DAVID Cameron, the Conservative Party leader, said yesterday he would not stand in the way of the full handover of tax- raising powers to Holyrood - if Scottish Tories wanted it.
He said he "certainly did not rule out" full fiscal autonomy for Scotland, although he stressed that he had doubts about it.
The debate over fiscal autonomy has been raging in the Scottish Conservative Party for the past five years, with advocates calling for the Tories to endorse the transfer of tax- and-spend powers from Westminster.
They have argued that the Scottish Parliament should have responsibility for the money it spends, and the powers would give the parliament the opportunity to lower taxes in Scotland below those of England, attracting investment, business and people to come north.
Opponents have warned that fiscal autonomy would be only one short step away from full independence, which would then lead to the break-up of the Union and would also play into the hands of the Nationalists.
Yesterday, Mr Cameron said: "I believe in devolution, and it's got to be devolution in heart, as well as in head, as well as on paper."
He added: "In the first instance, it's for the Scottish Conservatives to decide whether they think the current arrangements work, or whether a degree of greater fiscal autonomy would be a good step forward.
"If they come to that view, we would have to talk to the UK Conservative Party to work out whether we could reflect that in our manifesto and make it a reality."
Mr Cameron said he "certainly did not rule out" full fiscal autonomy.
But he added: "I certainly have doubts about fiscal autonomy, but the right process is for the Scottish Conservatives to look at how the Scottish Parliament is working.
"If they come up with an answer that a greater degree of fiscal autonomy is the right approach, then that is a decision which we will have, with colleagues in Westminster, to work out whether that is the right thing for the UK."