Proposals for Scotland to have greater independence over billions of pounds worth of benefits were personally vetoed by Iain Duncan Smith in the final stages of cross-party talks.
The work and pensions secretary made a last-minute intervention during the Smith commission talks in Edinburgh, ordering Tory negotiators to block moves to allow Holyrood to change significant elements of his new universal credit benefits system.
The UK cabinet raised concerns on Tuesday about some of the most ambitious proposals discussed during the Smith talks, including allowing Scotland to vary key parts of the housing elements of universal credit, which was eventually accepted.
But proposals to allow Holyrood to vary the personal allowance, child benefit, childcare costs and work allowances parts of universal credit were vetoed by Duncan Smith and senior officials in the Department of Work and Pensions on Wednesday, the final day of talks, because they feared it would make the already complex and heavily delayed universal credit system even more difficult to introduce.
Sources close to the other parties in the Smith talks, including the SNP, told the Guardian that these practical concerns were behind the DWP veto rather than any hardline unionist attempt to block greater devolution.
But publicly John Swinney, the Scottish deputy first minister who led the SNP’s negotiating team, has repeatedly complained that the Smith deal could have given Scotland “a great deal more flexibility”.
It is understood that the Lib Dems, which initially pushed the proposals, agreed that changing the personal allowance element of universal credit, seen as the new benefit’s main building block, would be too difficult.
The vetoed powers would have been on top of the measures announced on Thursday to give Holyrood control over nearly £11bn worth of income tax in Scotland and other benefits such as attendance allowance and winter fuel payments worth another £2.5bn.
Other sources said Labour and Lib Dem negotiators had to press the Scottish government and the Tories into accepting another key concession late on Wednesday, to allow Holyrood to introduce and pay for wholly new benefits – a measure Labour argues will allow Scottish ministers freedom to improve the welfare system.
A Scottish Tory spokesman said the original proposals threatened to undermine the integrity of universal credit, and the Smith proposals had to be “durable and practical. In our judgment, the final proposal, to keep universal credit with flexibilities in the housing element, met that test. It was the right way forward.”
Prominent Scottish charities and the Scottish TUC have criticised the scope of the Smith commission deal. Graeme Smith, general secretary of the STUC, said the final package was underwhelming and fell short of the UK parties’ vow during the independence referendum to greatly increase Scotland’s powers.
“The power to create additional welfare provision is certainly to be welcomed, as is the devolution of the work programme. However, in sum total there is not enough to empower the Scottish parliament to tackle inequality in Scotland,” he said on Thursday.
Ed Miliband, the Labour leader, and Willie Rennie, the Scottish Lib Dem leader, accused the SNP of bad faith by deliberately misrepresenting the significance of the Smith agreement. In a speech in Glasgow to party activists and MSPs, Miliband said the Smith package was proof that the pre-referendum vow had been “signed, sealed and delivered” by the pro-UK parties, by making a “radical transfer of powers” to Holyrood that could be used to create a more equal Scotland.
Pledging that Labour would very quickly implement the new powers if it wins the 2015 general election, Miliband said: “Nobody can possibly say this is not a significant transfer of power. And in case anyone is still in any doubt about the scale of the changes, we have gone from a situation where 10% of the money spent by the Scottish parliament is funded by Scottish tax, to over 60%. The changes announced yesterday represent a huge change in the way the United Kingdom will be governed.”
Rennie said the final Smith deal allowed Holyrood to design a distinctive welfare system – a “bold” step for the UK parties to make. “I am sure John Swinney would have condemned us if we had not have explored wider changes. So we are damned if we do and damned if we don’t,” he said.
“But what the SNP refuse to accept is that the cross-party deal on welfare is bigger and better than any unionist party was proposing at first. The SNP will always rubbish anything short of independence, so this is wholly predictable.”
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