The Scottish Government will "consider" income tax rises to fill a hole in its budget left by George Osborne's latest round of cuts, Scotland's Deputy First Minister John Swinney has said following a face-to-face meeting with the Chancellor.
The SNP's Mr Swinney, in charge of managing the economy in Holyrood, also told Mr Osborne that he lacks the authority to impose more austerity north of the border after voters "emphatically and decisively" rejected his economic plan.
The Chancellor last week announced the Scottish government would lose £177m amid a further £3bn of savings.
However, it emerged today during a Whitehall summit that the figure had been reduced to £107m as a result of a re-calculation of the Barnett Formula that gives additional funding to Scotland.
Mr Swinney's comments, made after leaving an hour-long meeting with the Chancellor at the Treasury, underline the strained relationship between Westminster and the Scottish parliament, with the SNP emboldened by winning 56 out of 59 seats in Scotland at the general election.
The stand-off comes amid the first major row in the Commons over devolution during the second reading of the Scotland Bill, the proposed legislation to deliver the powers promised in the aftermath of the independence referendum.
Speaking to journalists outside the Treasury, Mr Swinney was asked whether he would rule out raising taxes when handed the power to do so next year.
He said: "The Scottish government will have to use the tax powers next year as they are required to sustain public expenditure within Scotland.
"What we will consider – and I stress the word consider – is how we can best take forward the investment in our public services given the fact we have had a further reduction in the budget than we expected from the Chancellor within this financial year.
"We'll consider all these questions as we prepare our budgets for forthcoming years."
The remarks pave the way to blame Westminster if taxes are put up.
But Mr Swinney appeared cautious about a hike when arguing limits to the powers – raising one tax band would involve raising them all - means such a move would mean hitting basic rate taxpayers who are "suffering because of the Tory cuts".
Asked whether he would raise income tax, John Swinney said: "We'll consider all these questions as we prepare our budgets for forthcoming years."
Last week, Mr Osborne told the Commons it is time for Holyrood "put up or shut up", meaning it should use the tax-raising powers next year if it wants to invest in public services.
The point was re-iterated in a statement tonight.
"If the Scottish Government want to increase spending they can increase Scottish taxes, without increasing UK borrowing overall,” said Greg Hands, Chief Secretary to the Treasury, who also attended the meeting.
Mr Swinney said while the meeting was conducted in "business-like fashion" he made clear to Mr Osborne the Conservatives "do not have the authority of the people of Scotland to take forward those changes".
He added the party's share of the vote in Scotland was at its lowest in a Westminster election since 1825.
He said: "Scotland decisively and emphatically rejected austerity and that message has been set out to the Chancellor today. It was set out very clearly from the electorate on May 7.
"It is important the Chancellor acknowledges and accepts the fact that people in Scotland voted decisively and very differently from the rest of the UK.
"As part of exercising his responsibilities across the UK he should take that into account in his budget and spending review decisions."
Mr Swinney added that to be presented a figure "different from the one set out initially" was not "an acceptable way to operate".
The meeting, in the diary for months, was ostensibly to discuss the framework under which the Scottish Parliament will manage its new tax and spending powers.
Chief Secretary to the Treasury Mr Hands said the aim is to finalise the new deal by the autumn as the Scotland Bill makes its way through Parliament.
He added: “This is a crucial part of devolution which will mean, for the first time, over half of the Scottish Parliament’s funding will come from Scottish tax, making it one of the most powerful devolved legislatures in the world.
"If the Scottish Government want to increase spending they can increase Scottish taxes, without increasing UK borrowing overall.”
Meanwhile, the SNP accused the Government of falling short of the recommendations of the Smith Commission, known as the "vow", when tabling an amendment to the Scotland Bill to secure more power over taxation and welfare.
The bill sets out a series of devolved powers to Holyrood including control over income tax rates and bands, a 50% share in VAT revenues and greater autonomy over welfare powers.
But former SNP leader Alex Salmond told Scottish Secretary David Mundell that the Daily Record, a paper he cites as being “influential” in supporting the “No” vote at last year’s Scottish independence referendum, had described the bill as “unacceptable”.
Speaking in the Commons, Mr Mundell said he was "confident" the Government's plans meet the Smith Commission's recommendations "in full".