AN MSP has said the Scottish Government can no longer avoid a public inquiry into the Edinburgh trams fiasco.

The comments from Labour's Lothian MSP, Kezia Dugdale, came after the Sunday Herald revealed that Transport Initiatives Edinburgh (TIE) paid more than £1 million in fees and bonuses to senior figures through a controversial system that allowed them to avoid paying income tax at source.

The firm set up to oversee the project was wound up last year due to its handling of the botched trams scheme.

It made the payments to three directors through companies, rather than through payroll. The method could have legally reduced the individuals' tax bills by tens of thousands of pounds.

Mrs Dugdale said: "This is an astonishing revelation. The more we hear about the goings-on at TIE, the more astounded people become.

"There was already a strong case for a public inquiry, and this makes it completely unanswerable.

"It also highlights the extraordinary folly of the SNP in ordering civil servants off the management board of the trams project in 2007.

"It took five years for the SNP to reverse that mistake – but clearly a culture of excess was allowed to develop at TIE."

Matthew Crosse, TIE's former interim project director, received £370,000 in fees and bonuses paid to his firm. Jim McEwan, the business improvement director, was paid £405,000 through a company – with around £90,000 of the total in bonuses. Geoff Gilbert, TIE's commercial director, received £230,000 for his services, paid through his firm.

In doing so, TIE could have saved a six-figure tax sum.

A spokesman for the Scottish Government said: "We would expect all public-sector organisations to satisfy themselves that tax arrangements for employees are demonstrably compliant with tax laws and regulations."