Why has Labour endorsed the Smith Commission’s proposals for 'devo-more' given the huge implications for the party?

They have already suffered a slump in support in Scotland, but breaking the devolution 'vow' may have played into the SNP's hands

“We won the war but managed to lose the peace,” one senior Labour MP said today. Labour’s collective sigh of relief when Scots voted against independence in the September referendum must have been one of the most short-lived sighs in history.

Barely an hour after the result, David Cameron announced that the “vow” by the three main Westminster parties for further devolution for Scotland, would mean “English votes for English laws” – with Scottish MPs losing their right to vote for legislation affecting England only.

Today’s proposals from the cross-party Smith Commission, on implementing the “devo-more” pledge, give Mr Cameron another bite at the cherry. He will unveil plans for “English votes for English laws” before Christmas. They will have huge implications for Labour. As the Holyrood Parliament gets control of income tax rates and bands, as all the parties now agree, the Conservatives will argue, Scottish MPs should not vote on income tax changes at Westminster.

For this raises the nightmare prospect for the party of a Labour Chancellor unable to get their own Budget approved by the Commons. Labour won 41 of the 59 Scottish seats at the 2010 general election.

So Labour initially opposed Conservative and Liberal Democrat proposals for control of income tax to be devolved to the Edinburgh parliament. Gordon Brown saw the move as a “Tory trap” because of the potential knock-on effect at Westminster.

Why, then, has Labour endorsed the Smith Commission’s proposal for Holyrood to set income tax rates and bands? The Scottish political landscape has changed dramatically since the referendum. The losers, the Scottish National Party, are on a roll, retaining many of the Labour supporters they recruited to the independence cause. SNP support has soared to between 43 and 52 per cent, while Labour has slumped to 26 to 28 per cent. If repeated at next May’s general election, Labour could be left with a handful of seats north of the border, wrecking Ed Miliband’s chances of becoming prime minister.

Yet if Labour had rejected devolving income tax to Scotland, the SNP would have accused it of breaking the “vow” by the three Westminster party leaders, potentially driving even more Labour supporters into the SNP’s arms.

So despite the doubts of Mr Brown; Alistair Darling, the former Chancellor and Ed Balls, the shadow Chancellor, Mr Miliband chose the lesser of two evils and backed the transfer of income tax powers. “We could not afford to be the blocker,” one Labour insider admitted.

In public, Labour denies its significant U-turn was prompted by self-interest – and its own general election prospects. Labour insists it is recognising the will of the Scottish people, who voted for more power but to remain within the UK.

Labour will argue that preventing Scottish MPs voting on income tax in the Commons would lead to two classes of MP and ultimately put the Union at risk, as it could result in “two prime ministers” north and south of the border.

Time will tell whether the Smith Commission’s step towards a federal system will save the Union or destroy it.

When a reluctant Tony Blair was persuaded to set up the Scottish Parliament in 1999, he was advised that it would kill demands for full independence forever. Those who hope the Smith Commission’s proposals will end the independence debate will be disappointed too. The No vote in September was not the end of the matter, only the end of the beginning.