Holyrood set for new cash powers

The Scottish Labour Party yesterday tabled its formal submission to the Calman Commission on devolution, and announced it was now backing borrowing powers for Holyrood.

At the same time, the SNP's John Swinney, the finance secretary, said he was willing to consider a watered-down form of independence, so-called "devolution max", as a stepping stone to full independence.

The decision by the two main parties at Holyrood to move towards more powers for the parliament and away from their previously entrenched positions was being seen as a clear indication that major changes to the devolution settlement will now go ahead.

Sir Kenneth Calman's Commission on Scottish devolution will report later this year. But with Labour, the SNP and the Liberal Democrats now all in favour of borrowing powers, it would be a major surprise if changes to the settlement were not recommended by the commission and endorsed by the UK government.

Iain Gray, the Scottish Labour leader, said: "The powers of the Scottish Parliament are well established and function well, but we recognise the importance of the financial accountability of the parliament. While the parliament has tax-raising powers, we believe there should be consideration of borrowing powers similar to that of the prudential borrowing framework that already exists."

Tavish Scott, the leader of the Scottish Liberal Democrats, a party that has not only backed borrowing powers for some time but also persuaded the SNP to support the move through the Calman Commission, said: "I'm pleased that Labour finally seem to have realised that the status quo is not enough."

Indeed, this represents a significant move for Labour, which had previously accepted there was a need to examine the scope of the devolution settlement, but which had not recommended any definite changes.

Mr Swinney took an equally important step in the development of devolution when he unveiled a document setting out five possible options for Scotland's future, of which independence was only one. The finance secretary insisted independence was his "preferred option" and argued that the case had been made more compelling by the economic downturn.

But more revealing was Mr Swinney's readiness to embrace the idea of "devolution max" or "independence lite" as a stepping stone to his ultimate goal.

This appeared to be a clear attempt to get the Liberal Democrats to back an independence referendum, but it also represented a considerable softening of the SNP'S previously hard-line approach to the devolution settlement – that independence was the only option.

Under "devolution max", full financial powers would be devolved to Scotland, giving the parliament control over everything except monetary policy.

Mr Swinney said: "Devolution max would give us the greatest degree of freedom short of independence. It would increase accountability, it would increase the degree of responsibility that could be exercised by the Scottish Parliament, but it would be constrained by the financial arrangements and the reserved powers which would remain with the UK."

He went on: "We remain open to others formulating an alternative proposition as to where we move to as a country.

"The government's preferred option is for independence, but there are other scenarios and it is for others to formulate the other scenarios they would like."

One senior SNP source said he believed Mr Swinney's more conciliatory approach was an attempt to "flush out" a unionist position for the referendum.

"We are open to having a third question on the referendum, but they haven't come up with anything yet. Maybe this will do that for them," the source said.

Alex Salmond, the First Minister, is due to meet Gordon Brown in London today for talks on the economic crisis and it is understood he will push the Prime Minister for borrowing powers for the Scottish Parliament.

After Donald Dewar, the then Scottish Secretary, piloted the bill creating the Scottish Parliament through the Commons, he insisted that the settlement was not "set in stone".

But between then and 2007, Labour resisted any attempts to change it or to give Holyrood major new powers, arguing that it needed time to "bed down".

However, after its election defeat in 2007, Labour decided to champion a commission to examine the settlement and, with the help of the Tories and the Liberal Democrats, the Calman Commission was launched.

The Scottish Labour Party failed to make clear exactly what it wanted the commission to recommend until yesterday, when it published its official submission, including an endorsement of borrowing powers.

The devolution settlement did not give borrowing powers to the former Scottish Executive. Instead, each administration has been given a finite block grant and it had to stick within that allocation each year.

The push for borrowing powers for the Scottish Government has come, partly, from a recognition that the Northern Ireland Executive has limited borrowing powers, as do local councils.

Ministers believe borrowing powers would enable them to spread the cost of big infrastructure projects, such as the new Forth bridge, over many years, rather than draining other budgets for a short time, as they will have to do under present rules.

Five degrees of separation that were on the table

JOHN Swinney launched a bid for Liberal Democrat support for an independence referendum yesterday by bringing forward a proposal for "devolution max" – a watered- down form of independence – as a stepping stone to separation.

The finance secretary said his preferred option was independence but he would be prepared to accept full fiscal autonomy as progress along the road to that goal.

Mr Swinney's announcement was greeted as a major softening of the SNP's position, which had been to advocate independence and nothing else.

Tavish Scott and his fellow MSPs have insisted consistently that they would not support a referendum on independence but Mr Swinney now appears to be hoping that the prospect of devolution max on the referendum ballot paper may be enough to bring the Liberal Democrats on board.

Mike Rumbles, for the Liberal Democrats, said: "We remain opposed to an independence referendum. We will work with other political parties through the Calman Commission for greater powers for the Scottish Parliament, but will not expose Scotland to any referendum designed to gain independence."

The five options outlined by Mr Swinney yesterday were:

The status quo. This was ruled out by the finance secretary as unacceptable and it is not an option favoured by any of the parties.

Assigned taxes. Would see the parliament given control over revenues raised by specific taxes but not over ways of altering the taxes themselves. Mr Swinney rejected this yesterday as a "step backward".

Enhanced devolution. Would transfer some powers to Holyrood, such as energy and control over certain tax powers, including personal or environment taxes. Mr Swinney said he did not believe this would go far enough.

Devolution max. Would be full fiscal autonomy for Scotland within the UK, with Holyrood given complete control of all tax rates and levers. Holyrood would have control over everything except monetary policy, leaving it a short step from independence. Mr Swinney was willing to accept this as a stepping stone.

Full independence.