BREXIT has removed a major obstacle to devolving VAT to Holyrood, according to a non-party think-tank.

In a report called Unfinished Business, published yesterday, Reform Scotland said the Calman and Smith commissions had both discussed the move, which was also supported by the Scottish Tories.

However, it was prohibited by European law, which prevented any variation in sales tax within an EU member state.

Brexit means this can now be done, and Reform Scotland has called on Chancellor Sajid Javid to “heed the word” of his Scottish colleagues and devolve VAT to Holyrood.

The think tank said the Scotland Act 2016 allowed for the first 10p of the standard rate of VAT receipts and the first 2.5p of the reduced rate in Scotland to be assigned to the Scottish Government, from 2019-20.

According to the latest Scottish Government spending figures, it said VAT is the second-largest source of tax revenue in Scotland (raising £11.2 billion) and third-largest across the UK (£132.6bn).

The Scottish and UK Governments have been trying to develop a methodology to estimate VAT incurred on goods and services consumed in Scotland compared with other parts of the UK. Reform Scotland said the Treasury’s summary document estimated the revenue from the assigned element of VAT attributed to Scotland in 2018-19 at £5.6bn.

In its submission to the Smith Commission, the Scottish Conservative Party said: “Were it not illegal under EU law, we would have been inclined to recommend that VAT be devolved to the Scottish Parliament.”

Reform Scotland director Chris Deerin said: “Holyrood is hugely reliant on a single tax – income tax – which accounts for almost two-thirds of its devolved revenue, compared to only one-quarter for the UK as a whole. As both the Calman and Smith Commissions noted, countries benefit from broader tax bases, and a broader tax toolkit, and our departure from the EU now provides the opportunity to reduce Holyrood’s dependence on income tax to less than 40%. This would be much more sustainable.

“The SNP would, we presume, support this, and the Scottish Conservatives are also supportive, unless their policy has changed since the Smith Commission.

“So we now call on the Scottish Conservatives to use their influence with Sajid Javid to secure the devolution of VAT in the Budget of March 11, and complete the unfinished business of Calman and Smith. This would introduce a new era of flexibility, accountability and competitiveness to Holyrood.”

Adam Tomkins, the Scottish Tories’ shadow constitution secretary, admitted they supported all the recommendations of the Smith Commission, but added: “There is no case for reopening the devolution settlement to go beyond Smith, not least when the SNP are still handing back powers – over welfare and other matters – that the UK, following Smith, has sought to devolve.”

A Scottish Government spokesperson said: “The Scottish Government has long argued that devolving VAT revenues without devolving powers over VAT or the full powers we need to stimulate the economy was insufficient. By becoming an independent country, Scotland can take the decisions we need, to improve our economy and invest in public services.”