Smith Commission: New powers on taxation mean 'home rule for Scotland within the UK'

The “promise” made by David Cameron when Scotland was poised to exit the United Kingdom in September’s independence referendum was honoured in Edinburgh yesterday when the Holyrood parliament was handed a raft of new powers.

The historic decision to give Scotland control over income tax and welfare benefits, along with other measures that will increase autonomy north of the border, effectively signals the beginning of a federalist UK.

However, Scotland’s newly promoted First Minister, Nicola Sturgeon, told MSPs in Edinburgh the package agreed by the Smith Commission was “disappointing” and still meant 70 percent of Scottish taxes being set and controlled by Westminster. She described the Smith plans as “an opening offer” indicating the SNP will accept them only as a short-term solution.

The Scottish Secretary, Alistair Carmichael, said the commission’s constitutional recommendations would mean “a more powerful Scottish parliament inside a strong United Kingdom”.

That optimism will be tested as Westminster MPs react to the commission’s findings, and to the growing pressure to downgrade the authority of Scottish MPs in the House of Commons. They will continue to vote on laws affecting England, despite English MPs being barred from doing the same on the growing list of devolved matters.

Lord Smith of Kelvin, who oversaw the fast-tracked report that will be the basis of draft legislation on Burns Night next January, said his commission had delivered “the biggest transfer of powers” since Holyrood was established in 1999.

An estimated £14bn of income tax and welfare payments will now be controlled by the Edinburgh parliament. This will mean the end of a uniform taxation system across the UK – a measure the right-leaning think tank, the Institute of Economic Affairs, called “ a dangerous halfway house”. The IEA said the different governments in Edinburgh and London would continue to “blame each other” for Scotland’s economic and social problems.

Among the new powers that will be transferred to Holyrood is the decision to make Scotland’s parliament a “permanent” institution, meaning it can no longer be shut down by a Westminster government; it will also decide how its elections are operated, including the right to lower the voting age to 16. It will also have new powers to license fracking, be consulted on the renewal of the BBC charter, and have a consultative role in Britain’s relationship with the EU.

However, it is the agreement on the transfer of income tax, and responsibility for 10 per cent of VAT gathered in Scotland, and control over air passenger duty that heralds a new era for the economic authority of Holyrood.

Scotland will now have the power to set rates and thresholds at which income tax is paid, with all income tax raised in Scotland staying in Scotland. Danny Alexander, the Chief Secretary to the Treasury, said: “This means we will have home rule for Scotland within the United Kingdom.”

Following draft legislation in January, it is expected the commission’s recommendations will become UK law regardless of who wins May’s general election. That makes this major constitutional change to the way the UK functions, one of the fastest turnarounds from promise to delivery in UK political history.

Not everyone, however, is confident it can be implemented painlessly. The CBI’s director-general, John Cridland, said the proposals “raised significant practical questions that need answering”. He said there were worrying implications for firms both sides of the border.