The Commission on Scottish Devolution, chaired by Sir �Kenneth Calman, Chancellor of Glasgow University, has always been a rather unlikely political hybrid.

The Commission on Scottish Devolution, chaired by Sir Kenneth Calman, Chancellor of Glasgow University, has always been a rather unlikely political hybrid. With the constituent parts of the Labour, Conservative and LibDem parties sharing a pro-Union agenda, the committee, convened in response to the SNP's National Conversation on constitutional reform, was always likely to approach its task with caution. That is the hallmark of the interim report, published yesterday, which found that the relationship between the Scottish and UK governments needs to change, but was cautious about how that should happen. In particular, with regard to its specific remit to look at improving the financial accountability of the Scottish Parliament, the commission has ruled out full fiscal autonomy for Scotland as inconsistent with the Union.

If devolution is a process rather than a settled state, how smoothly it proceeds will depend on developing a new fiscal relationship between the governments at Westminster and Holyrood that is regarded as mutually advantageous. That would be a daunting task at any time, but as the country moves inexorably into recession and the various political parties get to grips with the effects of having administrations of different political hues north and south of the border, the challenge to find a solution that ensures long-term good governance becomes acute.

The current funding arrangement, by which the Scottish Government receives a block grant from Westminster, has become the focus for much English irritation with devolution. The amount of the grant, determined by the Barnett formula, which includes weighting for geographical area and sparsity of population, has led to jibes of English taxpayers subsidising Scotland. Suggestions for reform include assignment of tax revenues raised in Scotland and the devolution of further tax-raising powers. With the commission having the backing of the Labour government and the issue of accountability for Scottish spending already raised by the Prime Minister, a new mix of funding mechanisms seems likely. As the commission notes, the precise mix will be determined by the sort of union Scotland forms with the rest of the UK, an indication that the detail will involve political as well as economic calculations.

In identifying broadcasting, energy policy, animal health and movement, firearms and the misuse of drugs and marine planning as areas for further consideration, the commission reflects the clear appetite in Scotland for further devolution of powers to Holyrood. While these matters can be seen as domestic in Scottish terms, they also have a tricky interface between policy and politics, most contentiously in the area of energy, where policy on future nuclear generation is determined at Westminster but practicalities of planning are decided in Scotland. It is one example of the scope of the task before the commission if they are to produce a set of recommendations next year.

Calman acknowledges that the success of devolution has been "loud and clear from the evidence so far". It is equally evident from all recent polls of public opinion that there is a genuine demand for further powers to be devolved. The question is how. A more transparent funding system should be the first step in moving the governance of Scotland from being entirely dependent on the beneficence of Westminster towards a more equal partnership of responsibility.