The independent watchdog said the planned ballot paper question for 2014 - “Do you agree that Scotland should be an independent country? Yes/No” - was potentially biased in favour of a Yes answer.
Instead, it has called for the plainer wording: “Should Scotland be an independent country? Yes / No” to be used.
Scottish Government Ministers - who had threatened to over-rule the politically impartial Electoral Commission if they disagreed with its suggestion - have already backed the change.
Under the watchdog’s recommendations for running the referendum, published this morning, the pro-independence side will be allowed to outspend narrowly the pro-UK camp.
If approved by Holyrood, the two main campaign groups, Yes Scotland and Better Together, will each be permitted to spend £1.5m in the crucial final four months before polling, when strict electoral rules apply.
That figure is double what wasproposed by the Scottish Government. But in a move that will please SNP ministers, the Electoral Commission have applied a formula for additional party spending based on the parties’ share of the vote at the last Holyrood election.
The limits would allow the SNP to spend £1.344m - more than £500,000 above Labour’s allocation of £834,000. The Tories will be allowed to spend £396,000, the Lib Dems £201,000 and the pro-independence Greens £150,000.
It means that potentially pro-independence parties will be able to spend £1.494m compared with £1.4m for the pro-UK parties, an advantage of £63,000.
Spending by other organisations who register to campaign in the referendum will be capped at £150,000.
The Electoral Commission has been testing the wording of the Government’s proposed question for fairness and clarity since November.
In a statement it said: “We found that the language in the proposed question is clear, simple and easy to understand. However, we also concluded that the words ‘Do you agree’ potentially encouraged people to vote ‘yes’ and should be replaced by more neutral wording.”
The watchdog also called on the Scottish and UK Government to clarify the negotiating process that would follow a Yes vote or any steps that might be taken following a No vote, in a bid to satisfy voters’ desire for “factual information” about the referendum process.
John McCormick, Electoral Commissioner for Scotland, said: “Voters are entitled to a referendum which produces a result they can have confidence in. The recommendations we have made today are an important part of giving voters that confidence. But it is of course for the Scottish Parliament to have the final say.”
Nicola Sturgeon welcomed the Electoral Commission’s calls for clarity around what a ‘No’ vote will mean for Scotland and its recommendation that the Scottish and UK governments work together to give clarity to the process that will follow a 'Yes' vote. She called on the UK government to accept these recommendations.
Ms Sturgeon said: “I would like to thank the Electoral Commission for the work they have done on testing our proposed referendum question and giving advice on campaign spending limits. I am pleased to confirm we will accept their recommendations in full.
“I am particularly delighted with the conclusion the Electoral Commission has reached on the question. While its view is that our proposed question was clear, simple and easy to understand, I am nevertheless happy to accept their recommended change.
“Their advice is based on rigorous testing and we will submit the Electoral Commission’s recommended question – ‘Should Scotland be an independent country?’ – to the Scottish Parliament as part of the Referendum Bill.
“I am also pleased with the spending limits proposed by the Electoral Commission - they deliver a level playing field and will allow a fair and balanced debate on both sides. I am also pleased that the Commission has modified the position set out in their response to our consultation in March, as this would have resulted in an imbalance between the two sides of the campaign.
“We have always said that Scotland’s referendum will be run to the highest international standards of fairness and transparency, and the Electoral Commission plays a vital role in that.
“The Scottish Parliament will take the final decision on the wording of the question and campaign spending limits as part of its consideration of the Referendum Bill which reinforces that this is truly a referendum made in Scotland.
“I also welcome the Electoral Commission calls for both the Scottish and UK Governments to clarify what process will follow the referendum if most voters vote ‘Yes’ or most voters vote ‘No’ vote. The Electoral Commission rightly point out this is in line with the Edinburgh Agreement.
“I have been calling for the UK Government to enter discussions to allow the voters to be better informed, but so far they have refused. This would not be pre-negotiation on the terms of independence but vital information for voters that will allow them to make an informed choice in autumn 2014. Given the Scottish Government is accepting all recommendations from the Electoral Commission I would hope that the UK Government is prepared to do the same.”
Scottish Secretary Michael Moore said the UK Government accepts the commission's advice on the "clarity of the question, the funding levels for the referendum and on the clarity of the process".
But he said: "We are also pleased the commission recognises independence cannot be pre-negotiated and that voters must have a better understanding of the huge changes becoming a separate country would entail.
"We are setting out our evidence-based analysis of Scotland's position in the UK and the Scottish Government must do the same. We have already been setting out our views in public on the issue of the post-referendum process. We will spell out further thoughts on this process in our forthcoming analysis papers, including our first paper, in February.
"Once this has been published we will be happy to discuss our paper with the Scottish Government."
Responding to the Electoral Commission report on the proposed referendum question and campaign financing, Scottish Labour Leader, Johann Lamont MSP, said: “We welcome the Electoral Commission’s findings and will, of course, vote for them to be accepted in full.
“We did not get everything we asked for, but the most important people in this process are the people of Scotland and we believe that in the interests of clarity and certainty all parties should agree to these proposals which have been arrived at independently.
“We also welcome the suggestion that both sides of this debate clarify what will happen after the referendum.
“The Scottish Labour Party plans to set out before autumn 2014 proposals for how devolution can be developed and extended after Scotland has reaffirmed our place in the United Kingdom in the referendum.
“I believe it is only right that we set out the process by which such a development of devolution can be achieved after the referendum in which I am confident Scotland will vote to remain in the UK.
“I hope that the Scottish and UK governments, civic Scotland and all interested parties can at least outline how this can be achieved before we go to the polls.
“The people of Scotland deserve to have as much clarity and certainty in this process as possible.”
The new proposals were immediately backed by Blair Jenkins, head of pro-independence campaign Yes Scotland,.
He said: ‘The report is an excellent step forward. I am very pleased with this question, which officially designates the Yes and No campaigns, and with the proposed funding arrangements
"The Electoral Commission was asked to come forward with proposals for a level financial playing field, taking into account the particular circumstances of Scotland’s political system, and that is exactly what they have done.”
Alistair Darling, leader of the pro-UK Better Together groups also said: "I am pleased that the impartial Electoral Commission has rejected the fixed referendum question which Alex Salmond demanded. They have also rejected the nationalist's attempts to silence their opponents by setting spending limits that would have given them an unfair advantage. The commission’s experts have also said that nationalist attempts to gag business, unions and civil society are wrong.
"I think that once the referee has blown the whistle the players should obey the decision. That is why we said months ago that we would accept the Commission’s recommendations in their entirety.
"Over the past few months, we have called on the nationalists to follow our lead and agree to having the Electoral Commission set the rules. It looks like we have won that argument. Alex Salmond has had to concede that he cannot be both the referee and player in this particular game. This is thanks to the thousands of people who joined our campaign for fair referendum rules.
"Now that the rules have been agreed we can get on with the debate. It is a debate that we intend to win. We are Better Together with our friends, families and workmates from across the UK. It is a message that, I’m sure, the majority of Scots can agree with."