An SNP amendment to the Scotland Bill that would give the Scottish Parliament full fiscal autonomy was defeated in a vote in the House of Commons last night by 508 votes to 56.

A Labour amendment that would have set up a commission to analyse FFA was defeated 376 to 192 with Secretary of State for Scotland David Mundell saying he did not need a commission to know that Full Fiscal Autonomy would be a “disaster”. Ian Murray MP suggested that the bill would be a “sobering response to a key manifesto commitment of the Scottish National Party”.

The SNP voted against the amendment claiming that it was proof that Labour thought Scotland “too small, too poor and too stupid for any powers at all”.

After the vote Perth MP Peter Wishart tweeted "The Tories response to improving the Scotland bill and giving Scotland what it voted for is to say No. Labour just say we can't".

The Scotland Bill clauses on devolving income tax were criticised by opposition MPs for not matching up the Smith agreement.

SNP Deputy Leader Stewart Hosie told MPs: "The taxation powers are very limited - even if one includes the VAT assignation, the Scottish Parliament would raise around 50% of devolved expenditure”.

"However, excluding the VAT assignation the figure falls to barely a third. That's important because many of the submissions to the [Scottish Parliament’s] devolution committee called for more.

"It's also important because it doesn't match with what the UK Government said in their command paper, Scotland in the United Kingdom, which claimed, 'as a result of the Smith Commission agreement, the Scottish Parliament will control around 60% of spending in Scotland and retain around 40% of Scottish tax'.

Mundell said the Tory changes would give "unprecedented flexibilities" to the Scottish Parliament on income tax.

He said: "The Scottish Parliament will retain the receipts from income tax that they are responsible for. This represents a significant devolution of powers with Scotland retaining around £11 billion of income tax receipts.

"This accounts for over 90% of income tax receipts collected in Scotland. This gives Scotland greater fiscal autonomy with incentives to increase employment and increase wage growth.

"And I would emphasise to MPs that there are no restrictions on this power. If the Scottish Parliament wants an income tax system with a dozen different rate bands these powers allow them to do that.

"Similarly, to answer issues raised in the debate, if they want to set a zero rate of income tax they can."

MPs also debated the anomaly that sees Police Scotland and the Scottish Fire Service pay VAT, unlike every other police force and fire service in the country.

Speaking during the debate, Central Ayrshire MP, Philippa Whitford argued that £33 million a year could be poured back into frontline services.

David Gauke, the financial secretary to the Treasury said that the Scottish Government knew that the VAT bill would be a consequence of the merger of Scotland’s eighth forces.

Gauke said: "This was a choice of the Scottish Government with their eyes wide open that the VAT refund scheme was not available in the event of that reform.

"There are often many claims, many arguments that are made in respect of the VAT refund schemes that we have and requests that this be broadened and applied to additional organisations.

"That comes with significant fiscal cost.

"There may well be a case for argument's sake that this should be looked at, but I don't think we should look at this in isolation because of a particular decision that was made in one case."

Ian Blackford said that it was now a matter of respect: "We keep hearing about the issue of respect. We all know the reasons why the Scottish Government brought these moves forward - because it creates efficiency” the MP for Skye said, “if there is genuinely this feeling of mutual respect between the government in Scotland and the government in Westminster, all we simply have to do is make sure that we get the VAT back and invest that in front line services."

Welfare will be the main focus of today debate on the Scotland Bill.

Both the SNP and Labour have tabled amendments would give Holyrood greater powers over benefits and employment law than those already in the Bill.

The SNP amendments would see the removal of any clause that could give Westminster a veto over Holyrood’s new powers.

The party also wants Holyrood to be given control over working age benefits, benefits relating to children, and employment support programmes.

And it wants control over National Insurance contributions, employment law and equal opportunities being given to MSPs.

Labour's proposals include giving a final say on benefits rates for the Scottish Parliament, unrestricted power to create new devolved benefits, a power to top up benefits, including in reserved areas, and the full devolution of housing benefit.