The author of Scotland’s new devolution settlement has said that Holyrood’s new tax powers could be derailed if an agreement is not reached quickly.

John Swinney and the UK Treasury are currently in deadlock over the fiscal framework deal, with senior Scottish Government sources confirming earlier this month that no significant progress had been made in the latest round of talks.

Lord Smith of Kelvin, who drew up the blueprints for the new powers, has now urged the two Government to come to an agreement.

He told The Times: “My sense is that the people of Scotland want both the UK and Scottish governments to work together constructively. These talks are a big test of those inter-governmental relationships, which is why it is vital they are resolved.

“The new powers set out in the Scotland Bill will lead to a transformation of the powers held by Holyrood and it would be a terrible shame if they were to fall away at this late stage.”

The Scotland Bill, which is currently going through Westminster, will give Holyrood the power to set income tax rates and bands from April 2017., keep half of all VAT receipts, top up welfare benefits and create new payments. However, it cannot proceed until an agreement is on the fiscal framework has been reached.

The original February 12 deadline for the fiscal framework deal has now been extended to February 23.

The UK Government yesterday offered Scotland a £4.5bn compensation deal in a bid to break the deadlock. However, the offer was rebuffed by Nicola Sturgeon who said it ‘would leave Scotland £3bn out of pocket’.

A spokesman for the First Minister said the offer was not serious and was unacceptable.

He added: “We remain ready and willing to do a deal but that depends on sticking to the Smith Commission’s ‘no detriment’ principle. The Tory Treasury is now looking increasingly isolated in their interpretation of what no detriment means.”

Professor Alan Trench, a leading constitutional expert, told The Times that failure to reach an agreement before Holyrood is dissolved for the elections could lead to a constitutional crisis.

He said: “There would be grave questions about the viability and legitimacy of the Scotland Act if it reached the statute book before the consent of the Scottish parliament was secured.”

Edinburgh has said that it does not want to use a mechanism that “embeds systemic cuts” to Scotland’s revenue, but London insists “no detriment does not mean no risk”. There have been three options on the table.

The first – the per capita indexed deduction – is favoured by Mr Swinney as he believes it protects Scotland’s revenue in light of its projected slower population growth.

The third – levels deduction – is favoured by the UK Treasury as it means if the UK population rises, then the UK would benefit fully from the increased revenue. But Mr Swinney says this would put Scotland at a £7bn disadvantage in the coming decade.

A middle option – indexed deduction – has been proposed as a compromise by the Treasury but Mr Swinney believes this would still leave Scotland £3bn short.

Earlier this week, the Commons Scottish Affairs Committee endorsed Mr Swinney’s preference for the per capita option but suggested it could be tweaked with an “additional adjustment” to ensure fairness.

In the next 24 hours or so, the Deputy First Minister is expected to offer a new proposal to break the deadlock.