JOHN Swinney last night insisted the SNP government wasn’t bluffing when it said it would rather miss out on new powers for Holyrood than sign up to a “potentially catastrophic” financial deal with Westminster.

Speaking ahead of talks at the Treasury tomorrow, the Finance Secretary said he was ready to leave the Scotland Bill in “a constitutional limbo” if there was no agreement over the accompanying fiscal framework by February 12.

Tomorrow’s showdown with Chief Secretary to the Treasury Greg Hands will be the eighth ministerial meeting on the framework, the set of rules and institutions needed to make the Bill work in practice.

Designed to translate the pre-referendum 'Vow' and Smith Commission on new powers into reality, the Bill would devolve income tax, half of VAT receipts and some welfare powers.

Holyrood’s Devolution Committee has set a deadline for a framework of February 12.

Any later, and MSPs will not have enough time to consider the Bill and its implications before the Scottish Parliament rises on March 23 for the Holyrood election.

However the framework talks are deadlocked, with Edinburgh and London divided on how to adjust Scotland’s block grant to offset Holyrood’s £11bn of tax powers.

Under the SNP’s preferred scenario, known as “per capita indexation”, the grant would be protected if, as is likely, Scotland’s population grew more slowly than the rest of the UK’s.

However the arrangement is seen by some as too generous, and is claimed to disadvantage the rest of the UK.

Under other scenarios being discussed, it would be Scotland that would be disadvantaged, potentially losing hundreds of millions of pounds within a decade.

Swinney said there remained “a long way" to a deal and "major issues to be resolved.”

He said: “The Scottish Government is not asking for any favours. But we do demand a fair deal.

“Unless we can get a deal that adheres to the principles of the Smith Commission, there will be no agreement and the deadline will be missed.

“That would leave the Scotland Bill in limbo and the new powers that are supposed to be being delivered in a constitutional limbo.

“We would be in unchartered territory - and the UK Government would be breaking its promise of more powers.

“Any deal that systematically cuts Scotland's budget would have a potentially catastrophic effect on public services, and no Scottish Government worthy of the name should be prepared to sign up to such a deal."

Labour sources have accused the SNP of privately wanting the talks to fail as it is afraid of having to make unpopular choices with the new powers, and would rather pick a fight over process ahead of the Holyrood elections.

Swinney said such “ill-informed suggestions” could not be further from the truth.

“It speaks volumes about Scottish Labour that their instinct is to attack a Scottish Government in negotiations with a Tory Treasury, rather than joining us in defending Scotland’s national interest.”

If the deadline is missed, talks could yet resume after the election.

A Treasury spokesperson said: “The Government wants a deal that is fair to Scotland and fair to the rest of the UK. We are also committed to a deal that fully delivers the principles of the cross-party Smith agreement.”