Alex Salmond cleared the way yesterday for his most fraught battle yet as First Minister when he pledged to scrap the council tax in Scotland and replace it with a highly-controversial local income tax.

Mr Salmond and his minority administration threw down the gauntlet to opponents, including Labour and Conservative MSPs, the Westminster Government and a number of Scottish business groups, opposed to the introduction of a local tax (LIT). Economists and tax experts have also described the LIT plan as unworkable.

However, Mr Salmond will appeal over their heads and use the widespread support among Scots as his justification to press on regardless, publishing his Bill in the coming parliamentary year with a view to having LIT in place by the spring of 2011.

The SNP leader, presenting his legislative programme of 15 Bills to Holyrood, dared his opponents to vote down the abolition of the council tax.

“I have no doubt Scotland will judge harshly any MSP who votes to keep the council tax in the face of the overwhelming benefit that would flow to millions of Scots,” he told MSPs.

The SNP wants to set LIT at 3p in the pound to be collected via PAYE by Revenue & Customs. The party claim the move would lift 85,000 people from poverty and save the average family between £350 and £535 a year.

Mr Salmond also outlined controversial Bills to prohibit under 21s buying alcohol from off-licences; the banning of cigarette displays in shops; and the introduction of community sentences, rather than prison, for a wider range of offences.

In order to be passed by Parliament the Bill to scrap council tax will need the support of the Lib Dems and the Greens. The Lib Dems support LIT, but want it set by local authorities rather than by the Scottish government. Talks between the parties are underway to resolve the issue.

Opponents of LIT say that there is a funding “black hole” of at least £800million between council tax and LIT. They also argue that LIT will make Scotland the highest-taxed part of the UK and that families where both parents work will pay more while those living on unearned income such as share dividends will not pay the tax.

Business leaders have attacked LIT as a disincentive to enterprise. David Lonsdale, CBI Scotland's assistant director, said: “We are wholly opposed to the local income tax as it would undermine the competitiveness of Scots-based firms, increase their costs, and burden them with yet more red tape ... It would do nothing to attract or retain the talent and corporate headquarters that Scotland needs.”

A major issue that would have to resolved before LIT could be introduced is what should happen to the £400million council tax benefit which Scotland receives at present. Westminster has repeatedly insisted that if council tax is scrapped there is no case for paying the benefit. The SNP insists that it is Scotland's money and must be paid.

If the Government does not change its mind Mr Salmond may have to proceed with the introduction of LIT without the £400million and hope that a Cameron-led Conservative government will be more biddable.

However, the Scottish Tories joined with Labour yesterday in condemning the LIT Bill. Labour said that the claimed funding gap would severely damage local services. Annabel Goldie, the Conservative leader, said that the proposal had been “comprehensively rubbished and ridiculed.”

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