Legislative plans for devolution of tax, welfare and other powers to Scotland set out

The power to set income tax rates and air passenger duty will be devolved to MSPs under the plans, together with new qualified borrowing powers and greater control over a range of welfare benefits. Scottish ministers will also obtain control over the licensing of 'fracking' or other onshore oil and gas extraction in Scotland.

Other powers to tackle fuel poverty, impose obligations on energy suppliers to address carbon emissions, and enable public sector operators to bid for rail franchises are also outlined in the draft legislation (134-page / 1.05MB PDF). Powers to restrict the number of fixed odds betting terminals in Scottish betting shops will also be handed to Scottish ministers, under the plans.

Changes to rules on the operation of employment, tax and information rights tribunals could also follow as a result of the proposed devolution of powers relating to Scottish tribunals.

Alastair Ross, director of public policy at Pinsent Masons, the law firm behind Out-Law.com, said: "Today’s announcement will be welcomed by the business community if these devolved powers are ultimately used in the economic as well as social interests of the country. There is a real opportunity to use these powers to drive growth and deliver an ambitious vision for a prosperous Scotland."

"The additional layer of operational complexity that arises for businesses acting under different legislative frameworks within the UK will need to be mitigated by a focus on delivering the right conditions for employers to create jobs and wealth here, however in broad terms the increased detail surrounding Scotland’s future will be welcome," he said.

The proposed legislation has been published following recommendations made by Lord Smith of Kelvin in a report issued in November last year. Lord Smith's report was the result of a process announced by prime minister David Cameron the day after Scotland voted not to become an independent country in September 2014.

The UK government had committed to laying out legislative proposals to implement Lord Smith's recommendations prior to Burns Night on 25 January 2015.

UK prime minister David Cameron said: "The leaders of the other main political parties and I promised extensive new powers for the Scottish Parliament – a vow – with a clear process and timetable. And now, here we have it: new powers for Scotland, built to last, securing our united future."

However, first minister for Scotland, Nicola Sturgeon, said the UK government had imposed "restrictions on the recommended devolved powers" in its draft legislation. She specifically cited the proposals on welfare, benefit entitlements and on borrowing powers as falling short of what Lord Smith had recommended.

"In these crucial areas the clauses set out today appear to be a significant watering down of what was promised by the Smith Commission and need an urgent rethink by the UK government," Sturgeon said.