Gordon Brown is prepared to bow to growing political pressure from Scotland and give the Holyrood Parliament in Edinburgh increased tax-raising powers to increase its accountability, strengthen the Union and counter the rise of the SNP.

The Prime Minister, who within the next few weeks is facing an absolutely crucial by-election in Glenrothes which could go some way to deciding his own political future, made the unexpected and dramatic move in a speech to businessmen in Glasgow.

Mr Brown, arguing that devolution in Scotland had worked, added, however, in what will be seen as a massive political U-turn for him that there was now a “problem” and devolution had to be “developed”.

He said: “While there have been good reasons why this is so, the Scottish Parliament is wholly accountable for the budget it spends but not for the size of its budget. And that budget is not linked to the success of the Scottish economy.”

Until now, Mr Brown has, publicly at least, been against giving Holyrood any tax powers beyond its present ability to increase or lower the basic rate of income tax by three pence in the pound, a power never used.

Scotland, he has always maintained, was better served within a unified UK tax and benefits structure with an annual block grant being given to Holyrood by the Treasury. Last year in an interview just before the Scottish Parliament election, which the SNP won, he rubbished the case for more financial powers.

His words tonight, however, will change the political terrain in Scotland. He rejected the notion of “unthinking opposition” to more tax powers and appeared to agree that the devolved Parliament has to have more control over the Scottish economy and be more accountable for raising the £30 billion it spends annually.

Mr Brown told his audience that while he would do nothing to put the economic union of the UK at risk, that should not be confused with “unthinking opposition to change and development in how our union governs itself”.

He added: “The constitution of the Union has always evolved to meet the changing needs and rising hopes of our people as it did most notably when we created the Scottish Parliament 10 years ago.

“Be under no illusion about my purpose. Devolution is intended to preserve the unity of the United Kingdom — and developing devolution is intended to strengthen Scotland's place within it.”

This major change of direction by Mr Brown puts Labour in the same camp as the Scotish Liberal Democrats and some Scottish Conservatives in seeing increased tax powers as the way to head off the independence bandwagon.

The Calman Commission, set up earlier this year by the three Unionist parties at Holyrood — Labour, the Lib Dems and the Tories and under the chairmanship of Sir Kenneth Calman, the former chief medical officer of health — is currently examining the powers of the Scottish Parliament.

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