The Scotland Bill should be halted until the governments in Westminster and Holyrood sort out the finances that will underpin the new powers, according to an influential House of Lords committee.

Peers slammed the delay in revealing the details of the new fiscal framework, claiming that “undue haste” and lack of “attention to detail or principles” in pushing the Scotland Bill through parliament had made it impossible to scrutinise adequately.

Both Nicola Sturgeon and John Swinney have made it clear that they will reject the Scotland Bill if the financial agreement risks negatively affecting Scotland’s economy.

In the report, titled A Fracturing Union? the Lords said the lack of framework had meant MPs did not give the bill the proper scrutiny when it went through the Commons.

All that is known so far is that Holyrood will have control over rates and bands of income tax, and some other taxes. The government will also receive about half of VAT revenues raised in Scotland.

Scotland will continue to receive a block grant from Westminster. This block grant will be based on the original Barnett formula minus the Scottish tax revenues Westminster will no longer receive.

The committee said it was not currently clear what level of economic risk the Scottish Government was taking on alongside its devolved income tax revenues.

Lord Hollick, the committee chair said: “The Scotland Bill has the potential to fundamentally change the UK and impact on us all. It is crucial that what is proposed is stable and sustainable. Parliament is being asked to pass the Bill before we are told full details about the fiscal arrangements that will underpin this new era of devolution.

“We are calling on the progress of the Bill to be halted until the details are agreed and published.

“That would at least allow Peers the opportunity that MPs were denied of scrutinising and amending this important legislation.”

The peers recommend the end to the ‘no bail out’ rule, and called for a proper explanation and investigation into the impact of proposals to devolve almost all income tax revenue to Scotland.

They also called for the “outdated” Barnett Formula to be replaced and said the no-detriment principle agreed by the Smith Commission was “unworkable and will simply create ongoing disputes.”

Deputy First Minister and finance secretary John Swinney rejected some of the Lords proposals but agreed it was vital the fiscal framework was seen soon and said there had been a “growing chorus of concerns about the proposed financial agreement underpinning the Scotland Bill.”

“While we don’t agree with many of the Lords’ conclusions, we do agree that the fiscal framework is essential to delivering the Smith Commission proposals.”

Swinney continued: “Of course, the key vote that matters will not be in the unelected House of Lords – it will be in the Scottish Parliament.

“We have made it clear we will only support a Legislative Consent Motion on the Scotland Bill if there is a satisfactory and fair fiscal framework agreed between the Scottish and UK Governments – we will never sell the people of Scotland short.”

A UK Government spokesman said the report was “an important contribution to the debate on devolution”.

“Fiscal framework discussions have been constructive and focused on securing a fair and workable fiscal framework which delivers the cross-party Smith Agreement,” he said

“Both governments have agreed not to comment until an agreement is reached. Delivering Smith and retaining the Barnett Formula was a clear manifesto commitment for the government. The framework will be based on the principles set out in the Smith Agreement.”

The report from the committee follows a warning from former Treasury adviser and Glasgow University principal Anton Muscatelli that the fiscal framework could cost Scotland hundreds of millions of pounds if the “correct decisions” were not made.

Writing in The Herald, Prof Muscatelli said that Scotland’s block grant should not be eroded by inflation and warned that if deductions are simply linked to the size of Scotland’s population its budget will be worse off.

He said: “This means that, even if Scotland matched UK economic performance and grew its tax revenues by the same rate as the rest of the UK, the amount deducted from the block grant would always be larger than revenues collected from tax.

“Even within three or four years, the Scottish budget could be hundreds of millions of pounds lower as a result, and this loss would grow.

“Funding for public services would be cut, not as a result of changes in economic performance or policy but simply as a result of the new funding formula, which no-one in the Smith process intended.”

Economist Jim Cuthbert told The National that it was “quite inconceivable that things could get so far with so little public consideration of the details of the fiscal framework,” and that the decision on the fiscal framework would be the “second most important decision Scotland would take in 300 years, second only to the referendum.”

The Committee's recommendations

  • Barnett Formula should be replaced with “needs-based funding formula.”
  • Scrap “no-detriment” policy that ensures Scotland won’t lose out financially, because it is “unworkable and a recipe for continuing conflict”.
  • Scrap proposals for a “no bailout” as it would not be believed by markets. UK and Scottish Governments should agree borrowing rules and maximum ceiling on Scottish Government debt.
  • Greater transparency and scrutiny of how funding is allocated to devolved nations.
  • Chairs of the Finance Committees of the Westminster and devolved Parliaments should meet regularly
  • A “pause” in Scotland Bill’s passage through parliament “until these key issues are addressed”.