The Smith Commission has today published its final report containing proposals for further devolution to the Scottish Parliament. These represent heads of agreement between the five main parties in Holyrood, taking into account the numerous submissions by civic society and the general public.

The main recommendations in the Smith report cover finances, social justice and the constitution:

  • regarding income tax:
  1. devolving full power over rates and thresholds;
  2. keeping the tax-free personal allowance reserved, along with the taxation of savings and dividend income; and
  3. emphasising that income tax will remain a shared tax across the Scottish and UK Parliaments, including Scottish MPs continuing to vote on the UK’s Budget.
  • keeping corporation tax, capital gains tax, inheritance tax and national insurance contributions all as reserved matters;
  • devolving air passenger duty and, ultimately, the aggregates levy;
  • assigning Scottish revenues of the first ten percentage points of the standard rate of VAT to Holyrood’s budget (equivalent to 50% of current VAT receipts);
  • devolving management and revenue generated from the Crown Estate in Scotland (including the seabed, urban assets, rural estates, mineral rights, fishing rights and the foreshore) to the Scottish Parliament and ultimately to relevant local authorities;
  • devolving onshore oil and gas licensing, but keeping offshore oil and gas licensing reserved;
    *devolving mineral access rights for underground onshore extraction of oil and gas (such as fracking);
Social Justice
  • retaining control of Universal Credit at Westminster, but devolving aspects such as the frequency of payments and the under-occupancy charge;
  • devolving other welfare powers:
  1. benefits for carers, disabled people and those who are ill, including attendance allowance and carers’ allowance;
  2. benefits which currently comprise the regulated social fund, such as cold weather payments; and
  3. discretionary housing payments.
  • giving the Scottish Parliament the ability to create new benefits and make discretionary welfare payments;
  • devolving the Work Programme;
  • devolving powers over all tribunals, except for immigration appeals and proscribed organisation appeals;
  • devolving responsibility for rail franchise bids by public sector operators (effectively allowing the re-nationalisation of railways);
  • devolving most powers in relation to Scottish Parliament and local elections, including the ability to broaden the franchise to 16 and 17 year olds – although use of these powers would require the support of a two-thirds majority in the Scottish Parliament;
  • implementing UK legislation to state that the Scottish Parliament and Scottish Government are permanent institutions, as well as creating a statutory basis for the Sewel Convention;
  • maintaining the Barnett Formula and making adjustments to the block grant for any savings or additional costs as a result of newly devolved powers; and
  • increasing capacity for borrowing by the Scottish Parliament (building on the powers already due to come into effect in April 2015), which will need to be agreed between the two Governments.

Whilst these heads of agreement are a major stepping stone in the process of Scottish devolution – following on from ‘The Vow’ made by the three main Westminster party leaders in the closing weeks of the referendum for greater financial, welfare and taxation powers – they remain recommendations at this stage.

According to the timetable committed to by the UK Government, these proposals will result in the publication of draft clauses by 25 January for a new bill.  However, this new legislation is not expected to be passed until after the UK general election in May 2015.

We will be posting a fuller bulletin discussing the detail of these proposed new powers and analysing the potential implications for business.