Finance Secretary John Swinney revealed yesterday local councils will be allowed to keep the cash raised in their area from the proposed local income tax, and that ministers are also considering exempting students from the charge.

The SNP Government then won a vote on the £400m council tax benefit. The parliament's position is the money should be available to councils after any reform to local taxation.

Earlier Mr Swinney had called on all parties to support his quest to retain the £400m, during a debate in which he was challenged to provide more detail on the policy.

LibDem MSPs supported an amendment by Mr Swinney proposing the UK Government agree the benefit money should still be made available. The motion gained support from the two Green MSPs, and Margo MacDonald, the Independent. Four Labour MSPs - David Whitton, Cathy Peattie, Irene Oldfather and Marilyn Glen - also voted for the government amendment.

T he Conservatives said they "remain absolutely and firmly opposed" to local income tax and demanded details of how funding would be allocated to each authority, claiming many less-affluent areas will lose out.

Derek Brownlee, Conservative finance spokesman, said: "Today we forced the Scottish Government to agree to set out in detail how individual local authorities will receive funding under the proposed new tax. They will live to regret this.

"The SNP has today confirmed that the local income tax raised in any area would be kept by that council. Because local income tax is fixed at 3p, this would mean that relatively affluent areas would see a boost to their total income, with poorer councils facing massive service cuts.

"Councils such as Edinburgh and Aberdeenshire might think this would mean they would get more money, but the Scottish Government is set to slash government grants to those areas."

Mr Swinney told MSPs the current system is on a needs-based formula, which would continue. He said: "Our intention is that the local income tax collected from residents in each local authority area will be retained within that local authority area. We take off allocations for council tax and business rates and any remaining specific grants such as police grant. The balance is made up by revenue support grant.

"The resulting revenue support grant totals by councils may change, but we will ensure councils continue to receive the same overall level of funding after the change as they did before."

Labour has been in favour of reform to the council tax, but still wants a property-based tax and has stated that the council tax benefit cash would no longer be available if this was changed to an income tax Andy Kerr, Labour's finance spokesman said, it was a "dreaded policy". He added that the £400m was not part of the Scottish block grant, but was there as long as the council tax was in place.

Mr Swinney called for unity in the parliament to fight for the cash to remain in Scotland, and said he was involved in discussions with the Treasury and Westminster over the council tax benefit that comes to Scotland.

He said: "What would help me is if I had a parliamentary mandate behind me in those negotiations. Council tax benefit forms part of local government finances."

Labour claimed the decision on students proved the initial proposals were unworkable.