Smith Commission announces new Parliament powers

The publication of Lord Smith of Kelvins report was hailed by the pro-UK parties. Picture: Getty

• Holyrood to be given control over income tax

• Scotland given power over air passenger duty (APD)

• Parliament will be given share of VAT revenues

• Powers to create benefits in devolved areas

• Westminster’s right to dissolve Scottish Parliament to be removed

• MSPs to have control over elections paving way for vote for 16/17 year-olds

Control over income tax bands and rates was at the heart of the proposals outlined yesterday by the Smith Commission, which was set up to deliver the “vow” of more powers after the referendumNo vote.

The publication of Lord Smith of Kelvin’s report was hailed by the pro-UK parties as a historic moment that would make Holyrood more powerful and accountable, while securing Scotland’s place in the UK. But within hours of Lord Smith’s document being signed off by Scotland’s main political parties, including the SNP, a row erupted when Nicola Sturgeon said she was “disappointed” by the proposals.

The First Minister claimed the new powers did not go far enough and fell short of the pre-referendum vow made by Labour, the Conservatives and Liberal Democrats.

The Smith report has far-reaching implications for UK politics, with Prime Minister David Cameron signalling that the new Holyrood powers could deprive Scottish MPs of some Westminster votes as part of his drive for English votes for English laws.

• Joyce McMillan: Sweeping powers? Give us a break

Once implemented, the proposals would make Scotland responsible for around £20 billion of taxes plus £2.5bn of welfare payments.

The report was the result of ten weeks of intensive negotiations between representatives of Labour, the Conservatives, the Lib Dems, the SNP and the Greens under the chairmanship of Lord Smith.

Launching his report at the National Museum of Scotland in Edinburgh, Lord Smith said the more powers deal was “historic, because all five parties were at the table and managed to come up with one answer, which is unprecedented”.

He expressed his hope it would “create a Scotland which is even stronger and even better”.

The new powers, which are expected to come fully into force in 2019-20, will see the devolution of income tax bands and rates. But control over the level of the personal allowance will remain at Westminster.

• Key points: Smith Commission powers to Scottish Parliament

Receipts raised in Scotland by the first 10 percentage points of VAT will be assigned to the Scottish Government’s budget – the equivalent of half of the levy which currently has a rate of 20 per cent.

Holyrood would have increased borrowing powers, to be agreed with the UK government, to support capital investment and ensure budgetary stability.

Long-standing calls for the devolution of Air Passenger Duty were listened to and accepted. Also to be devolved will be the aggregate levy imposed on the exploitation of stone, sand and gravel.

The commission recommended that management of the Crown Estates’ economic assets in Scotland and the revenue they generate should be transferred to Holyrood. The responsibility could then be passed on to local authority areas, such as Orkney, Shetland and the Western Isles.

Westminster would remain in charge of licensing all offshore oil and gas extraction. But Holyrood could get the power to determine onshore oil and gas extraction – giving MSPs the ability to take decisions on fracking.

The parties involved in the commission were also “strongly of the view to recommend the devolution of abortion” as Holyrood already has power over health policy.

On welfare, the commission recommended that all aspects of the state pension should remain reserved to Westminster to ensure these remain the same across the UK.

• Leader: Smith steers UK towards decentralisation

The new merged Universal Credit (UC) should also remain a reserved benefit, to be administered and delivered by the Department for Work and Pensions. But there should be the flexibility for the Scottish Government to control some aspects of it, including housing benefit – allowing Holyrood to scrap the “bedroom tax”. Child benefit, statutory maternity pay and statutory sick pay would remain under UK government control, but attendance allowance, carer’s allowance, disability living allowance and the personal independence payment which will replace it should be devolved, along with industrial injuries disablement allowance, severe disablement allowance, cold weather and winter fuel payments.

Holyrood would also have the power to make discretionary benefits payments in devolved areas, and power over the Work Programme.

Powers to give 16- and 17-year-olds the vote are to be handed over in time for the 2016 Scottish election.

The Scottish Government will have power to allow public sector operators to bid for rail franchises funded and specified by Scottish ministers.

Increased Scottish spending will come from Scottish tax, but the Barnett Formula funding mechanism will continue to determine Scotland’s remaining block grant.

Last night, the Tories, Labour and the Lib Dems claimed the changes meant that Scotland would become responsible for raising 62 per cent of its own resources.

That figure was disputed by the Scottish Government, which claimed a more accurate figure was 48 per cent, claiming that a larger figure should be used to estimate Scotland’s overall budget.

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At First Minister’s Questions yesterday, Ms Sturgeon said she was “disappointed” by the package describing it as “continued Westminster rule”.

She also warned that their delivery may be hampered by “sabre-rattling” at Westminster over proposals for English MPs to vote on English laws.

At the behest of Labour, a clause was inserted into the report in an attempt to head off Tory attempts to deny Scottish MPs Westminster votes.

But Mr Cameron later signalled that would not halt his plans for English votes for English laws.

The Prime Minister said: “I’m delighted with what’s been announced. We are keeping our promises and we are keeping our United Kingdom together.

“I always said that a No vote did not mean no change. Indeed, we made a vow of further devolution for Scotland and today we show how we are keeping that vow and we will continue to keep that promise.

“The Scottish Parliament is going to have much more responsibility in terms of spending money but it will also have to be accountable for how it raises taxes to fund that spending and I think that’s a good thing.

“I think what this report will do is achieve a better deal in our United Kingdom.”

ANALYSIS

John McLaren: This is no quick fix. Get ready for the long haul

The Smith Commission’s brokered agreement over new powers for the Scottish Parliament is just the first, quick step in what may turn out to be a much longer journey.

It will be interesting to gauge the public’s reaction. So far there is a lack of transparency on what rationale has been used to choose particular powers The omission of North Sea-related taxes may perplex some. There are some valid reasons for this – like volatility – but they need to be explained.

Then there’s the question of how arguments for and against the transfer of powers might change. Only last week David Cameron said that corporation tax is likely to be devolved to Northern Ireland, which may lead to pressure within Scotland to revisit the deal. Finally, revising the Barnett formula remains unfinished business between the two governments.

While scope for further negotiation remains, does the settlement deliver in terms of its intended goals – to increase accountability; to devolve powers over who pays taxes; and to devolve powers to allow for faster economic growth and rising tax revenues?

On accountability, the agreement significantly raises the degree to which the Scottish government raises the money that it then spends on public services.

On distribution, income tax affects who pays tax as it is the largest single tax and has variable rates that apply at different levels of income. The downside is that raising its tax rates has been difficult for political parties for some time, which is why existing powers to vary it in Scotland have never been used.

On growing taxes over time, corporation tax and the higher rate of income tax are important measures. The former has not been devolved but the latter has. So the Scottish Government cannot offer a lower rate of corporation tax to attract companies, but it can attract high earners via a lower income tax rate.

This, however, would clash with the aims of any redistributive tax policy based on raising the amount of tax that wealthier citizens pay.

Because of these trade-offs, picking the right policies to satisfy different goals may prove to be challenging.

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