The Smith Commission has said today Westminster should remain in charge of licensing for all offshore oil and gas extraction but Holyrood could get power to determine onshore oil and gas extraction.
The report said all aspects of the taxation of oil and gas receipts will remain reserved to Westminster.
Holyrood is to be handed new responsibilities over income tax and welfare as part of a deal on devolution drawn up in the aftermath of the Scottish independence referendum.
The Smith Commission, which was set up to examine what further powers could be transferred to Edinburgh, has recommended that the Scottish Parliament should be able to set its own income tax rates, with all of the cash earned staying north of the border.
The commission also backed the devolution of air passenger duty, something the SNP has been campaigning for, and suggested a share of cash raised from VAT be assigned to Holyrood.
The Scottish Parliament should be allowed to create new benefits in areas where it has devolved responsibility, but should also be given the power to make discretionary welfare payments in any other area, while a range of benefits that support older people, carers and the sick and disabled could be fully devolved, the report said.
The commission called for legislation to make Holyrood a permanent feature of the UK’s political set-up, and proposed it be given powers over its own elections, which could pave the way for 16 and 17-year-olds to vote in Scottish Parliament elections after they were allowed to take part in the independence referendum.
Commission chairman Lord Smith of Kelvin said: “Taken together, these new powers will deliver a stronger Parliament, a more accountable Parliament and a more autonomous Parliament.”
Speaking as the commission unveiled its proposals in Edinburgh, he added: “The recommendations, agreed between the parties, will result in the biggest transfer of powers to the Parliament since its establishment.”
Prime Minister David Cameron had announced the establishment of the commission within hours of the result of September’s independence referendum.
The contents are the result of more than a month of cross-party talks with representatives from each of the Scottish Parliament’s five political parties.
While the SNP, Liberal Democrats, Conservatives and Greens all favour the full devolution of income tax, Labour has officially only backed Holyrood having control over some of the tax, with former prime minister Gordon Brown warning that full control would be a “Tory trap”.
Lord Smith said today the agreement was “an unprecedented achievement“ because it had “demanded compromise from all of the parties”.
He said: “In some cases that meant moving to devolve greater powers than they had previously committed to, while for other parties it meant accepting the outcome would fall short of their ultimate ambitions.
“It shows that however difficult, our political leaders can come together, work together and reach agreement with one another. I pay tribute to them for doing just that.”
Lord Smith’s recommendations, known as a Heads of Agreement, will form the basis of draft legislation due to be published by January 25.
The main parties at Westminster have pledged that the legislation will be taken forward regardless of the outcome of the general election in May.
On benefit, the Commission recommended that all aspects of the state pension should remain reserved to Westminster to ensure these remain the same across the UK.
The new Universal Credit should also remain a reserved benefit, to be administered and delivered by the Department for Work and Pensions, it added. Child benefit, statutory maternity pay and statutory sick pay would also remain under UK Government control,
But it suggested attendance allowance, carer’s allowance, disability living allowance and the personal independence payment which will replace it should be devolved, along with industrial injuries disablement allowance, severe disablement allowance, cold weather payments, and winter fuel payments.
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 of the levy would remain reserved to Westminster, including the amount people can earn before they start to pay.
As income tax will still apply across the UK, it should continue to be collected and administered by HM Revenue and Customs, the Commission said.
The Barnett Formula, which sets out how much public cash different parts of the UK receive, will continue as part of the agreement. The Commission recommended that Holyrood be given additional borrowing powers.
It said this was necessary to “reflect the additional economic risks, including volatility of tax revenues, that the Scottish Government will have to manage when further financial responsibilities are devolved”.
The Commission recommended that the management of the Crown Estates economic assets in Scotland and the revenue generated by these should be transferred to Holyrood.
It went on to propose that following this transfer, responsibility could then be given to local authority areas, such as Orkney, Shetland and the Western Isles.
Westminster should remain in charge of licensing for all offshore oil and gas extraction, but Holyrood could get the power to determine onshore oil and gas extraction.
The parties involved in the Smith Commission are also “strongly of the view to recommend the devolution of abortion” as Holyrood already has power over health policy.
The report said that “further serious consideration” should be given to this and a “process should be established immediately to consider the matter further”.
More to follow