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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