The issues raised by this proposal are of obvious importance, not only for Scotland and its local authorities, but also for the rest of the UK.

They raise issues about local government finance that the UK Government has sought to avoid for years by referring them to inquiries whose findings it has then largely rejected or ignored. 

The Scottish Government's proposals appear welcome at first sight, opening up a new source of local finance and showing that a local income tax is possible, except that it is not proposing a local income tax.

The phrase used – local income tax – is misleading. What is planned is a grant financed by a Scottish income tax of 3p in the pound. 

With the abolition of council tax, the Scottish Government would make local authorities totally dependent on central government grant, apart from what they could raise in fees and charges. 

A genuine local income tax in Scotland would have been welcome in its own right, and as an idea which could be followed elsewhere. 

But a grant masquerading as a local tax should be opposed. It would damage local government's effectiveness, efficiency and accountability.

Our thinking has been shaped by the work of the Layfield committee, on which we sat in 1974-76. Three lessons we learned there remain relevant for the future of  local government in Scotland as in the rest of the UK.

First, the need to make the choice posed by the Layfield report (page 299) and restated by the Lyons report (page 40) ‘whether all important governmental decisions affecting people's lives and livelihood should be taken in one place on the basis of national policies; or whether many of the decisions could not as well, or better, be taken in different places, by people of diverse experience, associations, background and political persuasion'.

Second, then and only then, the need to design a local government finance system to support that choice. Scotland has not had a debate about the choice – not the people, Parliament, nor the Scottish Government.

Third, the need to recognise that the power to tax is essential for local accountability. Many argue that local government does not need to be responsible for decisions on local taxation, asserting that even with a 100% grant, it can be accountable for the way it spends money allocated to it by central government.

The Scottish Government has accepted this conventional wisdom. But, it is a gross misconception of accountability, wholly inappropriate for strong local government, which would be unable to decide its own level of expenditure. Two harmful effects follow this failure to have local accountability for both spending and taxing. 

They are:
 *central-local relations in Scotland will be damaged by the annual ritual of each side blaming the other. Local government will argue for more grant, like a drug addict wanting its fix rather than a responsible authority balancing the need for expenditure against the burden of taxation to finance that expenditure, and accountable to its electorate for that decision. Central government will claim it has carefully calculated the grant needed, but will deny any responsibility for the outcomes in localities, blaming local authorities for inefficiency, extravagance and waste. Rather than clear accountability, there would be shared irresponsibility, in which accountability is denied by both the centre and the local authority
* the system will encourage irresponsible behaviour by councils and voters. They will always press for greater expenditure to achieve higher standards, improved services and more provision, because they do not have to face their direct consequences in increased local taxation.
The need is not to move to a 100% grant by substituting for the council tax a centrally set, collected and allocated local income tax (LIT) which would really be a Scottish income tax (SIT).

The better course is, rather than make local authorities totally dependent on grant, to reduce their dependence on it with a genuine LIT. It would replace not the council tax, but that part of national grant which now finances local authorities in Scotland, as in England and Wales.

It would make explicit and transparent that part of national income tax which now goes to the centre, and is then returned as grant to local authorities directly in England and Wales, and through the Scottish Parliament in Scotland. 

The council tax as a property tax has many virtues as a tax for local government. It should not be abolished, but reformed to make it fairer. 

The Lyons report showed how it could be made fairer – by adding new bands at the top and the bottom; changing the ratio burden between the bands; regular revaluations, even ending the bands and using discrete capital valuations; turning council tax benefit into an automatic rebate; stopping pensioners being jailed for non-payment by making it a civil debt for which distraint of goods can be applied; and targeting help on those in real difficulty. 

The UK Government has taken no action on Lyons' proposals, and the Scottish Government has apparently rejected such reforms, preferring instead to abolish council tax.

The introduction of a genuine local income tax alongside a reformed council tax would give local authorities two taxes, approaching the position in many other countries where local authorities are not dependent on a single tax. A tax on property and a tax on persons have a logic in local government, whose services and activities are directed at property and people.

The Scottish Government's main argument against a locally-determined income tax is that it would create administrative problems. The Government's consultation paper argued: ‘A locally-variable rate would require extensive and expensive bureaucracy. This is because there would need to be a way of collecting up to 32 different variable tax rates from people living in Scotland, according to which local authority area they lived in. This could prove expensive and confusing for employers, councils and taxpayers'.

Administrative problems alone should not determine policy. They should certainly not stand in the way of building a sound financial basis for effective local government, accountable to local people. In any case, the difficulties are over- stressed. It is hard to see what the problems are for local authorities which already set variable rates of council tax or for people who pay them.

For employers there should be no major problems where salaries and wages are calculated by computer programmes. 

For employers with small workforces, the problems might appear greater, but with a small workforce, they will not have many different rates to pay. 

An employer with, say, 10 staff, would not have to deal with 32 different rates. 

The stress on administrative issues reflects the failure to face the choice posed by Layfield and Lyons. 

The issue is treated