Scotland set for full control of income tax

Lord Smith will publish Commissions report on Thursday. Picture: Ian Rutherford

A radical package of powers is to be presented to the Scottish people when the Commission reports after weeks of intensive talks among Scotland’s political parties.

With negotiations expected to go down to the wire before Lord Smith of Kelvin publishes his document on Thursday, Scotland on Sunday understands that Labour is being forced to compromise its stance on income tax.

Labour had been against full devolution of income tax on the grounds that such a move would affect the voting rights of Scottish MPs at Westminster.

But with the Conservatives, Lib Dems and SNP all favouring more far-reaching reform, Labour’s negotiators are conceding that they too will have to go further.

When Smith’s document is published at the National Museum of Scotland, it is expected to recommend full devolution of income tax rates and bands – although the personal allowance will be retained by Westminster.

Another new power in line to come to Holyrood is abortion law, a change that could lead to the Scottish and UK governments adopting different limits for terminating pregnancies on each side of the Border.

The Smith Commission was set up by the pro-Union parties after the No vote in the referendum to nail down the extra powers that would come to Holyrood as a result of the “vow” made by them before the poll.

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In the dying days of the referendum campaign, David Cameron, Ed Miliband and Nick Clegg promised that a No vote would deliver a more powerful Holyrood without the risks of independence.

The pro-Union parties are determined that the new powers will strengthen Scotland’s place in the UK. The SNP have pledged to “hold Westminster’s feet to the fire” to ensure that the vow is kept.

Yesterday the Lib Dems cleared the path for more control over welfare to come to MSPs.

Labour and the Conservatives have proposed that housing benefit and attendance allowance comes to Holyrood. Until yesterday, the Lib Dems, however, had argued that benefits and the welfare state should remain under Westminster control.

At the Lib Dem autumn conference in Dunfermline yesterday, the party’s Scottish leader, Willie Rennie, announced a major shift on welfare when he said that he had revised the party’s position.

“Conference, I need to report to you that I have reviewed that position in light of the referendum,” said Rennie.

Just days before Lord Smith publishes his report, he said the Lib Dems would “explore the transfer of a major package of welfare powers to the Scottish Parliament”.

Rennie said: “We have seen the weight of submissions from a wide range of charities and experts. We have heard about the way that caring services and benefits to people in need could be linked to their advantage in Scotland. We know it could mean more decisions can be made here whilst sharing risk and reward with the United Kingdom.

“And I am persuaded by the case for change. It is consistent with our liberal values.”

All the pro-Union parties believe that control of the State Pension should be retained at Westminster, ensuring that it will continue to be run on a UK-wide basis.

But Rennie’s speech opens the door for benefits like Job Seeker’s Allowance, Disability Allowance, Housing Benefit and Attendance Allowance to head to Edinburgh.

Devolving a raft of benefits would also allow Scotland to pursue a different policy from the welfare reform being driven by David Cameron’s coalition government.

Under the coalition’s plans, Universal Credit is replacing Jobseeker’s Allowance, Housing Benefit, Working Tax Credit, Child Tax Credit, Income Support and Employment and Support Allowance.

The publication of Lord Smith’s report, which is expected to be a concise statement of the new powers, will throw up its own political challenges.

The devolution of income tax will create problems for Labour. The former prime minister, Gordon Brown, who underwrote the vow, has claimed that transferring all of income tax is a “Tory trap”.

Originally, Labour had wanted MSPs to have control of a 15 pence share of the basic 20 pence rate of income tax.

Brown has warned that handing over full control over the levy would enable the UK Tories to argue that Scottish MPs should be denied a vote in Westminster budget decisions because income tax was under Holyrood control.

The pressure on Labour has been intensified by Cameron’s statement after the referendum that he wanted English votes for English laws at Westminster – a demand opposed by Labour, which has traditionally relied on a large number of Scottish MPs to pass legislation.

Last night a source close to the negotiations said the “centre of gravity” of the talks had coalesced around the Tories and Lib Dems income tax plans.

A Labour insider said: “We have been forced to accept it. It’s an SNP/Tory stitch up. If we don’t accept it the Nats will say we are holding back Scotland and the Tories will say we are holding back devolution.

‘‘That’s why we have got no choice.”

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