The rejection of a Labour amendment backed by the SNP is a setback for those who hoped that the Scotland Bill pushing through the Smith Commission recommendations on devolution would allow Holyrood to create new benefits and top up existing ones.
Conservative ministers warned that the amendment would prevent the UK Parliament from changing the welfare system itself and questioned whether it would give Holyrood any further freedom to act.
However, the row highlighted the different interpretations of the five-party Smith Commission agreement, laid bare in the former Tory /Lib Dem coalition government.
Before Christmas, the then Lib Dem chief Treasury secretary Danny Alexander said the agreement would allow for top ups of all benefits including pensions.
But a few weeks later, Chancellor George Osborne, who has played a significant role in shaping the current Scotland Bill, said that creating a second “top-up pension” in Scotland would “go against the spirit of the Smith Commission”.
The exchanges on the third day of the committee stage of the bill came amid a row over the refusal by Tory ministers to accept any amendments in the committee stage and a warning from SNP Scottish affairs select committee chairman Pete Wishart that changes should not be carried out in the “unelected” House of Lords.
SNP Deputy First Minister John Swinney has written to Conservative Scottish Secretary David Mundell repeating concerns raised by Edinburgh East MP Tommy Sheppard about the refusal to accept changes to the bill.
He asked for “reassurance” that the purpose of his continued talks with Mr Mundell is “to consider seriously and act on these views”.
North Ayrshire and Arran MP Patrica Gibson claimed that the effect of the bill would be to turn Mr Mundell into a “colossal governor general” for Scotland.
Pushing his amendment to allow Holyrood freedom to create new benefits and top up existing ones, Labour shadow Scottish secretary Ian Murray said: “New clause 31 is a provision that allows the Scottish Parliament to top up any reserved benefit in the United Kingdom and create any benefit in devolved areas.
“So there would be an ability to create a system that allowed you to mitigate the reduction in tax credits.”
Mr Murray said that Labour’s amendments would implement the recommendations of the cross-party Smith Commission in spirit and in substance.
He said: “This wide-ranging power effectively gives the Scottish Parliament the power to design their own welfare system.
“However unlike others, we are determined to ensure the welfare state remains an integrated UK-wide system of social security to allow for the continued pooling and sharing of risks and pooling and sharing of resources.”
Backing Mr Murray’s amendment, SNP work and pensions spokeswoman Eilidh Whiteford said that the UK government needed to “live up to the spirit and letter of the Smith Commission”.
She said: “We’ve seen repeatedly how people, the most vulnerable people in our communities, are falling foul of that sanctions regime.”
But employment minister Priti Patel insisted that the government agreed with the principle of the Smith Commission on welfare but claimed the bill combined with previous Scotland Acts delivers it. She said: “Undermining the social security reservation in this way would limit the freedom of the UK Parliament in relation to introduction of new benefits and making changes to existing benefits.”
Later Mr Mundell tried to reassure the House that he intended to make changes to the bill in conjunction with talks with Mr Swinney.
However, he said: “It speaks volumes that no SNP MP has brought an amendment to devolve pensions.”
He said that this meant there was “a clear consensus” that pensions are best pooled and shared across the UK.