SCOTTISH Labour is poised to back the devolution of key welfare and tax powers to Holyrood in a historic move aimed at reclaiming Labour’s mantle as the party of home rule.
Senior party sources say the package of powers amounts to a new era of devolution, giving Holyrood the ability to protect Scotland from the “worst excesses” of future Conservative governments at Westminster.
With just weeks to go before the party’s Devolution Commission is due to report to the Scottish Labour annual conference in Perth, there are still intense disagreements within the party on some aspects.
But senior party sources say the case for a strong Labour offering to Scottish voters has been accepted by the leadership, and will not be derailed by a vocal minority of MPs and MSPs who are deeply sceptical about more devolution.
The package of powers would make Holyrood responsible for 40 per cent of the money it spends, compared with 12 per cent at present.
Crucially, it is now likely to include the power to vary the rate of income tax for each individual tax band.
The inability to do this has been one of the main criticisms of the current “tartan tax” power.
A senior source said: “The commission has no objection to this proposal – it is just a matter of seeing if it can be done and will not cost the taxpayer a lot of money to implement.”
Any failure to devolve income tax in full – as recommended by the commission’s interim report last year – would be seized upon by the SNP as a U-turn by Labour and presented as a sign that the party is half-hearted about more devolution.
On Friday night, Douglas Alexander, Labour’s shadow foreign secretary, urged the commission to “act boldly” on new powers.
He said: “We should be prepared to look at how we can enhance and strengthen the devolution settlement within the UK.”
Last-minute negotiations are likely to decide the exact shape of the welfare powers that would come to Holyrood under Labour.
The Scottish Parliament currently has no control of welfare, with all the powers reserved to Westminster.
Under Labour’s new plan, housing benefit and the UK government’s Work Programme would all become Holyrood responsibilities.
This would allow Holyrood to scrap the bedroom tax, which has been one of the most controversial policies of the UK coalition government in the past two years.
And it would give Scottish ministers responsibility for schemes aimed at getting the jobless back to work.
But there is still internal party debate on whether attendance allowance – the money paid to disabled or infirm OAPs – will be part of the package.
Other powers likely to be devolved include aspects of employment law, mainly around tribunals, which have controversially been made harder to access by employees by Westminster.
Other powers under discussion are devolving the Crown Estates beyond Holyrood to local communities, and giving the Scottish Parliament more control over elections.
Labour’s Devolution Commission, chaired by Scottish Labour deputy leader Anas Sarwar, has been the subject of intense negotiations at the most senior levels of the party north and south of the Border for some months. Deep divisions have emerged between those who want a much stronger Holyrood and those who see this as a sop to nationalism.
Disagreement has been greatest over income tax, but party insiders are hopeful of a compromise that can still be presented as a bold step forward. They point to the difficulty that currently Scotland has 8.6 per cent of the population but only accounts for 7.2 per cent of all income tax in the UK.
While Scotland accounts for around £4.25 billion in income tax raised it receives about £5bn. The compromise would give Holyrood power over the £4.25bn, with the remainder topped up through the block grant from Westminster.
A senior Labour source told Scotland on Sunday that the commission had rejected simply devolving control of income tax with no change to block grant because it would leave Scotland worse off.
The source said: “We cannot go into an election offering to make people poorer. Everybody thinks this is a power struggle between MPs and MSPs in the party but the reality is the figures do not add up.”
However some sceptical MPs are still pushing for more income tax devolution to be taken off the table. One said: “If we devolve income tax we will be put under pressure to reduce the Scottish representation in Westminster and we will also see the Barnett Formula changed, leaving Scots worse off.
“I don’t see it being agreed.”
While last minute horsetrading is still taking place, sources have said that the main points have now been decided. The blueprint for the next stage of devolution will also see Labour go it alone and decline to discuss a compromise package with the Tories and Lib Dems.
A Labour source said: “We have had enough of sharing platforms with Tories and Lib Dems with this [independence] referendum.”