Mundell: Scotland will have one of the most powerful devolved parliaments in the world

Mr Mundell said the changes would not be to the detriment of the UK as a whole.

He told MPs: "The clauses published today will make it possible to quickly translate the Smith Commission agreement into law at the beginning of the next parliament.

"The draft clauses provide for an already powerful Scottish Parliament to become further empowered and more accountable to those who elect it.

"As a result, the Scottish Parliament will become one of the most powerful devolved parliaments in the world."

Mr Mundell emphasised that the Government published its command paper and draft clauses ahead of its Burns Night deadline of January 25.

He said: "The biggest transfer of powers to the Scottish Parliament and Scottish ministers since the start of devolution comes with greater flexibility for a Scottish Parliament and Scottish government to manage their own arrangements, with statutory recognition of the enduring place of a Scottish Parliament in the UK's constitutional arrangements.

"Our commitment to the process has already been evidenced by the steps the Government has taken to enable the Scottish Parliament to extend the franchise to 16 and 17-year-olds in time for the 2016 Scottish Parliament elections, with an order now laid before both Parliaments."

Mr Mundell said the Scottish Parliament would have greater financial responsibility while also receiving "extensive new tax powers" without losing the "essential elements" of the UK's unified tax system.

He said new powers would include the ability to set income tax rates and thresholds, noting this was a "powerful redistributive tool".

Mr Mundell said the Scottish government will also design and deliver "key" welfare measures.

MPs heard Scotland will be responsible for a number of benefits, including those for disabled people and carers.

The Government's Universal Credit programme will remain a reserved matter but the Scottish government will have "certain flexibilities" such as the power to vary the housing cost element, Mr Mundell said.

Mr Mundell said it will need to be understood what the Scottish Government intends to do with the new powers before they are implemented.

He added: "The clauses ensure a set of proposals that do not cause detriment to the UK as a whole or any of its constituent parts."

However, home rule campaigners have branded the paper "real missed opportunity".

Ben Thomson, chairman of the Campaign for Scottish Home Rule, said the draft clauses of legislation that have been published by the UK Government were a "compromise that lack a sense of purpose".

UK Government ministers insist the proposals, which come in the wake of the cross-party Smith Commission on further devolution, will see Holyrood become one of the most powerful devolved bodies anywhere in the world.

But as the command paper containing the clauses was unveiled, Mr Thomson said: "The Command Paper will only lead to the Scottish Parliament raising 37.7% of what it spends, which does not mean a financially accountable Holyrood. The announcement that Holyrood will receive 50% percent of VAT collected in Scotland does not increase this either as assignation of revenues doesn't transfer power or real responsibility.

"In addition most of the elements of welfare will remain reserved to Westminster despite many being clearly linked to areas of devolved responsibility, such as housing benefit."

He added: "The real missed opportunity in this Command Paper is that it does not deliver a sustainable proposal based on a set of principles that gives the Scottish Parliament control over domestic policy; in other words, it does not deliver Scottish Home Rule."

Leaders of the Scottish Trades Union Congress (STUC) also said it was "already clear that in key areas such as welfare and capital borrowing, the recommendations will not match the intentions of the Smith Commission proposals".

STUC general secretary Grahame Smith said: "It is unacceptable that the Scottish Parliament should require Westminster approval to create new benefit entitlements in Scotland.

"The current proposals will also seriously hamper the ability of the Scottish Parliament to make different fiscal choices by tying Scotland to UK deficit reduction targets."

He added: "Given that the STUC was underwhelmed by the totality of the Smith Commission proposals, this further watering down of the promise that was made to voters in Scotland is unacceptable.

"The UK Government will present today's publication as significant progress, but the truth is that we are not even at the end of the beginning of progress to meaningful additional devolution."

But CBI director general John Cridland said: "This legislation brings to life the ambitious cross-party consensus of the Smith Commission, giving Scotland new powers while protecting the key tenets of the UK single market, like a unified corporation tax regime."

"The CBI remains committed to engaging on devolution settlements across the UK to help promote growth and jobs in all the regions and nations."

Hugh Aitken the new CBI Scotland director, stated: "Scottish businesses want to see devolution that supports a strong business environment and encourages growth for everyone. Business leaders are pragmatic about these new powers and want to work with both governments on the technical details to make the changes easier to manage."

Darren Hughes, deputy chief executive of the Electoral Reform Society, said the publication from the UK Government "raises more questions than it answers".

He said: "These new powers will have huge implications for the rest of the UK, so this is only going to be the start of the debate about where power should lie.

"It is vital that this debate is not dominated by politicians striking up deals behind closed doors. We won't get a settlement between the nations that commands legitimacy and respect unless it is reached with citizens in the driving seat. That's why we need a UK-wide, citizen-led Constitutional Convention to give ordinary people the power to decide our country's future.

"We saw in the Scottish independence referendum that when you give people a real say in where power should lie, they will turn out in droves. Let's bring that energy to the rest of the UK and open up this important debate so citizens can have their say. It's time for a convention, and all the parties should commit to one."

Jonathan Isaby, chief executive of the TaxPayers' Alliance, said that with more powers being handed to Scotland, there was a "need to ensure that it comes with a fair settlement for the other nations within the United Kingdom - including a serious look at the way funding is allocated".

He welcomed clauses which could lead to the scrapping of Air Passenger Duty north of the border, and argued: "Air Passenger Duty should frankly be abolished, but if devolving the power to set rates to the Scottish Government means there will be much-needed relief north of the border, then hopefully the Treasury will see sense and slash rates everywhere else too.

"Britain's punitive taxes on flights are a massive burden on families looking to take a well-earned holiday and on businesses looking to explore emerging markets. Jobs are also at stake as tourists and business travellers can choose other destinations to visit or invest in where they won't be clobbered by such high rates."