Glenn Campbell
BBC Scotland Political Correspondent

What if there is no deal before the election?

Standby for a big election row, with the SNP and Conservatives blaming each other for the failure and Labour blaming them both.

The Tories will be accused of trying to short-change Scotland. The SNP will be accused of running scared of additional responsibility.

Image source, Thinkstock

The deputy first minister, John Swinney, has foreshadowed this scenario by announcing his intention to publish "all the key papers" from the fiscal framework talks.

Who would have thought a fiscal framework could cause so much fuss?

Labour MSP Duncan McNeil asks when the first minister and the prime minister will come together this week to hammer out a deal.

Mr Swinney says: "Discussions will be pursued to try do do that." 

Mr Swinney says he and the first minister will make themselves available for any discussions that will result in a deal.

Lib Dem MSP and Smith Commission member Tavish Scott asks about discussions between Nicola Sturgeon and David Cameron.

Mr Swinney says there has been a discussion on the fiscal framework between the first minister and the prime minister around ten days ago.

He says he met with the chancellor and the chief secretary of the treasury last Friday and by spoke by phone with both yesterday.

SNP MSP Stewart Maxwell asks if the per capita index adjustment model would require adjustments to be fair to the rest of the UK.

The deputy first minister says the question of fairness is answered by the test of fairness that the Smith Commission applied, that Scotland would be no better or worse off due to the devolution of further powers.

• Borrowing - The fiscal framework will determine the extent of the Scottish government's borrowing powers.
• Costs - Setting up and running a devolved welfare system is not without cost. Agreeing exactly how much is needed for this and who pays what is part of the negotiation.
• Scrutiny - As Holyrood's financial clout increases, so does the element of risk involved in managing devolved public finances. As a result, a system of independent scrutiny needs to be agreed, to make sure ministers get their sums right. There is a debate about whether the fiscal commission created by the Scottish government is up to the job.

Mr Swinney says there has been a great deal of progress in the negotiations, apart from on the block grant adjustment.

Image source, PA

 "I do not believe I have the right to negotiate away what was set out by my colleagues in the Smith Commission." 

Labour MSP Malcolm Chisholm agrees with Mr Swinney that anything but per capita indexation would erode Barnett and not deliver Smith. 

Image source, bbc

 The deputy first minister says Mr Chisholm is right to link this back to the Barnett formula.   

Glenn Campbell
BBC Scotland Political Correspondent

How to adjust Holyrood's block grant from the Treasury to take into account the new tax and spending responsibilities - that's the biggie!

The more money raised directly in Scotland, the less the devolved government needs from UK resources (which include Scottish contributions).

So, when Holyrood's tax powers grow, its grant from the Treasury is cut accordingly.

Image source, JohnDWilliams

This is achieved by tweaking the Barnett formula, which determines Scotland's share of UK spending.

That's relatively straightforward in the first year. The amount of tax that's expected to be generated in Scotland is deducted from the block grant.

For future years, a system of indexation is needed to reflect changing economic circumstances.

Finding indexation arrangements that both sides are happy with is easier said than done.

The deputy first minister says his estimate, as a result of UK government's position, is Scotland would be looking at a reduction of £2bn over a 10 year period as a result of the devolution of these powers.

On all other issues the governments are in a position of agreement, with the exception on the block grant adjustment says Mr Swinney.

Mr Swinney says fundamentally the governments are not in agreement that the principle of no detriment means that the Scottish budget should in no way be subject to a systematic deduction. 

There are three main options:

1. Indexed deduction - the cut to the Scottish block grant is adjusted by the percentage change in income tax revenues in the rest of the UK
2. Per capita indexed deduction - a version of indexed deduction that protects Scotland from the effects of having slower population growth than the rest of the UK
3. Levels adjustment - the cut to the Scottish block grant is adjusted by Scotland's population share of any change in cash raised in income tax in the rest of the UK

Image source, Thinkstock

It is understood the UK government favours a form of levels adjustment, while the Scottish government prefers per capita indexed deduction.

Academics disagree about which model would produce the "fairest" outcome.

Articles by Prof Jim Gallagher, external and Prof Anton Muscatelli, external give a flavour of the debate.

Mr Swinney is outlining his preference for per capita indexed deduction.

Don't worry, a wee explainer of the indexation options will be provided shortly!

Glenn Campbell
BBC Scotland Political Correspondent

Holyrood is due to take on new tax and welfare powers when the Scotland Bill 2016 becomes law.

The bill includes the extra devolution recommended by the Smith Commission, external after the 'No' vote in the independence referendum.

The financial arrangements underpinning these new powers are what is known as the fiscal framework.  

If the UK and Scottish governments can't reach agreement, SNP ministers have made clear they will use their Holyrood majority to block the Scotland Bill.

The framework will help determine the amount of money the Scottish government receives from the Treasury in future years.

No wonder they're haggling. The Scottish government has an interest in maximising its share of UK resources. The Treasury has an interest in minimising it.

Formally, both governments are committed to achieving a deal that is fair to both Scotland and the rest of the UK.

Glenn Campbell
BBC Scotland Political Correspondent

The Smith Commission included an important principle - that there should be "no detriment" to either side.

In other words, neither the Scottish nor UK government should be worse off financially as a result of the devolution of extra powers.

There are two parts to this. "No detriment" as a result of the decision to devolve a power and "no detriment" for either government as a knock on effect of the policy decisions made by the other.

Researchers for the Institute for Fiscal Studies concluded that this was impossible to achieve, external.

It hasn't stopped the Treasury and the Scottish government trying to find a solution.

The deputy first minister says there is still no agreement on the adjustment of the block grant for new tax powers.

Mr Swinney says the principle of "no detriment" means that if tax policy remains the same then the Scottish budget should be no worse off.

He says per capita index reduction is the way forward.

The UK government does not agree and all there proposals are detrimental, says Mr Swinney. 

Finance Secretary John Swinney says he appreciates the "forbearance and patience" of the committee.

Mr Swinney says he remains fully committed to reaching a deal.

He says there has been significant progress on issues. 

Mr Crawford says the committee has been very patient so far waiting for an agreement on the fiscal framework.

The committee convener says the lack of time for scrutiny is "far from ideal".

Devolution Committee convener Bruce Crawford gets us underway, introducing John Swinney and his team.