Scotland 'should levy its own income tax'

The Scottish Parliament should be given sweeping new powers to levy income tax in an effort to make it far more accountable to its electors, a major review of devolution concluded yesterday.

The £32bn Westminster block grant to Edinburgh should be slashed, the review said, with the shortfall made up by raised taxes north of the border.

About one-third of taxes could be levied in Scotland under the proposals, most of it through income tax, but also by passing responsibility for other taxes such as stamp duty and air passenger duty to Holyrood.

At the moment, the parliament can raise or lower the basic rate of tax by up to 3p in the pound – a power it has never exercised – but the government-backed Calman commission envisaged going further.

It argued the move would help entrench Scottish devolution within the United Kingdom. The commission also called for other powers, such as control over speed limits and airguns legislation, to be switched from London to Edinburgh.

The report, commissioned to coincide with the 10th anniversary of Scottish devolution, was welcomed by Labour, the Conservatives and the Liberal Democrats. But the Scottish National Party, which runs a minority administration, shunned the review because the case for fully-fledged independence was not included in its remit. The SNP plans to hold a referendum on independence next year.

Sir Kenneth Calman, the commission chairman, said his proposals would give Scotland control of more than 30 per cent of its budget. It would also mean elected politicians in Holyrood would take key decisions on the balance between tax and spending – and on priorities for expenditure.

"No longer when you vote will you just have to consider how it is proposed to spend your money," he said. "Instead, the political leaders will have to tell you how much they want to raise from you, and what that means for the services you will receive." Sir Kenneth said he hoped his proposals could be implemented in less than a decade.

His report declared devolution to have been a "real success", but that it could work better. It said Holyrood should be given the power to borrow for capital spending and raises the possibility of assigning some VAT revenue or a share of fuel duty to Scotland.

In a move to foster links between Edinburgh and Westminster, it recommended the Commons dropped the practice of not discussing devolved issues and suggested MPs stage regular "state of Scotland" debates.

Welcoming the "serious and weighty" findings, Gordon Brown said: "I agree that the way forward for Scotland is stronger devolution within a stronger union – 21st-century devolution for a 21st-century union delivering interdependence rather than independence."

But Alasdair Allan, an SNP member of the Scottish Parliament, said: "The SNP have a clearly defined policy – independence and equality for Scotland – and we are very confident that it will prevail in a referendum when the people have the opportunity to choose. Anything less risks being a messy fudge."