The Smith Commission report: Let the games begin

Lord Smith of Kelvin has been hailing an "unprecedented" deal between the five political parties represented in the Scottish Parliament. They have made a deal but the politics is yet to come and the heads of agreement published by the Smith Commission this week provide plenty of opportunities for them to fall out again.

The most eye-catching item in the agreement is income tax. The Scottish Parliament will make all decisions in future about income tax other than who pays it. The personal allowance is a reserved matter. Both the Conservatives and the Liberal Democrats at Westminster have plans to raise it. Labour wouldn't do that but would introduce a new starting rate of 10p. Soon the SNP will set out its own position, probably, or it will sit back and watch the others argue. While keeping the personal allowance as a reserved matter in theory might mean that we have a single UK income tax, in practice the agreement is volatile, even on the existing policy positions of the three major Westminster parties, never mind the positions that their leaders or the SNP might want to take over the next few years in Scotland.

The new agreement offers VAT as a new battleground too. The revenue from the first ten percentage points' worth of VAT is to be under the control of the Scottish Parliament; the rest goes to Westminster. If the SNP wants to turn more shoppers into nationalists, the message is obvious: every time you're spending a tenner, 83p of it is an English tax. But they needn't be so blunt. Instead they can pick a fight on what items are exempt of tax and which are not. The Chancellor had to withdraw his plans to charge VAT on hot snacks—the "pasty tax"—after the "Omnishambles" Budget in 2012. Now that VAT is no longer fully reserved to Westminster he will have to contend with criticism of any future proposals in the Scottish Parliament too.

Meanwhile a future Scottish Government has acquired plenty of new ways to differentiate itself from the rest of the UK. It can choose to pay Universal Credit weekly, rather than the monthly schedule envisaged by Ian Duncan Smith, which some charities argue will make it harder for people with very low incomes to manage their spending. There are plans hinted at in the closing pages of the Smith Commission report for the Scottish Government to take a different approach to post-study work for overseas students. We might predict an aggressive move by Scottish universities and colleges to out-compete English institutions which may still be suffering under something like the Conservatives' net migration target. Another possibility is that refugees could be made more welcome in Scotland, offered English language classes or other training and permitted to work while they apply for asylum in the UK. This could be the start of a more distinctive Scottish foreign policy, something that the SNP has been working towards for a long time.

Lord Smith notes carefully in his report that he expects there will need to be better working arrangements between the UK and Scottish Governments in the future. That is certainly correct. He proposes a meeting between the Prime Minister and First Minister in January as a starting point. That will be a fine photo opportunity. Then the games will begin. The SNP has in sight a radically enhanced presence at Westminster by taking Labour and Liberal Democrat seats in May. Then it will work to secure a second overall majority in the Scottish Parliament in 2016. This week's agreement gives them plenty of help in creating a distinctive political strategy. By contrast Team Westminster doesn't have a long-term plan.