SENIOR Scottish Labour figures are putting the party under fresh pressure to revise its devolution proposals by calling for Holyrood to be given full control over income tax.

The influential group, which includes high-profile Labour figures, says in a manifesto published to coincide with the start of the Smith Commission talks, it would allow a Scottish Government to create a more progressive tax regime.

The trade unionists, academics and Labour left-wingers, known as the Red Paper Collective, also argue Holyrood should have greater freedom to borrow and gain powers to create publicly owned businesses.

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The call stands as a direct challenge to Labour's cautious plan to increase Holyrood's control over income tax.

The party has entered Lord Smith of Kelvin's devolution process offering to hand Holyrood control over three-quarters of basic rate income tax, with an additional power to raise but not lower the top rate.

The Conservatives and Liberal Democrats want to give control of all rates and bands to the Scottish Parliament.

In a separate development, two respected economists warned the party's plans were among the "least desirable" of those on the table in terms of placing a genuine responsibility on Holyrood to grow the economy.

In a submission to the Commission, Professor Ronald MacDonald, of Glasgow University, and Professor Paul Hallwood, of the University of Connecticut, said only the plans of the Conservatives, LibDems and Greens were "hard enough to be given serious consideration".

They ruled out the SNP's devo max proposal, highlighting the risk to Scotland's finances posed by falling oil revenues and warning the arrangement would shatter the UK's "welfare union".

The Red Paper Collective publishes its views on further devolution today in a document called The Case for Progressive Federalism.

The group says the Barnett formula, the mechanism which allocates Scotland a higher-than-average level of public spending, should be reformed to reflect financial needs around the UK.

It calls for Holyrood to be able to create publicly owned companies to help rebuild Scotland's industrial base, in sectors such as renewable energy.

It says the parliament should have the power to nationalise land and firms "to safeguard jobs and industries", or allow workers to take over companies up for sale and convert them into co-operatives.

The group also argues the government should have a greater voice in the EU, on devolved issues, and should be able to challenge the deployment of nuclear weapons on the Clyde. Across the UK, it says regional assemblies should be established in England to counterbalance the "ever increasing" power of London.

Writing in The Herald today, Red Paper Collective member Pauline Bryan says: "We welcome the commitment to more powers for the Scottish Parliament, but stress that what is important is not the powers themselves but how they are used ."

The collective's supporters include party chairman Jackson Cullinane and fellow trade unionists Dave Watson and Richard Leonard, both members of Labour's Scottish Executive Committee.

It adds to the pressure on leader Johann Lamont to back a more radical devolution settlement.

New grouping Labour for Scotland has already called for the party to go further on handing tax, welfare and employment powers to Holyrood.

l The Labour member who angered many in his party by founding a pro-independence grouping during the referendum campaign has joined the Scottish Socialists and will speak at their conference in Edinburgh this weekend. Allan Grogan had argued strongly that support for independence need not be inconsistent with Labour Party membership, but colleagues accused him of disloyalty and of playing into the hands of the SNP.