Experts unite to attack full devolution of income tax

Devolution of income tax to ­Holyrood is regarded as the crunch issue in the cross-party deliberations of the Smith Commission, which is due to report next Thursday.

Handing all or almost all power over income tax to the Scottish Parliament has been backed by the SNP, the Scottish Conservatives and Liberal Democrats but not by Labour. Gordon Brown, the former Prime ­Minister, has warned handing over complete control would lead to a ban on Scottish MPs voting on Treasury matters at Westminster and result in the ultimate break-up of the UK.

The study, published today by the Centre For Macroeconomics, found 85 per cent of the experts disagreed with the notion that the economic ­benefits of devolving full income tax powers outweighed the costs.

Professor Christopher Martin, from Bath University, said: "Devolution of power over income tax would undermine the nation state." Professor Tim Besley of the London School Of Economics said it was "best to keep income tax, VAT and corporate taxes in the hands of the national [UK] government".

Some experts felt devolving all income tax would require extensive borrowing powers, which raised the question of what would happen in a crisis. Professor Michael Wickens from York University warned the build-up of debt might be such that Scotland "may well be forced to seek a bailout from the rest of the UK".

Of the few respondents who believed the benefits of full devolution of income tax outweighed the costs, Professor Andrew Mountford, from Royal Holloway, London University, nonetheless made clear there would need to be safeguards to prevent a "race to the bottom competition, which will leave each country worse off".

On English votes for English laws, known as Evel, half of the experts polled disagreed there was a clear economic case for it, while 33 per cent agreed.

Dr Angus Armstrong from the National Institute For Economic And Social Research noted that if the same powers were devolved to an English chamber as those proposed for Scotland, then the "UK Government would lose control over one-third of its tax base", which, he warned, would "change the value of the claim of gilt holders".

The poll of expert views comes after Prime Minister David Cameron made clear to MPs the Government would meet the terms of the vow on more powers for Scotland "in full", stressing: "I'm very confident of that."

Mr Cameron said he hoped and expected the Commission proposals on extensive new powers would form the basis of the draft legislation due in January.

On Evel, Mr Cameron yesterday told the Commons Liaison Committee, made up of senior MPs, that while he wanted progress on English devolution at a "similar timescale" to that on Scottish devolution, one was not dependent on the other. He said he would set out a "clear plan" early next year.

There was some confusion after the evidence session because the PM appeared to agree with the contention that English MPs alone should have the final say on England-only legislation, ie Scots MPs should not have a veto. "That's the effect we want to achieve," declared Mr Cameron.

It later emerged he actually favours "McKay Plus", whereby English MPs take part in the final amending stage of a bill, Report Stage, but that all UK MPs would vote at the very last stage, Third Reading. Yet this would still, theoretically, enable Scots MPs to help kill England-only legislation. During his appearance before the committee the Prime Minister:

l Ruled out changes to the Barnett Formula, saying its importance would lessen over time as Scotland got more tax powers.

l Signalled he was open to devolving aspects of welfare, such as housing benefit and even Universal Credit, but insisted the state pension was a symbol of British "solidarity" and should remain UK-wide.

l Hinted a decision to devolve Corporation Tax to Northern Ireland could be announced in next month's Autumn Statement.

Despite Mr Cameron's insistence any reform of the Barnett Formula was "not on the horizon", during a later Commons debate Tory MPs maintained that changes were needed to be fair to England.

Tory backbencher ­Dominic Raab said giving greater fiscal ­devolution to Scotland would mean that "subsidising" the devolved administrations through the formula would become "utterly untenable".

Angus Robertson, for the SNP, stated that Scots expected "early and ­substantial change" on further devolution to ­Holyrood, stressing it had to be delivered "without any conditions".