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London and Edinburgh butt heads on finance

By Katrine Bussey and Mark McLaughlin

Unionists and nationalists are at loggerheads over devolution again - this time in Scotland.

Although Scots have rejected independence, debate rages on as the two sides clash over the most comprehensive package of powers since the creation of Holyrood.

The Smith Commission, set up hours after the September poll, recommended Holyrood should be able to set its own income tax rates, with all of the cash earned staying north of the border.

But while the agreement states there should be "no restrictions on the thresholds or rates the Scottish Parliament can set" on income tax, it said all other aspects would remain reserved to Westminster, including the amount people can earn before they start to pay the charge.

The commission also backed the devolution of air passenger duty, and suggested a share of cash raised from VAT be assigned to Holyrood. Welfare payments should be devolved, it suggested, along with cold weather payments and winter fuel payments.

But new Scottish First Minister Nicola Sturgeon claimed the package of proposals does not go far enough, leaving "70% of tax in the hands of Westminster".

"That still feels to me in many different respects to be continued rule by Westminster," she said.

"I think it has fallen short of delivering what many people expected."

But David Cameron argued: ''The Scottish Parliament is going to have much more responsibility in terms of spending money but it will also have to be accountable for how it raises taxes to fund that spending, and I think that's a good thing."

The Prime Minister said proposals for English votes will be published "before Christmas'' and that draft clauses for devolution will be before Parliament in January.

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