SNP MPs bid for £9billion national insurance boost for Holyrood

Control of the levy, paid by employees and employers, will be part of the package of "priority devolution" the Nationalists have called for on top of powers set out by the Smith Commission last year.

Details of the SNP plan were confirmed as it emerged 20 Conservative backbenchers met Chris Grayling, the new Commons Leader, in private earlier this week to discuss their concerns about the impact on the Union of the Nationalist landslide.

Some backed giving Scotland full fiscal autonomy, the devo max set-up the SNP appears keen to delay after warnings it would leave a £7.6bn black hole in Scotland's finances.

David Cameron is expected to journey to Scotland at the end of this week for talks with Nicola Sturgeon to discuss giving Holyrood more powers.

It is believed he will argue that implementing Smith Commission proposals remains the right approach for the time being.

The £8.7bn revenue raised in Scotland from National Insurance would fund welfare programmes the SNP also want to be devolved as a matter of urgency. However, the Scottish Government may not raise as much, as the Nationalists also support "targeted reductions" in employers' National Insurance contributions to help firms create jobs and extend of the living wage.

One leading economist believes there are potential advantages to the move, though it would raise "tricky administrative issues".

However Professor Adam Tomkins, who represented the Conservatives in the cross-party Smith Commission talks on further powers, said devolving NI contributions would remove a shared UK resource Scots had backed during the referendum.

The SNP says its election victory has given it a mandate to seek new responsibilities for Holyrood in addition to the tax, welfare and borrowing powers due to be devolved following the Smith Commission.

Ms Sturgeon will make the case for additional powers in dialogue between the Scottish and UK governments.

At Westminster, the party's 56 MPs will seek to amend a new Scotland Bill with proposals the new Scottish Secretary David Mundell has promised to consider.

In their manifesto, the Nationalists outlined a programme of "priority devolution" as a stepping stone towards full fiscal autonomy.

Details of the priority devolution package were thrown into confusion during the election campaign amid claims by opposition parties the SNP would seek early control over state pensions, which have a historic link to NI contributions.

Ms Sturgeon appeared to drop the demand for devolution of NI contributions but her spokesman yesterday confirmed it would be an early priority.

He added: "We're not explicitly prioritising early devolution of pensions - as this package is more focused on issues like getting greater welfare powers, such as powers over the sanctions and penalties regime within the welfare system, that we argued for within Smith."

He said devolution of National Insurance contributions was part of a "job-creating, revenue-boosting" list that also includes greater responsibility for welfare, control over corporation tax and aspects of employment legislation, including the minimum wage.

In report before the election, David Phillips, an economist with the Institute for Fiscal Studies think tank, said devolving NI seemed a "natural next step" after the Smith Commission decision to hand Holyrood control over income tax.

But he said the notional link between NI contributions "could involve some tricky administrative issues. Who would pay for the pensions of people who had worked in England and retired to Scotland, for instance?"

Professor Tomkins said the UK Government should not rule out going beyond the Smith recommendations when it considers a new Scotland Bill.

But he added: "What better example is there of pooling and sharing resources across the UK?

"Wouldn't it be the case, were we to devolve National Insurance contributions, that we would be unpicking the pooling and sharing of resources that two million Scots voted to preserve in the referendum?"

Senior Conservative MP Bernard Jenkin declined to comments on the backbenchers' meeting, stressing it was private, but said: "Of course, we must honour the Smith Commission and Barnett Formula commitments that were given in the referendum.

"This is part of what is the devolution process. But we do need to look further ahead and define what the final destination for devolution for the whole of the UK should be; so there's a final settlement.

"That would include a final agreement on what powers are devolved for the four parts of the UK and what mechanism should be used in distributing resources to the four parts of the UK."

Graham Brady, chairman of the 1922 backbench committee, who was also said to be at the meeting, said he too could not discuss it.

But the Cheshire MP said: "The most likely stable long-term solution is some kind of federal outcome. It has quite a lot of support; from the Scottish Conservatives as well I have heard."