MINISTERS have abandoned their flagship plan to use higher council tax to invest an extra £500 million in education, forcing them to raid other budgets to find the money.

Finance Secretary Derek Mackay is due to announce the last-minute U-turn when he presents his debut Budget at Holyrood today.

The Scottish Government wanted to use a rise in the upper rates of council tax to raise £100m a year over the current Parliament to help close the attainment gap between rich and poor pupils.

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The SNP manifesto said the money would be invested “directly in schools, providing the money to headteachers to use to improve education locally”.

However, council leaders were told on Tuesday the idea had been dropped, after they and the Government were unable to agree on how to put it into practice.

With closing the attainment gap a top priority amid declining school results, the pressure now falls on Mr Mackay to find the money elsewhere in the £30 billion annual budget for 2017/18 and beyond.

The plan to take cash raised locally by councils and redistribute it nationally had proved hugely controversial and last month led to a breakdown in relations with local government.

Critics said the move would undermine a basic principle of local taxation – that councils, not ministers, decide how to spend money raised by local authorities.

Affluent local authorities with good schools and large numbers of Band E to H homes were set to be the biggest losers, as their tax receipts would be most likely to be spent elsewhere.

The Liberal Democrats, seen as a potential ally in passing the Budget in February, are also deeply opposed to interference with council autonomy.

Holyrood has already approved higher council tax rates for Band E to H properties from next April, adding an average £105 a year to a Band E home and £517 to a Band H.

Instead of the money being directed to the attainment fund, councils will now be able to spend it as they see fit, although they still face a £350m cut overall next year, in line with last year’s squeeze. With the council tax freeze ending next spring, councils will also be able to raise all bands by up to three per cent – although they will try to avoid this ahead of May’s local elections.

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A Labour source said: “This suggests there is chaos at the heart of the SNP’s spending plans.

“Whatever financial concoction the SNP comes up with, the hard facts are the SNP has cut more than 4,000 teachers from our schools, and axed hundreds of millions of pounds from the council budgets that fund them.

“No amount of spin will rescue the SNP from this – the Nationalists are failing Scotland’s children.”

The climbdown is awkward for Mr Mackay, whose first Budget is already under fire for making high earners pay more income tax than in the rest of the UK.

The threshold for the 40p rate is due to rise from £43,000 to £50,000 south of the Border by 2020/21, but rise only by inflation in Scotland, making a difference of up to £800 a year.

However, given £100m is less than 0.5 per cent of the overall budget, it makes political sense to ditch the proposal rather than see it damage relations with councils, more of which are likely to be SNP-run after May.

There was no consensus in a Holyrood debate on taxation last night, suggesting significant horse-trading between the SNP and other parties before the vote on the Budget Bill in February.

News of the Budget haggling came as figures showed Scottish unemployment rose by 14,000 to 145,000 between August and October, taking the unemployment rate to 5.3 per cent, above the UK rate of 4.8 per cent.

Scottish Secretary David Mundell said: “We have seen recent worrying statistics across areas of policy that the Scottish Government control.

“The truth is Scotland’s economy is in danger of lagging behind the rest of the UK because the Scottish Government is so focused on its ideological agenda and its pursuit of an unwanted second independence referendum.

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“It is time to put ideology aside and focus on what really matters – our economy and the jobs people depend on. So we need to see concrete plans in the Scottish Government’s budget to strengthen Scotland’s economy, otherwise it will be people in Scotland who pay the price.”

In a separate development, councils yesterday told Holyrood’s education committee it was “more and more difficult” to see how they could deliver the SNP’s flagship pledge to double free childcare, from 600 to 1140 hours a year by 2020-21.

Jacqueline Henry, of the Scottish Local Government Partnership, said councils had “no idea” where the money for extra staff and new nursery buildings could come from.

The Scottish Government refused to comment on the change in its attainment funding plan.

Mr Mackay said he would deliver “a budget for our economy and public services, our environment and communities. It will support stability and growth, help tackle climate change and promote fairness in society.” Cosla refused to comment.

It also emerged yesterday that spending watchdogs are to examine the SNP’s alternative model to PPP/PFI financing for large capital projects, known as non-profit distributing, or NPD.

Audit Scotland and the Accounts Commission are to study the impact of NPD as part of their work programme in 2018-19 after it fell foul of EU spending rules.