During the 2007 election campaign, it was billed by the SNP as “the biggest tax cut in a generation” but this weekend sees the SNP manifesto team frantically working behind the scenes to either patch up their Local Income Tax policy or pull the plug on it entirely. My personal prediction is that there is too much uncertainty, too much suspicion around what the tax will mean for Scottish taxpayers that the Nationalists will decide it’s not worth including as a blatant target for attack in its manifesto. The hitherto successful strategy of messaging ‘record, team, vision’ will be deemed as critical to carrying them over the line and anything (or anyone) that works against that over the next few weeks will be swept aside, LIT included.

This whole issue stems from the electorally toxic news that Alex Salmond has been using the courts to prevent the detail of Local Income Tax going public, inviting rival parties and the wider public to speculate on what is so damaging in the calculations that we shouldn’t get to see them less than a month shy of an election. Amid heightened tensions over how Scotland can meet a spending squeeze of some 12.5% over the next few years, this is the worst problem at the worst time for the SNP and, really, someone, somewhere has taken their eye off the ball.

The bad news appears to be that, had Local Income Tax been introduced, there would have been a shortfall of some £800m which would have required a rate of 4.6p on income tax to cover. This adds fuel to the flame of the otherwise disingenuous claim that Local Income Tax would make Scotland the highest taxed part of the UK. (It may carry the highest level of income tax, but that is to ignore the key point that Council Tax would be scrapped)

The appeal of Local Income Tax (which, along with Land Value Tax, I am very much a fan of) is that payment largely comes through PAYE so that people know what they are paid net from their employer is largely theirs to spend on whatever they please. That is, the money that lands in your account each month is yours. There is little doubt that the simple mechanics of Council Tax can get people into trouble with cash management and no doubt reduce the tax intake for councils as some simply cannot afford to pay the tax once the reminders start landing on doormats.

The hyperlocalism of the tax is appealing too, although the SNP wish to set the rate nationally. Under the Lib Dem proposal the local councils would be more accountable and value for money would be more recognisable. That can only be an improvement on the status quo.

However, as fine an idea as this local tax is, it is facing some new challenges in 2011:

– We’ve already voted on Local Income Tax and the electorate will be less sympathetic to even the same promises this time around. The SNP may well claim that it needs more MSPs to deliver the policy in the face of hostile opposition but, rightly or wrongly, I can envisage that falling on deaf ears.
– We’ve had four years of a Council Tax freeze which, somewhat ironically, makes Council Tax less unpopular than it might have been and arguably less unpopular than it was in 2007. That also makes LIT a harder sell.
– The Greens have pulled together a fully costed and highly attractive Land Value Tax policy that has garnered a good bit of press for the party. LIT is not longer ‘the only show in town’.
– The SNP is suggesting that it is keen to continue minority Government if it emerges as the largest party, how that squares with delivering a Local Income Tax that requires a parliamentary majority, it is not quite clear.

With the SNP and Lib Dems only a couple of votes short in delivering a Local Income Tax in the 2007-11 term, the Lib Dems demoting it in this year’s manifesto (1 mention in 89 pages) and the policy now a millstone around the SNP’s necks, it is looking increasingly likely that this policy has had its day.

Where that leaves us with five different parties and three or four different policies is anyone’s guess. The only option that I can see emanating from the pack, assuming the SNP does wash its hands of LIT, is an SNP/Green deal on a Land Value Tax at some point down the line and only if the numbers fall in that favour.

The tax brings in more money each year, makes efficient use of land/buildings (fileld or empty) all the while not requiring higher bills from the vast majority of houses that are banded A-E. It is, to my mind, a cleaner and more fully formed version of Vince Cable’s reasonable Mansion Tax policy from last year.

Patrick Harvie says that for the next Parliament “it is either Land Value Tax or bust”. Despite being a fan of LIT, I am inclined to agree.