax before it has had the opportunity to consider the policy's implications for local authorities' finances.

It appears that the Government accepts that proposition and will concede. I welcome that concession because, so far, there has been no indication of the Government's preferred allocation methodology. The consultation paper on local income tax discussed methods for allocating LIT revenues and set out three options: distribution via a needs assessment; distribution based on population; and distribution based on how much local income tax is paid in an area. All have their merits and problems. There are also other options, such as the one that we suggested in our consultation response: distribution based on current council tax receipts.

However, the consultation was entirely silent on the arguably more fundamental issue of how Government grant—which would make up an even higher share of council revenues under LIT than under the council tax—would be allocated. I remind colleagues that that fundamental issue is about how £11.5 billion is allocated among councils. The deal at which the SNP and Liberal Democrats will arrive after long and tortuous—literally so for some—negotiations will involve each of Scotland's local authorities setting its own local income tax rate. The Cabinet Secretary for Finance and Sustainable Growth, being a wily fellow, might decide to stitch up the Lib Dems—

No. Surely not.

Members might think that that is unlikely, but it might happen. The cabinet secretary might decide to stitch up the Lib Dems by ensuring that tax receipts were allocated not on the basis of what is paid in each local authority area but on the basis of some other method. He could also slash funding to local authorities that are likely to have higher tax yields, such as Aberdeenshire.

By getting the Government to set out in advance how it will allocate tax receipts and Government grant, my motion will help to prevent the Liberal Democrats from being stitched up by the SNP, at least on local income tax.

Is this the same Derek Brownlee who, on his conservativehome.com blog, said of the Conservatives' proposals for reform:

"There are obvious implications around the proportion of their funding that Councils raise, but it could be done"?

If it could be done for his scheme, why can it not be done for another?

The point is that people in every local authority area in Scotland have a right to know whether they will pay more under local income tax. If the motion is agreed to, taxpayers throughout Scotland would be enabled to take a view not only on how local income tax would affect them as individuals and families but on how it would affect their local areas. For example, people in Edinburgh would know whether the benefits of any capital city supplement given by one hand would be taken away by another, and people in the north-east would find out whether the promises that the SNP and Lib Dems made to them on higher funding would be kept. Given that a by-election is pending, I will be the first to mention the good people of Fife. If the motion is agreed to, they would be able to determine for themselves whether the prediction made by Fife Council's director of finance that local income tax

"could lead to reductions in some services, e.g. road maintenance, to fund pressures elsewhere"

would come to pass.

As Derek Brownlee is so concerned about rising tax levels throughout Scotland, will he join the Liberal Democrats—[Laughter.]

Order.

Will he join us in proposing a 2p cut in income tax? Would the Tories consider cutting income tax?

I am coming to tax cuts—Mike Rumbles need not worry about that.

I mentioned consensus. If our motion is agreed to, that means that the Government will address one of the high-level flaws that we identified in our submission on local income tax, leaving only 40 major issues to be resolved before we could look more favourably on the policy.

The Labour amendment makes a fair point about setting out, council by council, what the allocation methodology would mean, allowing a sensible comparison to be made with the current system.

Council tax benefit—£400 million out of the £11.5 billion—is raised in the Government amendment. I am sure that this is not the last time that we will see an amendment or motion on local government finance lodged by John Swinney and supported by Jeremy Purvis.

The SNP's submission to the Burt review in 2005 said:

"Before any reform of local authority taxation can be considered, it is vital that an assurance is given that this sum will continue to be allocated to Scottish local authorities in the event of the abolition of the council tax".

I stress that it says:

"Before any reform is contemplated".

It is fair to say that the Government has somewhat passed that stage. I encourage it to publish all its communications with the United Kingdom Government on the matter so that we can see just how strongly the case has been argued. So far, the most detail that the SNP Government has set out is a mere five paragraphs in its consultation paper. That paper argues that council tax benefit moneys should be transferred because they are part of the Scottish block, but that is not the case and never has been.

It is true that the current statement of funding policy, which the Treasury published last year, reproduces a written answer from December 1997 that states that council tax benefit will

"come within the Scottish Block for the first time after devolution".—[Official Report, House of Commons, 9 December 1997; Vol 302, c 511W.]

However, the Government knows that that did not happen—Mr Swinney conceded as much in oral evidence to the Burt review in 2006. The Scottish Government argues that the statement of funding policy is another reason why the money should be paid over, but that statement explicitly starts with the view:

"This Statement is drafted on the assumption that current forms of local taxation continue."

The Conservatives have made it clear that a UK Conservative Government would be prepared to enter into a dialogue with the Scottish Government on council tax benefit moneys. We do not know whether the Scottish Government wants to allocate them on the basis of the current level of council tax benefit or on some other basis but, even if it got those moneys, there would still be a gap in the funding arrangements for local income tax of about £400 million: the £281 million that the Government concedes plus at least £117 million because of lower tax revenues.

The Lib Dems might believe that it is possible to magic £400 million—or £800 million—out of nowhere, but no one else does. I am prepared to be helpful to them today. I know that they are looking for savings. There is £20 million for the local income tax in next year's budget, which leaves only £1.58 billion for them to find for the remainder of the parliamentary session.

Local income tax is a lost cause, regardless of what happens on council tax benefit. Members who support LIT may care to reflect in due course on why I am so keen that the detail that we have requested in our motion be published before the bill to introduce local income tax is introduced.

I move,

That the Parliament calls on the Scottish Government to publish in detail, prior to the introduction of a council tax abolition Bill, how it proposes to allocate to each local authority local income tax revenues and all other sources of funding, including revenue support grant and non-domestic rates income, in the event of the Bill being enacted.

I welcome the debate and the indication in the Conservative motion and the Labour Party amendment that those parties are at last coming to terms with the fact that change to local taxation is coming. Since the Government was elected in May last year, both parties have initiated debates in which they have tried to oppose in principle our plans to introduce a local income tax by abolishing the council tax. Both attempts failed, and I welcome the parties' engagement on points of detail that require to be considered in taking forward the Government's proposals.

Mr Brownlee asked for clarity on the Government's approach. I am happy to undertake to Parliament to publish, prior to the introduction of a council tax abolition bill, details of how funding is to be allocated to individual councils. On 11 March this year, we published a consultation paper on our proposals to abolish the council tax and replace it with a fairer local income tax based on ability to pay. Under our proposals, four out of five households would be better off or no worse off, 85,000 people—including 15,000 children—would be lifted out of poverty and many pensioners would be better off.

Does the Government have, at this stage, a preference for one of the three ways in which the local income tax revenues could be allocated? Does it prefer relative need, population, or where the tax is raised?

If Mr Brown will forgive me, I will come to that point.

The consultation on the Government's proposal ended on 18 July. We received more than 500 responses, many of which were detailed, and we arranged to have them analysed by an independent research organisation. We will consider the findings of the report and reflect on all the points made in it before we publish our response to the consultation. At that time, we will also release the independent report and all the responses that we are entitled to release.

Before publishing that material, I will make two brief comments, both of which I am sure will hearten Mr Brownlee and his colleagues. First, the Government has an open mind when considering some of the detailed changes to our proposals that others have submitted. For example, we are actively considering representations that full-time students should be exempt from paying local income tax in the same way as they are exempt from paying council tax. We will make clear our responses to all the other issues in due course.

Oh!

I would have thought that, rather than grunting from a sedentary position, Mr Fraser would have applauded what I have just said, if he had any generosity at all.

I take it that Mr Swinney has factored into his local income tax calculations the revenue lost to the Government through not making students pay.

Oh my goodness—Mr Fraser wants to have it both ways. Punitive taxation is his watchword. Of course the Government will consider those factors.

Secondly, many consultation responses offered balanced and considered comments about the implementation of such a major policy change. Some organisations raised legitimate points about how the tax will work. We can and will answer those points. I also welcome the offers that many people made to work with us on making the taxation system fairer.

When we publish our response to the consultation, we will set out how we plan to go into the next stages of the work. The consultation paper shows that we recognise that the amount raised through the local income tax will not be identical to the amount raised through the council tax, and that there will be a need to adjust local authority funding after the change to take account of that difference in order to ensure that public services in each area continue to be properly funded. That remains our position.

However, in response to the Conservative motion, I will say now that, although the detail will need to be developed, discussed and agreed with the Convention of Scottish Local Authorities, our intention is that the local income tax that is collected from residents in each local authority area will be retained within that local authority area. The current local government finance system ensures that councils receive funding in line with a needs-based formula that we agree with local government in Scotland. From a derived total funding package, we take off allocations for council tax and business rates and any remaining specific grants, such as the police grant. The balance is, as Mr Brownlee correctly said, made up through revenue support grant.

Following the introduction of the local income tax, we will simply replace council tax income with local income tax in the formula. The resulting revenue support grant totals by council might change, but we will ensure that after the change councils will continue to receive the same overall level of funding that they received before it.

We have made it clear that the amounts that local authorities receive in council tax benefit are crucial to our plans. Following the passing of the Scotland Act 1998, a mechanism was agreed to reimburse the Scottish Government for any reductions in council tax benefit where council tax in Scotland rose by less than it did south of the border. That mechanism was suspended by the previous Administration. As a result of that short-sighted agreement, Scotland has lost hundreds of millions of pounds.

Council tax benefit forms—and has formed for many years—an integral part of the local government finance system in Scotland. By 2011-12, it will be worth, in round terms, £400 million a year. The Scottish Government has consistently maintained that, if the Parliament decides to exercise its power to reform local taxation, under whatever form of local taxation it envisages, it must have access to that council tax benefit, because it is integral to the funding settlement for local government. Council tax benefit is integral to the Government's proposals on local income tax, and it would be integral to any other reform proposed by any other party—if they had a clue about what to offer as an alternative.

I am delighted that the amendment in my name has attracted the support of the Liberal Democrats. I look forward to responding to the debate.

I move amendment S3M-2631.2, to insert at end:

"and believes the UK Government should agree that Council Tax Benefit money forms an integral part of local government finance and should be available to local government as part of decisions by the Scottish Parliament to reform local taxation in Scotland."

I speak in support of the Labour amendment in the name of my colleague, Andy Kerr. I indicate that we will support the Conservatives' motion.

Being a front-bench spokesperson clearly has perks. Only last week I received an email inviting me to dinner with the Cabinet Secretary for Finance and Sustainable Growth. It seems that he is entertaining business owners in Bearsden in the relaxed atmosphere of the Douglas Park Golf Club. I have to pay £30 for the privilege and there is no discount for block booking. The accompanying letter brags about SNP achievements, and then says:

"The man who makes these decisions, the man who balance Scotland's books, is Scotland's chancellor, Mr John Swinney. What else has he in mind for the future?"

What else indeed? The purpose of today's debate is to see whether we can get some answers. Indeed, we have just had some, I think, from the man who claims that he balances the books—before he goes to Bearsden.

As I am sure the cabinet secretary knows, the people of East Dunbartonshire pay their way, with a council tax collection rate of more than 98 per cent. They want to know whether any replacement tax will raise similar amounts of money to pay for local services. The Conservative motion and Mr Brownlee's contribution ask very pertinent questions, but I doubt we will get all the answers that we are seeking, because I do not think that Mr Swinney knows all the answers.

I asked Councillor Rhondda Geekie, the leader of East Dunbartonshire Council's Labour-Conservative coalition administration, whether she could shed any light on the potential impact of the local income tax on our area. She told me that the council is currently looking for £7 million of savings, and that is before the impact of this year's pay settlement. She has no flexibility to bring in extra money because of the zero council tax increase imposed by Mr Swinney. Investment in five primary schools that are classed as category C—those in need of major repair and upgrade—is on hold as the council does not yet have details about the Scottish Futures Trust.

However, today, we are concentrating on the local income tax. Mr Brown has already asked whether the local income tax will be based on where someone is employed or where they live, and I, too, have questions to ask Mr Swinney on behalf of my council and constituents. I hope that he will be able to answer them.

How will the money that is raised from local income tax be distributed to individual local authorities? The cabinet secretary has already touched on that. Will the SNP incorporate fail-safe mechanisms to maintain income predictability for local authorities? I am not sure whether we have had an answer to that. Can he guarantee that no local services will be cut as a result of any shortfall in funding under local income tax?

It is interesting to note that the SNP chose to call the proposed bill the abolition of council tax bill, rather than just the local income tax bill, but that is the way that it uses language—to emphasise the negative. That explains why the council tax is always referred to as either unfair or hated. Well, two can play at that game.

Will the member take an intervention?

No, I am sorry but I have only four minutes.

The proposals for the introduction of local income tax have been roundly criticised right across Scotland, with civic Scotland, business leaders and trade unions united in opposition to them. So why do we not call it the abolition of local government accountability bill, the savage cuts to council services bill, or the loss of local authority jobs bill?

It is about time that the people of Scotland had some detailed answers to their questions, rather than the bland promises that we have heard again today that almost everyone will pay less. That is not true, and Mr Swinney knows it. He also probably knows that the true figure for local income tax should be nearer 6p in the pound than 3p.

The SNP never mentions that, in addition to paying a local income tax, the people of Scotland will still have to pay water and sewerage charges. Yet again, there is no information about how those charges will be set and collected under any new system. When the cabinet secretary comes to Bearsden next month to tell his golf club audience what the future holds, I trust that he will give them the facts about local income tax, and not the fiction. If he does not give them the facts, I guarantee that Labour members certainly will.

I move amendment S3M-2631.1, to insert after second "income":

", together with indicative figures for each local authority for the first year of operation of local income tax, and how stability of funding is delivered to ensure that no local authority loses revenues directly because of the introduction of the new tax system".

I am happy to support Mr Brownlee's motion. I hope that he will reciprocate and support our amendment.

It seems that no one in the Labour Party wants to keep the council tax, and everyone in the Conservative party does. Last week, Iain Gray used economic analysis to say that the world's financial crisis had been caused by the prospect of a local income tax in Scotland. Not only were HBOS, Lehman Brothers and Bradford and Bingley potentially laid low by local income tax but, because we are introducing a progressive and fair system of local taxation in Scotland—

Will the member give way?

I will in a moment, if I have time.

Labour and, with the inevitability of the sun rising in the east and setting in the west, the Conservatives are moving to acknowledge that supporting the council tax is the policy that dare not speak its name. The Conservative policy is to try to use a defibrillator to wake a corpse by offering some payers half a discount and all other payers a discount of £150, but the poorest inhabitants of bigger houses will benefit least.

That takes us to the core of the argument—the Conservatives believe in the council tax. On the conservativehome.com website that I mentioned earlier, if one scrolls past the encouraging headline "David Mundell doesn't expect Scottish breakthrough", one finds Derek Brownlee's blog on local taxation, which clearly states:

"We believe the major problem with Council Tax is its level, rather than its underlying principles."

The council tax is not based on ability to pay, it is hugely expensive and bureaucratic to administer and it is based on arbitrary, 17-year-old property valuations. It seems that its core unfairness is the underlying principle that is admired by the Conservatives.

I am sure that my party and I would be keen to assess Mr Purvis's amendment, but it would appear that the Presiding Officer did not choose it for debate.

If Mr Brown wishes to look at the Business Bulletin, he will see that my name is attached to the amendment that is presented there.

Whereas the Conservatives believe in the council tax, Labour seems to have the jitters. On 5 August, The Herald reported Iain Gray as saying:

"I believe the council tax must be replaced or reformed to make it fairer, and if elected as leader I would bring forward proposals to do so."

We await those proposals with great anticipation. The Herald went on to say:

"Mr Gray's comments come two days after former Labour finance minister Tom McCabe said the party could give itself a ‘massive boost' throughout the UK if it faced up to the ‘discredited nature' of the council tax. Mr McCabe also said that the new leader should consider a ‘timetable for abolition' for the council tax."

On 11 August, Mr Kerr was quoted as saying that if he were elected leader, he would

"immediately signal a long-term desire to replace the council tax".

The Labour Party has an immediate desire to replace or reform the council tax, wants to send a strong signal on the issue and proposals will be brought forward.

Cathy Jamieson was very definite when, on 19 September, she said:

"Any solution must guarantee that we protect and retain the £400 million Council Tax rebate. I don't want Scotland to lose this money and I won't gamble it just to have a pop at Westminster."

Liberal Democrats agree with Cathy Jamieson, even if members of her own party do not. There is precedent: the housing grant was devolved from the UK Government to the Scottish Parliament, regardless of policy changes that we make in Scotland.

What are the Tory policies for reform? Derek Brownlee said in his blog:

"There are obvious implications around the proportion of their funding that Councils raise, but it could be done."

We will debate the issue properly in the Parliament and full details of any proposals will be made available. I hope that a non-centralised approach will be adopted. We want a fairer, more progressive and less bureaucratic system than we have at present, and I hope that, as we pursue that goal, we will gain the support of members of all parties.

Speeches should be of a tight four minutes in the open debate.

Today's motion is about bringing transparency to a subject on which the issues are often as clear as mud. No shortage of missiles of a statistical nature have been hurled in the debate about whether individuals and households would be better or worse off under a local income tax than they are under the council tax. Today's debate is not intended to be a rerun of those arguments; instead, it is designed to approach the subject from the standpoint of our councils.

Our motion is based on a recognition that whatever system of local taxation we adopt in Scotland, and regardless of whether the money that is at present spent on council tax benefit is added to the Scottish block grant, the proceeds of a local tax will still provide only 11 per cent of the total revenue of our councils. The major sources of funding are the moneys derived from Government grants—specific grants and revenue support grant—and from business rates.

Under the council tax, we know how those sources of finance are distributed among councils. Funding from business rates is distributed on a population basis, and funding from Government grants is allocated according to a long-standing formula of Byzantine complexity that has been agreed with the Convention of Scottish Local Authorities. It appears that the Government is reviewing that formula. The review is taking place against the backcloth of the Government's intention to introduce a local income tax. However, although we know that every penny that a council levies in council tax finds its way into that council's coffers, we do not know whether the same would be true of a local income tax.

The Government's consultation document puts forward a number of distribution options. I was extremely interested to hear Mr Swinney indicate that the Government now favours a distribution mechanism whereby each local authority would retain the local tax proceeds from that area. That is most interesting, because it means that the Government is intent on creating 32 local tax domiciles in Scotland. It will be astonishingly difficult for the Government to resolve the complex problem of how to retain control of the system and follow, for the purposes of assessing local income tax, every citizen in Scotland as they move home from one area to the next.

David McLetchie has missed the point—we already have such a system. We have 32 different local authorities, which all have different levels of council tax. When people move homes, they move their council taxes with them.

Mr Rumbles has not noticed that houses do not move, but never mind.

If we are to be able to compare the merits of local income tax with those of the council tax, we need to know not only the Government's preferred distribution method for the proceeds of local income tax, but whether it proposes to change the formulas for distribution of Government grants and business rates. It is only when we have information on all those elements that we will be able to judge the financial package as a whole from the standpoint of councils and to determine whether a change to a local income tax would be prejudicial or beneficial to any particular local authority. That is of crucial importance, because the total package determines the quality of the public services on which we all depend.

As members will be aware, the Government has accepted in principle the case for a capital city supplement for Edinburgh, and the City of Edinburgh Council has just completed a report in which it seeks an additional £10.7 million of revenue spending and a supported borrowing requirement of £22.2 million. However, as we all know, what can be given with one hand can be taken away with another. A supplement is only a supplement if there is stability in the baseline funding, and that remains the great unknown.

On the face of it, our motion is of a technical nature; some might say that it is arcane—indeed, I almost put on my anorak this morning. However, no one should underestimate the importance of the information in question being put in the public domain before the Parliament comes to a decision on local government taxation.

I am sure that the whole Parliament will agree that Derek Brownlee's motion is sound and sensible. I hope that the cabinet secretary's reassurances will go some way to winning over those members who are still opposed to the abolition of the unfair council tax and the introduction of a fair system that is based on ability to pay.

"I believe the council tax must be replaced or reformed to make it fairer".

Those are not my words—they are the words that Iain Gray used in a press release on 5 August. A phone call from London prompted a U-turn. Unlike the Labour leader in the Scottish Parliament, the people of Scotland are in no doubt about the fact that the council tax has had its day. They are sick of the burden that that unfair tax places on them and are calling for it to be scrapped. Despite a campaign of misinformation by Labour politicians, the most favoured replacement remains a local income tax.

The council tax has been unjust since its inception and it needs to be replaced, not merely tinkered with. The local income tax bill will be an important step towards a progressive tax regime that is based on ability to pay. A pensioner who earns £9,000 a year must go through a complicated process to claim council tax benefit, and they are still liable to pay the balance. Many pensioners do not claim that benefit, with the result that they pay up to about £1,200 a year in council tax for an average-sized home. Under a local income tax, such a pensioner would not pay a penny and would have no forms to fill in.

We are all aware that some high earners, such as MSPs, will probably have to pay a bit more, but that is what one would expect of a fair system that is based on ability to pay. Those who can afford to pay a little more should pay a little more to ensure that those who cannot afford to pay pay less.

Does the member believe that all taxation should be based on the ability to pay?

The council tax is not a tax that people can choose to opt out of paying, whereas with many other taxes, such as those that relate to having a car, people have a choice. That is a big difference. I do not say that all taxes should be based on the ability to pay. However, taxes to pay for basic utility services should be based on the ability to pay, which is why I support the Government's move towards a local income tax.

We have heard calculations from Labour suggesting that many people will pay more. After a recent STV debate, the Labour candidate in the Glenrothes by-election, Lindsay Roy, claimed that under a local income tax couples who earn £16,000 each and who live in properties of band A to C in Fife would pay more under the local income tax than they pay under the council tax. Let me be clear: under the local income tax, the vast majority of households would be better off, and the situation is no different in Fife.

I am sure that, if Lindsay Roy had not forgotten to exclude the personal tax allowance, which is of course not taxable under the local income tax, he would not have made that calculation. He is way off the mark. In Fife, a couple earning £32,000 would save £150 a year if they lived in a band A property; £270 a year if they lived in a band B property; and nearly £400 a year if they lived in a band C property. The misinformation from the Labour Party does not help the debate. If the Labour Party has an alternative to a local income tax, let us hear it and put it before the people. The fact is that couples in average properties in Fife and throughout Scotland will have to earn much more than £32,000 before they pay a single penny more under the local income tax. That is the reality of a fair local income tax.

The SNP amendment calls for Scotland's council tax benefit to be retained. I was delighted that, during the Labour leadership election, Cathy Jamieson pledged that securing Scotland's £400 million in annual council tax benefit was a priority for her. That was when she was acting leader of the party, so I hope that the current leader will comply with what she said.

I welcome the opportunity to take part in the debate. I support the Labour amendment and the Conservative motion. The debate is an excellent opportunity to ask questions about the local income tax, and it gives the Scottish Government a platform from which to provide information and clarification.

There is no doubt that serious questions arise about the local income tax. It has been criticised for its potential to make Scotland the highest-taxed part of the UK and to drain talent from the country. However, that is not the major issue that is before us. The local income tax will require a major bill to be brought before the Parliament. If we are serious about our role as policy makers and legislators, we must have detailed information to allow us to scrutinise the impact of the proposed legislative changes. We must know how the local income tax will impact on councils, businesses and Scotland's citizens.

The key issues on which we require more information and clarification are the administration of the tax, the costs and the stability of future revenues. On the administration of the local income tax, it is important to know whether HM Revenue and Customs will administer it. We also need to know whether a property register and a register of individual citizens will be required. The cabinet secretary's announcement today on allocations to local authorities will be studied in detail, not only by MSPs but by people from throughout the business and financial community. Inevitably, there will be implications for new tax rules—questions will arise about second homes and residency rules. There will also have to be an appeals process, so we need to know about how it will be put in place and its transparency. Questions remain about legal competence. The European Charter of Local Self-Government deems that taxes should be set locally. That must be considered carefully. Another issue is how water and sewerage rates will be levied under the new system.

There is no doubt that a new system such as the local income tax would involve a lot of set-up costs. I imagine that the system costs alone would be dramatic. I worked in the electricity industry when VAT on electricity was introduced. The system changes were complex and the electricity companies required significant resources to put the changes into effect. The local income tax would have an impact on employers. The Burt review in 2006 indicated that the costs would be in the region of £55 million to £60 million.

Issues arise about how the stability of future income would be guaranteed through local income tax revenues and about the impact on economic growth. Research shows that stable inflows of finance result in greater economic stability and certainty, whereas variability can result in fluctuations, which are not good for our communities.

The debate is important. We must assemble all the information so that we can decide whether the local income tax policy would benefit families, protect and enhance council services and contribute to economic growth.

The weight of the Conservative motion is about ensuring that clear detail is available on the Government's intentions for its proposed local income tax. It is difficult to argue with that principle. With such a major change, political parties and the people of Scotland should have as much detail as possible as soon as possible. However, we also have the right to expect that the principle of clear and early public information should apply to the council tax benefit issue. The parties that have clung to the hugely discredited and dysfunctional council tax system have shamelessly tried to bolster the threat from Westminster that any kind of deviation from their preferred policy would draw retribution in the form of a £400 million-plus penalty through the withholding of council tax benefits.

Derek Brownlee makes the case that we should have clear and early public information so that we can get an idea of the implications for people but, at the same time, he says that there will be no Tory decision on council tax benefit until 2010 at the very earliest. We cannot have the early certainty that he seeks if a big chunk of the money will not be agreed beforehand.

Is the member aware of the representations that the Scottish Government has made to the UK Government? Given his reasonable point about information being publicly available, does he agree that we should have the right to see the case that the Scottish Government has set out and to know when and how vigorously it was set out?

That is a complete red herring, because it is perfectly clear where people stand on council tax benefit.

To give an idea of the level of Tory thinking, in response to a perfectly reasonable and valid point from Mike Rumbles, we had the stunning revelation from David McLetchie that houses do not move. If we come down to that level of debate, it is also true that houses do not pay income tax, nor do they pay council tax. People move and the current system is perfectly able to track those changes, even when people are being paid—or not—from Lithuania.

The tactic of the threat to withhold moneys is of a piece with the general themes of keeping us in our place and, by intimidation, discouraging any deviation from Westminster-approved changes. For me, the most disappointing aspect of that approach is that the Scottish branches of the UK parties have used the tactic with such gusto, with some honourable exceptions. Of course, with Labour, the London Labour line was always going to be preferred to independent thought or any notion of the Scottish interest. However, it is beyond doubt that the £400 million belongs to Scotland. Alistair Darling, whose view one would think would count for something, said in 1997 that, under devolution, council tax benefit and housing benefit

"will both come within the Scottish Block for the first time".—[Official Report, House of Commons, 9 December 1997; Vol 302, c 511W.]

At this point of the argument, those who are too afraid to let go of the council tax—maybe we can call them the council tax cling-ons—adapt their argument from saying that it is not our money but is graciously dispensed to us by Westminster as part of the union dividend, to saying that it might be our money but it comes with strings attached. Because it is called council tax benefit, they say, we must use it for that purpose. One can understand why those in the Tory and Labour parties who never wanted devolution use that argument, but, more is the pity, it seems to have become a mainstream argument rather than one that is confined to the extreme unionist fringes of those parties.

One clear contradiction in the arguments on a local income tax is that some of those who oppose it say that they are in favour of local decision making, of councils taking responsibility for their decisions and of local democracy. However, they make those arguments while defending the hugely centralising effects and intent of the council tax regime. Since the 1970s, successive Labour and Tory Governments have sought to constrain and limit the financial freedom of local government—a fact rather than a matter of party contention for any student of local government. Whether it was the poll tax, rates or council tax, the aim was to control councils by cutbacks, capping or ring fencing.

The Scottish Government has made a good start in three of its actions—getting rid of ring fencing, increasing the share of the Scottish budget that goes to local government and providing extra resources to allow councils to choose to freeze the council tax. From the comments of Labour, Tory and even Lib Dem councillors, I know that their Holyrood counterparts have failed to appreciate how well those actions have been received in local government. Perhaps it is time that they woke up to that fact.

It is more than 20 years since a Tory Government in Scotland, dreading a looming revaluation of the domestic rates system of local government finance, abolished domestic rates and pioneered the community charge, known to all as the poll tax. The rest is history—the history of chaos.

The poll tax was regressive: the prince paid less, the pauper paid more. Domestic rates were redistributive and ownership of property is a type of wealth. The council tax that replaced the poll tax is slightly inferior to domestic rates from an administrative point of view and is partially obscured by the enforced co-collection of water and sewerage charges. As a mainly property-based local tax, it can be argued that the council tax is redistributive if one accepts that property ownership is a form of wealth.

Given how good UK homeowners feel when house prices rise and how bad they feel when house prices fall, and given the great store that all Governments, including the Scottish Government, set by house prices, it is disingenuous to pretend that the council tax is wholly regressive. That is not to say—

Does the member appreciate that his argument holds only if regular revaluations reflect the changes in local property markets, but that there has not been a revaluation? I understand that it is Labour Party policy not to have another revaluation.

I was just about to acknowledge that so, not for the first time, Mr Purvis states the obvious.

What I have said does not mean that council tax should not be reformed and, indeed, revaluation looms again. However, must we wait for a revaluation crisis to loom before we reorder our local government finance system?

The Scottish Government's so-called local income tax is really a new national tax. It is a cure that is worse than any disease from which council tax might suffer. As David Whitton highlighted, a bill to abolish the council tax is still a bill for a new national income tax, and the Scottish people will not be fooled by cynical nomenclature, just as they were not fooled by the Tories when they called their poll tax bill the Abolition of Domestic Rates Etc (Scotland) Bill.

The devil is in the detail of local income tax, and that will prove to be its undoing. Other speakers have highlighted many unanswered questions of detail. The major constitutional objection to the new income tax is that we will become one of a handful of European countries where local government cannot raise its own local taxation. From a purely constitutional perspective, the balance sheet of relations between this Parliament and local government since 1999 is not good. Now it seems that centralisation is paramount. Is that really what COSLA wants? Will turkeys really vote for Christmas? If they do, it will be the first time that turkeys have voted for Christmas since SNP members of Parliament helped to bring down the Labour Government in 1979 and usher in the long dark night of Thatcherism. Thatcherism: have we seen or heard the last of it?

Just before I call Bob Doris, I ask that all members who wish to speak in the debate make sure that they have pressed their request-to-speak buttons.

Today's debate is a positive step forward by the Conservative party in Scotland. The motion that is before us makes reasonable requests and gives the chamber another opportunity to debate the implementation of the local income tax, which members have already voted for in principle. I welcome the Conservatives' introduction of the debate.

The Conservatives' step forward is, of course, a baby step. Until they support a form of local taxation that is based on the ability to pay and stop trying to make do and mend with the unfixable, unfair and unwanted council tax, they will not be able to walk tall with the people of Scotland. They will be deserting our pensioners in particular and the modest-income, hard-working families of Scotland.

The Conservative proposals for the reform of local taxation are the equivalent of placing a scabby Band-Aid on the gaping wound that is the council tax. People will not refuse the Band-Aid if it is offered to them, but they know that it ain't going to solve the problem. However, today's motion from the Conservatives is progress. It looks at the mechanics of delivering the local income tax, which is welcome.

The SNP amendment is also important, and MSPs should support it, irrespective of their views on local taxation. I will make my position clear on council tax benefit: it is Scotland's money, it belongs to us and anyone who calls for it to be given back to the UK Exchequer rather than used to support local services throughout Scotland should be ashamed of themselves. Anyone who does not support Scotland's Parliament keeping the money to which it is entitled is a stranger to defending Scotland's interests and should be ashamed of themselves.

During the Labour leadership contest, both Andy Kerr and Iain Gray said that Westminster should keep council tax benefit. That is to their shame, and I hope that they will reflect on it. Perhaps they will listen to Cathy Jamieson, who said that had she won Labour's leadership election, she would have raised the matter with Gordon Brown and Alistair Darling, with a view to retaining the £400 million. I very much hope that Cathy Jamieson will be given a free vote this afternoon, so that she can vote with the SNP and the Liberals to defend Scottish money rather than with her party and the Conservatives.

Will the member give way?

I am sorry, but I have only four minutes.

It is my preference that the council tax be scrapped and replaced with a local income tax based on the ability to pay. However, even if the Labour Party or the Conservatives came up with an alternative that I might agree with, I would still support the £400 million of council tax benefit being retained in Scotland. It is fundamental.

Will the member give way?

I say to Mr Brownlee that my speaking time has not changed.

Derek Brownlee said that the Conservatives will discuss retaining council tax benefit in Scotland, and I welcome that progress—perhaps that was to be the subject of his intervention. Labour is now in danger of being the only party in Scotland's Parliament that is actively looking to rob Scotland of its own money and give it to Westminster. Shame on the Labour Party. I ask it to reflect on that and to start to stand up for the people of Scotland.

Labour-controlled Glasgow City Council ran an online local income tax calculator and worked out that 72 per cent of Glaswegians would be better off. I will spread that word in Glasgow, and other SNP members will spread the word throughout Scotland. It is time that we scrapped the council tax and delivered a fair, just, local income tax.

Those who venture fundamentally to change local taxation should bear in mind Hilaire Belloc's epigram for young children:

"And always keep a-hold of Nurse
For fear of finding something worse."

The Conservatives learned a painful lesson from the introduction of the poll tax: the winners show little gratitude and the losers have long memories. That will be the reality if the local income tax is introduced.

When Tommy Sheridan proposed his Scottish service tax—a much better developed proposal than that put forward by the SNP or the Liberal Democrats—the work that was done on that fundamentally similar approach showed that the actual tax rate would be of the order of 5.5 per cent, compared with the 3 per cent that John Swinney claims. That is not a small matter. It is a huge gap in the calculations.

People have to be aware that about 80 per cent of local government expenditure is on statutory obligations, such as schools, social work and police. We cannot take seriously a proposal that jeopardises the capacity of local government to deliver statutory services, never mind non-statutory services, which are also much valued by local residents. We cannot take seriously a proposal that has such a huge hole in it. Mr Swinney really has to address the huge hole that is at the centre of his calculations. That must be the first, fundamental test of what is proposed.

The second point that Mr Swinney needs to address, which is made in Mr Brownlee's motion and the Labour amendment, is that he must come clean on the methodology by which the resources are to be distributed. The SNP seems to be making a variety of proposals. We have no real clarity about whether the proposed system is needs based or population based or about how it relates to revenues.

If we are to have a nationally funded local government spending scheme, it has to be needs based and the methodology around it has to be transparent, objective and open to independent scrutiny. The mechanisms that we have at present vary in terms of grant-aided expenditure or service level adjustments in the 2007-08 baseline, which clearly is inconsistent. Mr Swinney needs to state clearly how he is going to distribute the resources. He should use client groups as primary indicators and socioeconomic and geographic factors as secondary indicators, which should be selected and weighted on the basis of statistical evidence. That methodology would be the most transparent and consistent.

Before Mr Swinney introduces his radically different approach, he has to let local government know not just that it will get the money but how the money will go to Aberdeen City Council, West Dunbartonshire Council, East Dunbartonshire Council, Glasgow City Council, the City of Edinburgh Council and every other local authority in Scotland. There has to be certainty that each authority can deliver its statutory obligations and the services that its citizens require it to deliver. Unless we get certainty around the methodology and the volume, the proposal will be a complete non-starter. Mr Brownlee's motion is worth while, because it will provide clarity on Mr Swinney's proposal. After that, we can decide whether the proposal is a little mistake or a huge mistake. I think that it is the latter, but we will wait and see.

This has been an interesting debate on the Tory motion. Derek Brownlee seems to be leading the Conservatives into an early surrender over local income tax—the white flag is being raised already. The Conservatives seem to accept that this welcome reform is inevitable, so they are concentrating on the detail, which is fair enough. However, they are all over the place on not just local income tax but income tax in general. I noticed that the Conservatives were totally unwilling to advocate cutting income tax. Derek Brownlee refused to answer me when I intervened to ask him whether they would support Liberal Democrat proposals to reduce income tax.

No.

I hear Alex Johnstone shouting "No." I will ensure that the people of West Aberdeenshire and Kincardine know that. That would cost less than 3 per cent of the Scottish budget, yet the Tories are unwilling to join us in advocating it.

I have a simple question for Mr Rumbles. Only a few weeks ago, he asked us to consider the case for an extra £66 million each year for Aberdeenshire Council. If that does not come under current plans, will he vote for local income tax?

That is a cheek. Aberdeenshire Council receives £60 million less than it should every year. We have been arguing for a fairer cut of the cake.

John Swinney considered exempting full-time students from local income tax, which is welcome. We have pursued that measure—Jeremy Purvis in particular has pursued it—and we want it to be implemented.

Jeremy Purvis pointed out that both Labour and the Tories support the discredited council tax. I find it astonishing that Labour will not fight our corner here in Scotland. London Labour is insistent that it will filch the £400 million from Scottish taxpayers when we abolish the council tax and replace it with a fair form of local income tax.

David McLetchie did not seem to understand that it is people, not homes, who pay taxes. That is absolutely bizarre. He said that local income tax would be complicated, with 32 variations. We already have 32 different valuation officers, 32 different appeals mechanisms, 32 different collection regimes and 32 different council tax rates. We could not invent a more complex system than we have already. A system of a varied local income tax will be much simpler.

The Liberal Democrats want to replace the council tax with a local income tax of around 3p in the pound, varied locally.

Around 3p?

Of course it will be around 3p. It will be varied locally. Had the Conservatives not noticed?

I say to the cabinet secretary that we will support the abolition of the council tax and its replacement with a local income tax, but such a tax must really be local. Coupled with a cut of 2p in the pound nationally—[Laughter.]—it would put money back into taxpayers' pockets from next year, which would be welcome across Scotland, especially in these difficult economic times, which I see that the Tories are laughing about. The Liberal Democrats are prepared to work—if the Tories are prepared to contain their laughter at people's economic circumstances—with every party in the Parliament not only to deliver the abolition of the council tax and its replacement with a fair local income tax, but to persuade others in the Parliament to support a 2p cut in income tax in the Government's forthcoming budget as we examine it over the next few months.

Mike Rumbles used the words "early surrender". The fact that he then said that he supports a local income tax of—coincidentally—around 3p in the pound is a clear indication of his early surrender to the Government's centralising policy. He almost went on to justify that policy by saying, "Look at all that trouble we have out there in local government with 32 different systems. Let's centralise it." That is what the Liberal Democrats want to do and that is what they are going to do.

However, I want to achieve consensus throughout the chamber.

Will the member give way?

I have only four minutes.

We welcome the Conservative move—we support the motion and we hope that colleagues will support our amendment, too—to ensure that we flush out some of the key issues surrounding the Government's policy. As everyone knows, the initial consultation document was a shambles. Many people said that it was one of the worst consultations every undertaken by a Government. Individual householders, taxpayers and communities need to know the detail of the proposals, hence the reference in our motion to "stability of funding" and how the local income tax proposals will affect individual local authorities. It is good that the cabinet secretary has welcomed that and that he is responding positively to requests for detail. There will be more to follow.

Members have raised many issues, including water and sewerage charge collection; second homes; yield prediction and management, which is a dull but incredibly important part of the debate; and evasion and the avoidance of payment. Now that the cabinet secretary has set the tone for the debate running up to the introduction of his proposals, I look forward to seeing the further information for which many members have called. For example, David Whitton asked about yield, shortfall and collection, and James Kelly asked about the issues that Burt raised about local income tax proposals. We recognise that a lot more has to be done.

David McLetchie asked how we work out who would be better off and who would be worse off under the proposals. We will be able to do that only if the cabinet secretary continues his openness and meets his commitment to ensure that we have the maximum information on which to judge his proposals. At the end of the day, the local income tax is, as Charlie Gordon made clear, a new national income tax. However, the devil will be in the detail, and the Parliament will want to ensure that that detail becomes known to the Scottish public.

That is not to say that we have somehow surrendered to the idea of the local income tax. Indeed, the cabinet secretary and certain other members have made a bit of mischief on this point. The concept is flawed, and has been damned in consultation responses not only from the business community but from Carers Scotland, Unison and many other organisations. There are great concerns about the local income tax, and no one should be under any illusions about our continued opposition to it.

Much has been said about council tax benefit. You were warned—I apologise, Presiding Officer. The cabinet secretary was warned—as the SNP was warned before, during and after the previous Scottish Parliament elections—that the council tax benefit that is provided by Westminster will cease on the introduction of a local income tax system. It is not a matter of Westminster being a bully; it is simply the consensus view of many commentators and academics. In fact, Sir Peter Burt himself said very clearly that

"Council Tax Benefit would cease"

if local income tax were introduced in Scotland. It is simply wrong to say that council tax benefit is part of the Scottish block; it is paid out by the Department for Work and Pensions and will be paid out for as long as the council tax remains.

There has also been a lot of misinformation this morning about what was said in the statement of funding policy. The fact is that in 1997 there was a draft annex to the statement of funding policy, but what was contained in that annex was never adopted, even though the SNP continues to peddle the myth that it was.

I will finish on that point of clarification about council tax benefit. I welcome the Government's openness on this matter and I look forward to more information emerging about this dreaded policy.

I will try to found my closing remarks on Mr Kerr's note of consensus.

Two staggering revelations have emerged in the debate. First, I realise that I am going to have to give Jeremy Purvis some advice on how he spends his time, because I have to tell him that there are many fruitier pieces of light reading than Derek Brownlee's blog.

Secondly, some tremendous disaster must have happened if Mr Whitton has received an invitation to a certain dinner in East Dunbartonshire. I hope that, in the spirit of consensus, he is not planning to attend the event. [Laughter.]

He has given the invitation to me.

Well, that will make for a delightful evening. Mr Kerr and I will be able to take forward the many issues that we enjoy discussing together.

David McLetchie's speech was of course crafted with the usual elegance of an Edinburgh solicitor. However, he seemed to miss the fact that I dealt with the entire issue that he was raising in my opening speech. It was as if, in Scotland, one could still shoot a fox in debates. As I said earlier, our intention is that the local income tax collected from residents in each local authority area will be retained within that area. Given that that one point dealt clearly with the entire contents of his speech, Mr McLetchie might have changed his script accordingly. I note, though, that Mr Kerr was kind enough to accept the same comment as a clear statement of the Government's position.

That all fits into my response to the points raised by Des McNulty, which is that the local government finance system must be anchored to a needs-based formula that we will agree with local government. Indeed, as I made clear it would be when I announced the spending review settlement last year, that very formula is being examined at the moment. In our view, the local income tax element of local government funding would replace the council tax element, but under the umbrella of the overall funding package for local government. As we have made clear, local authorities will be able to rely on the same level of resources as before.

The Government's amendment, which focuses on council tax benefit and has attracted Liberal Democrat support, highlights one of the fundamental issues in the debate. My colleague Keith Brown was right to highlight the total contradiction in Derek Brownlee's argument, a contradiction that I have to say is most uncharacteristic of the member. Mr Brownlee argued for the need for clarity and certainty on all these questions—apart from, it seems, council tax benefit, which represents a significant part of the local government funding settlement.

Has the cabinet secretary changed the position that he outlined to the Burt review on this matter? At the time, he said that he would want the same assurance before any reform of local taxation could be considered. Now he seems to be saying, "Here are the proposals; I'll give you the assurance you want afterwards."

There is no change in my position. As Mr Brownlee would expect, I am taking forward this discussion on behalf of the Scottish Government to ensure that Scotland retains council tax benefit money. If he wants me to make clear how the issue has been raised, I can tell him that I have done so directly and personally with the Chief Secretary to the Treasury and on other occasions. What would help me—[Interruption.] What would help me, as I think Mr Rumbles has suggested from a sedentary position, is having Parliament's mandate to support my position in those negotiations.

I hope that between 10.30 am and the vote at 5 o'clock tonight the Conservatives will reflect on the fact that, no matter who reforms local taxation and no matter whether they seek to introduce a local income tax, a different form of property tax, the roof tax that Labour considered or the land value tax that Patrick Harvie might be interested in, council tax benefit still forms part of the resources of local government finance in Scotland and must be protected and delivered.

Finally, I say to Mr Kerr that council tax benefit goes nowhere near individuals. It is based on an assessment of an individual's income and is paid directly to local government as part of the local government settlement.

Will the cabinet secretary give way?

I am afraid that I am coming to a close.

As a result, the case that council tax benefit should form part of the local government finance arrangements in Scotland is unanswerable. It should be protected, and I hope that such a view will receive Parliament's mandate this afternoon.

We have heard some of the usual buzzwords and phrases that come up in local government finance debates. For example, members have talked about the "ability to pay", used the word "discredited" and referred to "the percentage that would be better off", which I have to say seems to decrease with every passing month and with each new piece of analysis that appears.

One thing that I must make clear is that the Scottish Conservatives remain absolutely and firmly opposed to the local income tax; it was disingenuous of one or two members to suggest otherwise. Indeed, our consultation response makes our position abundantly clear.

However, as the motion makes clear, we want clarity on the critical issue of the method of allocation. We have already been able to work out which individuals and groups would lose out under the local income tax, but now we need to know which local authorities would lose out. That information is particularly important if there is also a review of allocations from the revenue support grant and other central Government money.

The consultation on the local income tax suggested that the tax revenue could be distributed according to relative need, according to population or according to where the money was raised. There was a fourth, "Don't know" option, just in case the Liberal Democrats wanted to submit a response.

I acknowledge that the cabinet secretary gave us an answer to our question this morning. However, he paraded it as if he had reached his view after reviewing all the evidence and analysing all the consultation responses. On 17 April, a month into the consultation and at a time when he could not possibly have analysed all the evidence, Mr Swinney stated in response to a question whether the tax was local and legal:

"The money that every individual pays in local income tax will go directly to the local authority area in which they live to pay for services for people living in that area."—[Official Report, 17 April 2008; c 7625.]

I suspect that Mr Swinney did not mean to say that and that it simply slipped out. However, the same point was paraded this morning as if it were a Government announcement of a position that had been based on all the facts and evidence.

If that is the case—and I accept that it is, given that Mr Brown has just quoted from the Official Report—what on earth was Mr McLetchie banging on about for four minutes in his pointless speech? Indeed, if I answered the question in April, what are we having this pointless debate for?

As the cabinet secretary said, Mr McLetchie made a considered and well-delivered speech, as ever. That was a simple bit of backtracking.

The point is that if the Government has already decided how it wants to allocate the money, surely we do not need to wait until a bill is published to get the information that we have requested. Why not listen to Keith Brown? He said that we need information as soon as possible. Will the cabinet secretary agree to publish information on the allocation of money to local authorities so that we can clearly see now how each local authority will do without having to wait until a bill is published? How will the north-east do, for example? Will Mr Rumbles be so keen on a local income tax when he finds that out? How will the Borders do?

I am astonished that Conservative members will not confirm whether they are in favour of cutting income tax. Will they support us during the budget process to achieve that?

Mr Rumbles is one of the few Liberal Democrats who are not in the Borders at the moment fighting for what is meant to be a tough seat. Today, he charged round the lobby telling everyone that he would intervene during every speech by a Conservative member to ask about tax cuts—it would have been a good idea not to talk about such plans to Conservative researchers.

I want to pick up on two other points that Mr Rumbles made. First, he showed that he misunderstands what happens with the collection of council tax. People pay taxes and move, but houses do not move. The council tax is property based. People do not simply move house and leave that house empty; they sell it on. It is much simpler to keep track of what is happening using the council tax, because it is property based.

Mr Rumbles also mentioned the complex collection system for the council tax. Perhaps the system is complex, but if he cares to look at his next council tax bill, he will see two other items on it: water and sewerage. Even if the council tax were scrapped, water and sewerage rates would have to be collected. There would be exactly the same system and exactly the same issues that we currently face.

If the Government has made up its mind about how local income tax revenues would be allocated if a council tax abolition bill were enacted, let us see information on that now. That information should be published as soon as possible for all the 32 local authority areas. People could then make more informed choices about what to do.