THE prospect of the UK and Scottish governments securing a deal by mid-February to implement new powers for Holyrood looks in jeopardy.

Deputy First Minister John Swinney said following Treasury talks there is “still a significant distance to be travelled” with time running out.

While he said a “Valentine’s Day deal” remained possible, the Deputy First Minister noted: “A lot of ground has been covered but there is still a lot of remaining significant issues to be resolved.”

The principal one is how to reduce the £30 billion annual block grant as new powers are introduced; warnings have been issued that a failure to get the right mechanism could result in Scotland losing hundreds of millions of pounds in the coming years.

Failure to get a deal by mid-February would mean putting the implementation of the new tax and welfare powers for Scotland back a year to April 2018.

It would also create an atmosphere of rancour and recrimination going into the Holyrood elections as the Scottish Parliament would not have been able to give its consent to the new powers deal before the May 5 poll.

A shadow would be cast over the final stages of the Scotland Bill, which sets out the new powers and is still going through the House of Lords; peers have demanded sight of the framework deal before completing the bill’s passage.

Ahead of the seventh meeting of the Joint Exchequer Committee(JEC), UK Government sources were upbeat.

However, emerging from a 90-minute meeting, Mr Swinney said “some further progress” had been made but stressed there was “a long way to go”.

Asked if he was confident a deal could be struck by February 14, he acknowledged the timetable was “tight”.

He explained: “There is an agreement to be reached here but it will take a tremendous commitment, a lot of hard work and good faith to make sure that is delivered consistent with the principles of the Smith Commission report. There is still a significant distance to be travelled…”

Mr Swinney suggested the sticking points included a “a range of issues” and that it was important to work through the details in a comprehensive way.

He made clear that pressure of time would not mean the SNP Government agreeing to a deal it did not wholeheartedly agree with.

“I will only agree a fiscal framework that is consistent with the Smith Commission report and protects the public interests of Scotland,” declared the DFM.

A senior SNP insider underlined the pessimistic mood saying: “For the first time, it’s looking more likely we won’t do a deal than we will.”

It is understood that Mr Swinney and his colleagues were somewhat surprised at the Treasury’s optimistic tone ahead of the meeting, which suggested a potential breakthrough was possible; none, however, was forthcoming.

UK Government sources still remain hopeful a deal soon, suggesting a review of the mechanism for reducing the Scottish Government’s block grant after five or 10 years could be a way of breaking the deadlock.

“A review could help build a little extra trust. It would have to be after quite a lengthy period of time, say the lifetime of a parliament or five or 10 years, as population changes are one of the factors in the calculations.

“But the idea has been mooted and it might be part of the give and take required to get to a handshake,” the source said.

Another added: "Our only aim is to cut a deal. We remain undaunted on that."

At a Holyrood commitee, David Bell, professor of economics at Stirling University, warned none of the mechanisms for adjusting the Scottish Government’s budget was consistent with the Smith agreement on further powers.

The commission agreed that decision by one government should have “no detriment” on the other and that arrangements must be fair to taxpayers on both sides of the border.

Prof Bell, who has analysed the various mechanisms, said there was “huge potential” for disputes between the two governments.