Plans to devolve support for unemployed people north of the Border have collapsed leaving the Smith Agreement on more powers for Holyrood in tatters, according to the head of Scotland's charities' body.

Martin Sime, the chief executive of the Scottish Council for Voluntary Organisations (SCVO), today warns that employability is "a bad deal gone sour" after the chancellor cut more than 80 per cent of the expected funding for the work.

Help for people to find work was one of the remits to be devolved according to the findings of the Smith Commission and subsequent deal.

The settlement gave Scottish ministers responsibility for employability services and support. However, the recent UK Government spending review included a huge cut in the amount any future Holyrood administration can expect to receive.

Mr Sime, writing in today's Herald, said the plan to transfer responsibility for employability support to the Scottish Parliament had been "dealt a mortal blow"

He said that in combination with Westminster's determination to maintain the widely criticised sanctions regime for those deemed in breach of job-seeking agreements, the diminished budget fatally undermines the ability of Scotland to do things differently.

"The UK Government will continue to hold all the cards. Its punitive approach will continue to damage some of our most vulnerable citizens."

"In short, the employability deal brokered by the Smith Commission looks to have collapsed," he added.

In the expectation of greater powers to help the unemployed find and keep work, the SNP Government has already consulted on what an alternative to the UK's controversial Work Programme might look like.

Charities have been among those engaged in discussions about how the system could be simplified and made more efficient while also maintaining dignity for unemployed people. They also want them to be approached in a more holistic way to tackle the barriers keeping them from employment.

A community jobs scheme run by charities has also boasted success rates at least on a par with the companies signed up to deliver the UK Government's Work Programme.

However, the Scottish Government has accused the UK Government of cutting 87 per cent of the budget in the spending review.

The Scvo says that an expected £100 million budget has been cut to just £7m by 2017, when the Holyrood administration is due to gain control of employability.

Mr Sime added: "The UK Government's flagship work programme was seen to be failing and had become deeply unpopular in Scotland, not least because it was run by private sector behemoths trying to make profits of the backs of the unemployed. The not too difficult challenge was to design something better... much good work was underway.

"Without anything like enough funding, it will be impossible for a new Scottish offer for unemployed people to become a reality," he said.

John Downie, the Scvo's head of policy added that Finance Secretary John Swinney should refuse to accept the fiscal framework he is currently negotiating unless the employability budget was revisited.

"As well as flying in the face of the Smith agreement, the Chancellor's behaviour is a clear breach of the no detriment principle," he said. "What the people in Scotland are now left with is beyond insulting.

"The Scottish Government should refuse to sign up to the fiscal framework until Scotland's citizens get what they were promised in good faith under the Smith Commission."

Roseanna Cunningham, Cabinet Secretary for Fair Work, Training and Skills said: “A £45 million cut to the 2017 devolved employability budget equates to 87 per cent from the anticipated allocation and is a devastating blow, entirely against the Smith Commission recommendations.

“Just as Scotland gains more powers to better support people into work, we now face the challenge of dealing with a threat to our ability to deliver services that are fit for a fair and modern Scotland.”

A Department for Work and Pensions spokesman said: “The Scotland Bill will devolve powers over contracted employment support such as that currently delivered through the Work Programme and Work Choice to the Scottish Parliament on expiry of current commercial arrangements. It will therefore be for the Scottish Government to decide what future contracted employment support is provided.

“The changes to employment support funding which are planned are a small proportion of the approximately £600m a year spent by the Scottish Government and its agencies on employment support.”