What's the Smith Commission report?
Following the Scottish independence referendum in September, the government announced a commission, headed by Lord Smith of Kelvin, into the further devolution of powers to Scotland.
The commission published its recommendations on 27 November, and these will be debated in parliament next year. A bill based on this is expected to be put before parliament after the general election in May.
What did the commission propose?
The biggest changes are fiscal. First, the Scottish parliament will have complete power to set income-tax rates and bands (although Scots will continue paying their dues to HMRC, and National Insurance remains reserved to the UK level). Second, Holyrood will receive the first ten percentage points of VAT receipts (meaning that with VAT at the current 20% level, it will receive half of the total).
Subscribe to MoneyWeek
Subscribe to MoneyWeek today and get your first six magazine issues absolutely FREE
Sign up to Money Morning
Don't miss the latest investment and personal finances news, market analysis, plus money-saving tips with our free twice-daily newsletter
Don't miss the latest investment and personal finances news, market analysis, plus money-saving tips with our free twice-daily newsletter
However, in order to avoid the prospect of destabilising tax competition, corporation tax will remain a UK matter much to the annoyance of the SNP. But, Scotland will at least get the right to set air passenger duty or abolish it altogether, as the SNP has pledged to do.
The new powers mean that the Scottish government will enjoy more fiscal autonomy than any other similar devolved region in Europe a major stepping stone towards potential independence.
What else is on the agenda?
There are changes to benefits. The universal credit, the state pension and child benefit remain UK matters. But Scotland will get control of benefits for carers, disabled and sick people, and the power to vary the housing cost part of the universal credit meaning it can scrap the so-called bedroom tax. The Scottish treasury will also get greater borrowing powers.
And there are symbolic changes, such as recognising in law that the Scottish parliament is permanent, and giving Holyrood control over the Crown estates in Scotland and in Scottish waters. Overall, the presumption is for full devolution, except wherethis undermines the capacityof the British state tomake arrangements for economic security.
Is this enough for the SNP?
No. It is by no means full autonomy: according to figures cited by The Sunday Times, the Smith plan means that Scotland will controlabout 37% of its tax and spend, rather than the 100% sought by the Yes campaign. Or, byThe Economist's sums, the government will collect 60% of its spending, up from 10% now.
So the SNP say that even stronger fiscal powers will need to be on the table if it is to shore up a minority Labour government at Westminster after the May 2015 general election.It seems certain that the Smith framework will not put a stop to the debate about more powers in the future up to and including full independence.
Why is that?
In part because the SNP is on a roll: its membership more than quadrupled in the wake of their referendum defeat-cum-victory. Polls suggest that they could soon become Scotland's biggest party at Westminster.
And they have a popular new leader, Nicola Sturgeon, who may well attract more women and traditional Labour voters to the independence cause. But even more fundamentally, the trends point towards further loosening of the ties that bind the UK together.
What are these trends?
First, there's the increased likelihood of tensions between the UK and Scottish governments over economic and fiscal policies. Second, the devolution of income tax and part-devolution of social security will inevitably weaken the social union among all Britons, which is one of the core arguments against independence.
And lastly, devolution of income will make the West Lothian question the issue of MPs from Scotland, Wales and Northern Ireland voting on matters that only affect England more potentially destabilising than before.
Why will the West Lothian question flare up?
If Scots control their own income tax, letting Scottish MPs vote on tax for the rest of the UK will become an ever more urgent grievance for English MPs. And yet the UK's fiscal policies will continue to play a major role in the Scottish economy, fostering resentment at Holyrood.
So there could hardly be a more difficult moment for the UK to be facing a knife-edge general election in which the Tories and Labour have divergent political interests.
The Tories have made it clear they will campaign for English votes for English laws (EVEL), while Labour faces the prospect of not being able to pass its own UK budget through the House of Commons once tax powers are devolved.
Is low politics wrecking the UK?
Just as Labour's embrace of "ill thought-out" devolution in the 1990s was a "political manoeuvre (now revealed as useless) to save its seats from the advance of the SNP", so the Tories' current support for full income-tax autonomy for Scotland is "merely a cunning plan to neutralise Labour's numerical advantage in Scottish seats", argues Dominic Lawson in The Sunday Times.
But whichever side it comes from, this "toying" with UK sovereignty for political purposes is "contemptible" and will ultimately pull the UK apart. "How incredible it is that the great ship of state that is our Union should have fought off the biggest challenge in its 300 years of existence, only for its supposedly victorious defenders to have immediately driven it onto the rocks."
