Coalition hands over powers in bid to neutralise the toxic impact of the tax on the Scottish independence referendum

The UK government has moved to neutralise the impact of the bedroom tax on the Scottish independence referendum by handing powers to the Scottish government that will allow it to mitigate the measure.

The Scotland Office has informed the Scottish government that it will transfer the power to set the cap on discretionary housing payments (DHP) to help people on housing benefit who need extra help. The change will mean the Scottish government will, in effect, be able to end the bedroom tax in Scotland. Holyrood will not receive any extra resources from London and will have to fund any changes from its budget.

The change, which was pushed strongly in London by Nick Clegg, Danny Alexander and Alistair Carmichael, is designed to undermine the claim by the SNP that the bedroom tax can only be ended by taking Scotland out of the UK.

David Mundell, the Tory Scotland Office minister, said: "I believe that transferring this power to the Scottish government is the correct thing to do. The UK government believes in taking a pragmatic approach to devolution and we believe in a United Kingdom that gives Scotland the best of both worlds."

The SNP hailed the announcement as a victory. Linda Fabiani, an SNP member of the Scottish parliament's welfare reform committee, said: "After months of ignoring our requests to lift the cap on discretionary housing payments Westminster has finally listened. This is a victory for those affected by the hated bedroom tax."