GEORGE Osborne has threatened a constitutional crisis by making clear the Tories would seek to play the English card if they won power in May and ban all Scottish MPs from voting on parts of the UK Budget.

Ahead of Prime Minister David Cameron's first expected visit of the year to Scotland tomorrow as the UK Government publishes the draft Bill on more powers for Holyrood, the Chancellor issued a further warning of constitutional unrest, stressing it would be "very unfair" if, following the General Election, the SNP held the balance of power and that, consequently, England was "beholden" in the Budget to Nationalist votes.

But his remarks sparked angry responses from the SNP, which branded them incredible and illogical, and from Labour, which claimed they were petty and divisive.

Mr Osborne's intervention foreshadows the Conservatives' announcement, due soon, on English Votes for English Laws(Evel) when the governing party is expected to opt for the strongest of several options; banning Scottish MPs from voting on so-called England-only legislation to ensure English and not UK MPs have the final say on such matters.

Appearing before the Commons Treasury Committee, the Chancellor made clear the restrictions implied by Evel would "have to apply on areas connected with the Budget".

He went on: "As a result of this further devolution we need to have a settlement that is fair to the rest of the United Kingdom as well and, that as part of that, MPs from England and Wales should be able to vote exclusively on matters that affect England and Wales...that's the principle I hold to."

After it was pointed out the Smith Commission had stressed all MPs should vote on the UK Budget, Mr Osborne said he took the words in its report as applying to the "things that are to do with the elements of income tax that are going to remain UK-wide; Smith did not have a remit to talk about the constitutional arrangements of the rest of the UK or the House of Commons".

The Chancellor then moved onto the possibility that the SNP might hold the balance of power after the election and prop up a minority Labour Government.

"It would be very unfair to the whole UK if we had a Chancellor of the Exchequer, who was beholden on Scottish Nationalist votes in the next parliament."

In response, Ed Balls rounded on Mr Osborne for his proposed ban on Scottish MPs, accusing him of adopting "short-term, divisive petty politics".

The Shadow Chancellor added: "The Smith Commission sets a way forward and it makes it clear it is a UK income tax system within which there is some important devolution for Scotland and it would be for all MPs to vote for the UK tax system."

Stewart Hosie, the deputy SNP leader, also upbraided the Chancellor, saying it was "incredible" he wanted to ban Scottish MPs from voting on parts of the Budget because of the proposed partial devolution of income tax.

"Until income tax is devolved in full and with it responsibility for savings and investment income, it is illogical and wrong for the Chancellor to carve Scottish MPs out," declared the Dundee MP, stressing that Mr Osborne's position made the case for full fiscal devolution.

Meantime, the Chancellor also told the committee the basic principle of granting Holyrood extra powers meant there should be "no fiscal gain or fiscal loss to either Scotland or the rest of the UK on further devolution" and "you have to live with the consequences of your decisions once that devolution has taken place".

Asked if he agreed with the Commission that it would be inconceivable that the UK Government would allow the Scottish Government to go bust because it had over-borrowed, Mr Osborne replied: "Yes...The UK stands behind its citizens wherever they live...Of course, we would not allow Scotland to go bust."

*The Westminster Order to devolve votes for 16 and 17-year-olds to Holyrood has been introduced.