DEVOLVING the ability to vary the rate of VAT in Scotland post-Brexit would disrupt the UK’s internal market and hit shops, restaurants and other businesses, it had been claimed.

The Scottish Retail Consortium (SRC) said it was “far from convinced” there was any merit in the idea, which would see Scotland given greater flexibility over how revenue is raised.

It comes after a report by the think tank Reform Scotland said powers over value-added tax (VAT) should be handed to Holyrood after the UK leaves the EU.

Current EU rules prevent the move, which would see Scotland handed responsibility for 60 per cent of what it spends.

Ewan MacDonald-Russell, head of policy and external affairs for the SRC, said half of VAT revenues are already to be assigned to Holyrood from 2019 – and insisted going any further could prove damaging.

He said: “Furthermore, any move to set a different rate of VAT in Scotland to the rest of the UK would provide a significant challenge to retailers and other firms who endeavour to ensure prices north and south of the border are often the same or in line.

“Such changes would bring disruption to the UK internal market – and it’s far from clear this would be in the interests of consumers, especially if firms sought to better reflect the cost of doing business in Scotland in their pricing decisions.”

Scottish Conservative shadow finance secretary Murdo Fraser MSP said there is a case for devolving VAT after Brexit, but said any such move would have to be widely consulted on.

He said: “Countries such as Canada and the US have devolved sales taxes down to even local level, as it can help fund the services devolved governments provide.

“Devolving VAT to Scotland would mean that Scottish Ministers get the benefit of any increase in economic activity in Scotland and would thereby reap a fiscal reward were their economic policies to prove effective.

“It would be an added incentive to grow our economy, which at present is underperforming compared to the rest of the UK.”