In reply to henwardian:
Not legal or professional advice ....
Henward, you are presumably still in Scotland? So maybe a Scottish short assured tenancy (Did you get an AT5?), or if it is a Council landlord could it be a Scottish assured tenancy? Or it could be a contract by virtue of your employment? Knowing which agreement you have is very important if you are asking for legal opinion. What tenancy agreement did the other tenant have? It would be useful to have a copy of that if you can get it.
Anyway, anyone giving proper advice would need to have sight of the agreement(s), other correspondence and lots more info to go further, so I will stop at that. A complex legal situation may or may not have been created and so off and get an appointment with a Solicitor asap I would say. Your options will depend on the type of contract, whether the original contract or any variation thereof was and still is legal and enforceble.
Re deduction from pay, you say they can deduct but are you sure that is what your contract of employment says? It may or may not be lawful. Again need more info, and anyone advising would need to see contract.
Remember, if the tenancy is lawful, then withholding rent lawfully due, will highly likely lead to eviction procedures/further action, and may also have serious implications on your employment contract and your credit record. For example, if the council take you to court it could lead to dismissal if the employment contract has appropriate clauses in it - I am aware some Council employee contracts say that certain convictions, will be deemed to be misconduct/gross misconduct, with the subsequent consequences that means. Much also depends on what do for the Council. Again speak to a Solicitor asap.
Hope you get it sorted out satisfactorily.