Most council tax payers in Scotland will be better off under plans to introduce local income tax, Scotland's finance secretary said today.

Most council tax payers in Scotland will be better off under plans to introduce local income tax, Scotland's finance secretary said today.

John Swinney was launching a four-month consultation on the proposed measure and said that four out of five households will be better or no worse off if the SNP administration's plans for a replacement to the council tax are adopted.

The earliest point that the policy could be introduced would be 2011/12, he told reporters in Parliament today.

But he said it was part of the "social democratic contract" with the people of Scotland.

"Only the top income decile will, on average, pay more," he said today.

"The vast majority will be better off and the local income tax will benefit most those earning the least.

Those earning the very least will see an average 5.7% weekly increase in their income, he added.

"Most households will pay less tax and we will put more money back into people's pockets.

"These proposals represent a reduction in the tax burden on Scotland. That will be welcomed across Scotland and is key part of our plans to create a wealthier and fairer nation."

He also raised the possibility of a Scottish collection agency to levy the tax, but said his preferred option was for Her Majesty's Revenue and Customs (HMRC) to collect the tax.

The finance secretary also stuck to the SNP position that the tax should be set centrally at 3p in the pound, although the consultation does outline local variations in this.

The local income tax has the support of the Lib Dems at Holyrood and they have taken part in talks in the past week with the Nationalists on the issue.

Government projections figures today indicate that a single pensioner in a band C property would save £385, while a pensioner couple on a band D with an income of £15,000 each would save £691 a year.

A family household with one earner making £25,000 and another making a part-time wage of £8,000 a year living in a band D home would save £462 a year.

A family household comprising an experienced fireman on a salary of £27,000 and £13,000 for a teaching assistant on a band D would be £252 a year better off.

The finance secretary said that the local income tax will raise somewhere in the region of £1.7 billion which compares generally to about £2.3 billion for the council tax - but this does not include £400 million in council tax benefit which is currently paid.

Westminster says this will not be payable if the council tax is ditched, but Mr Swinney reiterated today that Scotland is entitled to this cash.

As well as the 3% income tax, today's plans also sets out a tax free personal allowance that matches the UK personal allowance levels, with a tax for second homes subject to local requirements.

Mr Swinney said he wanted HMRC to collect the tax, but said today there were already mechanisms in place for local collection of the council tax.

The consultation itself says that a Scottish Government collection agency could be set up to do this.

"This agency could be given similar powers and duties to the HMRC," it states.

A private sector agency or councils could also do this.

Labour leader Wendy Alexander today branded the consultation as nothing more than a Scottish jobs tax.

The Labour leader at Holyrood said: "It will make Scots workers the highest taxed in the UK.

"This Scottish jobs tax will hit the pay packets of every hardworking Scot.

"There is nothing fair about the super rich getting off Scot free. And nothing just about making hardworking Scots pay at least 15% more in income tax than the rest of the UK.

"It will also inflate house prices and make it even harder for first time buyers to get on the property ladder."

She claimed that the 3p rate will cover only half the amount services currently provided by local authorities.

"To maintain current services the 3p cap will have to come off," she added.

One stumbling block to a deal with the Lib Dems are Nicol Stephen's call for councils to given the power to set the rate locally.

But Lib Dem finance spokesman Tavish Scott today said the consultation was a "significant milestone" in ditching the council tax.

"Everyone knows that there are differences between the Liberal Democrats and the SNP on whether the rate should be set by government or local councils," he said.

"At our meeting yesterday evening, the cabinet secretary for finance and I agreed that the opportunity to build a parliamentary majority in favour of change and overcome the Labour and Tory supporters of council tax made our continued discussions worthwhile.

"This consultation document will be a helpful framework to these continued discussions."

But Tory finance spokesman Derek Brownlee also hit out at the local income tax claiming adding that the Tories' plans for a 25% would benefit more Scots.

"Under our plans to reform the council tax and cut it, 100% of council tax payers will see a reduction in their bills," he said.

These proposals will unravel under proper scrutiny, and proper scrutiny is what the government is going to get.

"The consultation doesn't mention how much in total the local income tax would raise across Scotland - but it would be substantially less than council tax.

"Where is the detail on how much these proposals would cost?

"Why does the government expect council tax to raise so much more than the local income tax? Why won't the government even consider reforming council tax by cutting the amount councils have to raise?

"Rather than increasing income tax by 15%, we could be cutting council tax by around 25%."

The finance secretary said that his figures were based on "assumptions" made about the circumstances that individuals are living in to work out the council tax they are currently paying.

But he said: "These are based on research about the likely relationships between the levels of income of individuals and the likely housing scenarios that they live in."

And although an assumption was being made about the circumstances the people are living in, he added "they are robust bases for making those judgments".

The finance secretary also said that "informal discussions" have taken place with HMRC about collection of the local income tax, but the consultation would allow the opportunity for that "detailed discussion" to be carried out.

"I've advised the chief secretary to the Treasury that we would be pursuing this as a policy initiative," he added.

"But we're obviously going to use the opportunity of the consultation period to pursue those issues with HMRC and to take them forward on that basis."

Mr Swinney said that no "detailed discussions" have yet taken place with the UK Government on the £400 million of council tax benefit.

It comes after UK minister James Purnell recently said that it would not be available to Scotland if the council tax is ditched.

Mr Swinney said "What we do believe very firmly is that council tax benefit is part of the overall arrangement for the financing of local government services in Scotland.

"It's a component part of the support that's given to the delivery of local government services.

"We believe that it constitutes part of the local government finance arrangements just now and it should constitute part of the local government finance arrangements in the new scenario that we envisage."

He said that the local income tax would bring a tax cut in the region of £280 million for local tax payers.

"That is something that we have to make judgments about in relation to our financial planning as the administration progresses," he added.

The consultation sets out alternatives to the single rate of 3p including councils having power to vary the rate of local income tax within a defined range such as 3% plus or minus 0.5%.

There could also be a 3p single rate with local councils given the power to levy below but not above this rate.

But Mr Swinney said this would affect the "administrative efficiency" of collecting the local income tax.

"My preference is very clearly for a uniform rate across the country because it makes the exercise of collection the simplest it could possibly be," he said.

But he said the government was "still open for a dialogue" on the issue with the Lib Dems.