LONDON--Scotland should gain new powers to raise taxes, a panel of U.K. lawmakers proposed on Thursday in a further step toward greater autonomy for the nation that only narrowly voted to stay in the U.K. in a September referendum on independence.

The cross-party panel said in a report that the Scottish parliament in Edinburgh should be given control to set and collect all income tax raised in Scotland and gain a share of value-added tax, a nationwide sales tax, to help finance public spending on education, health and other public services.

U.K. Prime Minister David Cameron and the leaders of Britain's other main political parties promised to hand Scotland more power in an effort to woo citizens to vote to stay in the U.K. in the referendum. Scots subsequently rejected independence by a margin of 55% to 45%.

The proposals should go some way to appease Scottish people who have demanded more say over their affairs, though the pro-independence Scottish National Party, said the powers didn't go far enough. It also leaves Mr. Cameron with another thorny problem: how to deliver on a parallel promise he made to appease his own party to deliver more say for English lawmakers over English matters.

The panel, known as the Smith Commission, was set up in the wake of the referendum to bring together negotiators from five political parties to hammer out a deal on further devolution to Scotland. The recommendations are expected to be put into draft legislation in the New Year.

The proposals represent "the biggest transfer of powers" since the creation of the Edinburgh parliament, said Robert Smith, chairman of the commission.

The Scottish parliament was re-established after a near 300-year hiatus in 1999 and controls spending in Scotland on almost three-quarters of government business. U.K.-wide matters such as foreign affairs, defense and welfare remain the responsibility of the U.K. parliament at Westminster in London.

But Scotland's spending powers aren't matched by the ability to raise its own revenue, a fact that has long rankled lawmakers favoring greater autonomy. Instead, the bulk of U.K. taxes, including corporation tax, income tax and North Sea oil and gas receipts, are funneled through London before being doled back to Scotland and other regions of the U.K. The central government also issues U.K. debt.

Alongside its proposals on tax, the commission recommended Scotland be handed new borrowing powers to finance investment in infrastructure and plug unexpected gaps in its budget.

The commission also recommended the Scottish parliament be given limited new powers over welfare spending, although major benefits such as pensions and out-of-work payments will continue to be administered from London.

David Phillips, senior research economist at the nonpartisan Institute for Fiscal Studies, calculated that the proposals will mean the Scottish government controls or administers taxes equivalent to roughly 50% of annual spending, compared with just 13% now. But he added that working out the mechanics of how the new fiscal arrangements between Scotland and the rest of the U.K. will work in practice will be tricky.

"It's feasible, but you need to think very carefully about how it's done, " he said.

Business groups and the U.K.'s main political parties welcomed the commission's proposals. But the Scottish National Party, the largest party in the Edinburgh parliament, said they had wanted to see more. Deputy Leader John Swinney said the SNP will fight next year's U.K.-wide general election on a platform of augmenting the Scottish parliament's powers still further.

"The Westminster parties have now gone as far as they are ever prepared to go in terms of powers for Scotland and it is not as far as they indicated during the referendum. They have drawn their final line in the sand and it is on the wrong side of majority opinion in Scotland," he said.

The promise of further powers for Scotland has reopened old arguments in the U.K. over how its constituent parts--England, Scotland, Wales and Northern Ireland--are governed.

In September, Mr. Cameron made a parallel promise to give English lawmakers a greater say over legislation that affects England to balance devolution in Scotland, Wales and Northern Ireland. That delighted many in his Conservative Party, which draws the bulk of its support from England. But it has proved awkward for the main opposition Labour Party, which relies on Scottish and Welsh lawmakers to govern effectively when it controls the U.K. parliament in London.

Andrew Tyrie, a senior Conservative lawmaker and chairman of parliament's influential treasury committee, Thursday urged the government to act quickly to give English members of parliament full control of English-only matters. "A crucial step must be to address another grievance--that Scottish MPs vote on English laws."

Mr. Cameron on Thursday tweeted that he intends to publish proposals on "English votes for English laws' before Christmas.

Write to Jason Douglas at jason.douglas@wsj.com

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