Sturgeon's council funding plans may require fiscal framework

Credit: PA

By Peter MacMahonITV Border Political Editor

Who won the great tussle over the fiscal framework between the SNP at Holyrood and the Tories at Westminster?

We did, say Nicola Sturgeon and her colleagues in the Scottish government. No, we did say George Osborne and his colleagues in the UK administration.

The truth? Neither side got everything it demanded, but both got something they wanted.

The SNP can claim they knocked back a £7billion Treasury grab for Scottish cash and 'not a penny' less will come to Scotland than would be the case now.

For the Tories, even if they lost ground on funding (and they have avoided being specific on whether they did) they get something more political.

They can say with certainty now that power over income tax rates and tax bands is coming to Holyrood by 2017, and call on the SNP to state what they will do with those powers.

The Tories clearly hope the SNP will propose some dramatic tax increases in their Holyrood manifesto which they can contrast with their 'low tax' agenda.

We shall see on that, for the SNP are no-one fools. With the powers they have now they have been generous in terms of measures which help the middle classes - 'free' tuition fees for example.

So a Tory hope the SNP will be exposed as red in tooth and claw may be wishful thinking.

But...the tax powers will still open up some clear blue water between the Nationalists and Conservatives.

Labour and the Liberal Democrats are also likely to be proposing income tax changes which will raise money.

As we hurtle towards the May election we will learn more from all of the parties fairly soon.

But there is one intriguing proposal which has already emerged from Nicola Sturgeon on taxation to fund local authorities.

In a speech to the David Hume Institute last night in Edinburgh Ms Sturgeon proposed what was described as "incentives for councils to boost economic growth by assigning them a share of income tax revenues".​

She said: ​“​...w​e will discuss with local authorities how we can assign a share of income tax revenue to their funding​"​.

​The First Minister added: ​“That means that if councils succeed in boosting economic growth, and consequently income tax receipts, they will share in some of the benefit. ​

"​And it also means that local government funding will be more broadly based. Income tax, and a more progressive council tax, will both play an important part.​

Now this proposal, of which will hear more detail next week, has gone down like a lead balloon with some councils including Dumfries and Galloway.​

C​ouncil Leader Ronnie Nicholson today described the plans as “grossly unfair” towards the region, the lowest paid in Scotland, and would be “biased” towards the higher paid central belt.​He said:​ ​“These proposals could have a devastating impact on Dumfries & Galloway. We are the lowest paid region in Scotland and have the largest proportion of older people in Scotland whose income is below the level they pay tax.

​"​This would mean the income tax take in​ ​Dumfries and Galloway is lower than wealthy areas in other parts of Scotland so we could lose millions.

​"​Due to our proximity with the border we also have thousands of people who live in the region but pay income tax in England because that’s where they work. The Scottish Government don’t have the power to give us a share of that income.​"

​Now, there has been no love lost between the Labour leadership in D&G council and SNP ministers, but Ms Sturgeon's idea raises a number of potential problems of the kind councillor Nicholson raises.

If an council like Dumfries & Galloway does have a low income tax base will it, along with other poorer areas of Scotland, lose out under this scheme?The problem could also arise with Scotland's cities. In general terms Glasgow and Dundee have a larger number of less well off people living withing their boundaries.

The better off tend to live in the suburbs which are not part of the city councils' area and the local authorities where the 'wealthier' people live could be better off if they get a share of the income tax paid in their areas.

I've just spoken to Professor David Bell of Stirling University about this and he foresees problems along these lines.

He suggests there may have to be a financial mechanism to redistribute income tax receipts from councils with higher tax bases to those with lower tax bases.

Ms Sturgeon has promised to give more details of her scheme next week, and there can be little doubt her civil servants will have made her aware of this potential pitfall.

However, if it hard to escape the conclusion that what will be needed is some kind of, well, em, 'fiscal framework' for want of a better phrase for Scottish councils if this new funding plan were put in place.