Scottish devolution: IFS warns new recommended tax powers are 'unworkable'

The Institute for Fiscal Studies has warned that many of the new tax powers promised to Scotland, after voters rejected independence in the September referendum are "unworkable."

The IFS added that even if Scotland were able to have greater control over income tax and benefit cap setting, it still wouldn't escape the impact of rising tax south of the border.

"Many difficult issues remain to be addressed," said the IFS in a report.

"It is important to recognise that such compensating transfers will be practical only in a few simple cases - otherwise the system could quickly become unworkable."

"Scottish Government policies can have knock-on effects for UK government revenues or expenditure, and vice versa. The Smith Commission recommends that transfers be made between the governments to compensate for these knock-on effects.

"In principle this seems sensible. But in practice, implementing such a principle would be fraught with practical and political difficulties. The calculations required are inherently difficult, with much room for disagreement over methods and assumptions. This means it would be important to recognise that such compensating transfers would be practical in only a few cases – otherwise the system could quickly become unworkable."

All the mainstream political parties promised that Westminster would grant Scotland enhanced devolution if Scots voted against independence during September's historic referendum.

On 18 September, 55% of Scots voted against independence while 45% wanted to break the union.

A day later, the UK government appointed a panel, led by Lord Smith, to analyse what extra powers Scotland could be given over taxation and social issues, without creating an imbalanced schism within the union.

Cameron confirmed that 'English Votes for English Laws'- the West Lothian question- would be addressed "in tandem with, and at the same pace as, the settlement for Scotland".

After two months of deliberation, the Smith Commission delivered a set of recommendations for Scotland's enhanced powers over taxation.

Lord Smith's report confirmed that the package of powers agreed through the Smith Commission process "would not cause detriment to the UK as a whole nor to any of its constituent parts or cause neither the UK Government nor the Scottish Government to gain or lose financially simply as a consequence of devolving a specific power".