The Scottish Government's plans for a local income tax of 3p in the pound to replace council tax could be its first big mistake.

On the surface, a tax that is more related to people's ability to pay is attractive.  However, this tax will hit middle income families the hardest - most especially those with two earners.  For non-working households, it is unclear that the difference will be significant since these receive extensive council tax subsidies at present.

Nor is it clear that the tax particularly 'local', with the SNP at least favouring the rate being set centrally.  If local councils set their own rate the administration costs of the new tax may not be able to be passed on to HM Revenue and Customs.  Unless the Scottish Government effectively uses its existing powers to vary the standard rate of income tax by 3p in the pound - a move which would make a nonsense of the idea that it is a local income tax - it will be faced with setting up a separate collection system.

The argument that the council tax hits the poor hardest is difficult to sustain when there are payments to the tune of £400 million per year coming from Whitehall to subsidize low income council tax payers.  Whitehall has confirmed that these subsidies will not continue if the council tax is replaced by a local income tax.  After all, income tax is supposedly based on ability to pay, so how can it be subsidized (especially if that subsidy is coming from other taxpayers).

In other words, the plans mean a net loss to the Scottish Government's finances.  This could be expected to provoke a conflict between Holyrood and Westminster and maybe this is what is intended.  With Scotland enjoying public spending 22% higher per capita than in England, it will be difficult to persuade Westminster to allocate such resources to underpin Holyrood's latest scheme.  English taxpayers are becoming increasingly aware of the extra funding in Scotland leading to large disparities in service provision.  Not surprisingly, opportunists in England are jumping on the bandwagon and calling for the Barnett formula - which determines the relative level of funding for Scotland - to be reviewed.  The chances of Scotland getting a more generous settlement from such a review would seem to be nil.

Perhaps a conflict with Westminster is exactly what Mr Salmond wants, though.  He has already attacked London's refusal to continue the subsidies as "embezzlement".

But the strategy may backfire.  Salmond may be seen as punishing hard-working families while squandering hundreds of millions of pounds in subsidies.  He will alienate a critical part of the electorate who may decide to take revenge on his party.  This could become another poll tax - but this time inflicted on Scotland by its own ministers rather than those in London.