Answering questions from the Commons Treasury select committee on the future devolution of financial powers to Scotland, the chancellor said non-devolved aspects of income tax law, which make up the bulk of legislation, would be voted on by all UK MPs, but elements that referred only to England and Wales should be decided only by English and Welsh MPs.
The Smith commission, which drew up plans for further devolution of powers to Scotland, said Scottish MPs should be allowed to vote on UK budget issues, which include income tax.
Osborne said: “I take the words … in the Smith report as applying to the things that are to do with the elements of income tax that are going to remain UK-wide … Smith did not have a remit to talk about the constitutional arrangements of the rest of the UK or the House of Commons.”
He said the “English votes for English laws” proposals would be published before the general election, and the proposals “will have to apply on areas connected with the budget”.
Referring to talk of a possible Labour-SNP coalition government after the election, Osborne said: “There’s going to be a lot of hard negotiation on things like the fiscal framework and I think it would be very unfair to the whole United Kingdom if we had a chancellor of the exchequer who was beholden on Scottish nationalist votes in the next parliament.
“I think that would not be fair for the rest of the United Kingdom and I think those who aspire to hold this office should make it very clear before the election that they would not be beholden on Scottish nationalist votes.”
He said that although Scotland should be protected from the negative consequences of decisions made on a UK-wide basis, there would be no protection from the negative consequences of devolved decision making.
“Scotland would live with the consequences of having imposed a punitive rate of income tax, so if it imposed a punitive rate of income tax and as a result people left Scotland … part of the concept of further devolution is that Scotland would live with the consequences of that action, would take responsibility for that action,” he said.
Osborne said he agreed with Lord Smith, author of the Smith report, that it was inconceivable that a UK government would allow a devolved Scottish government to go bust because of overborrowing. “The UK stands behind its citizens wherever they live,” he said.
Stewart Hosie, the SNP deputy leader and a member of the Treasury select committee, said it was incredible that the chancellor wanted to “ban Scottish MPs voting on parts of the entire UK budget simply because of the incomplete devolution of income tax rates and bands”.
He said: “Until income tax is devolved in full, and with it responsibility for savings and investment income, it is illogical and wrong for the chancellor to carve Scottish MPs out. The admission from George Osborne today is the strongest argument for full fiscal devolution with home rule, allowing Scotland full responsibility for growing the economy, and not this halfway house which offers minimal economic powers while resulting in a loss of voting rights.”
guardian.co.uk © Guardian News and Media Limited 2010