Despite dissent from the six-strong SNP opposition group and reservations from the Lib Dem members of the ruling administration, the council on Thursday backed a report which claimed the new system – a key policy pledge of the SNP-led Scottish Government and due to be introduced in 2011/12 – "undermines the principles of local accountability and democracy".

The report, endorsed by finance director John Campbell, came in response to a consultation exercise on the levy which which is due to be set on earnings at a flat rate of three per cent.

"SBC strongly believes it should have the power to set and raise taxes to fund local services," said the report.

"People currently relate the amount of Council Tax they pay to the local services provided ... although local authorities would still be free to set their own spending priorities under a nationally-set local income tax, having no control over the tax yield would undoubtedly weaken these principles (of local accountability and democracy] and essentially mean councils, financially, would be controlled centrally."

The report contended that local income tax (LIT) will not have positive economic impacts for Scotland. It claimed young people living in the Borders who do not currently pay Council Tax may consider leaving the region, while businesses may look to relocate elsewhere.

"As the tax is on people and not property, the number of taxpayers will increase and there is a danger the tax will be seen as an additional tax rather than a replacement for Council Tax."

The case for the status quo was led by Councillor Michael Cook (Ind).

"This proposal is a real stinker," said Mr Cook. "How fair can it possibly be for a married couple with four children and six mouths to feed to pay the same as some blue blood sitting in a property worth millions? To divorce wealth from property assets is a nonsense." And he claimed there was "not a chance in hell" of the Westminister Government, which currently pays Scotland's Council Tax benefits to the tune of £400million, agreeing to the proposal. "It just does not stack up," he added.

Councillor John Mitchell (SNP) said his party, the Lib Dems and "most importantly, the people of Scotland" supported local income tax as a fairer way of paying for local services.

"Council Tax is not a stable source of income and it currently costs £62million just to administer it across Scotland," said Mr Mitchell, adding there was simply no evidence to support the contention that LIT would place a burden on employers.