DEREK Mackay has indefinitely delayed the devolution of a major new financial lever because of uncertainty about the underlying data.

The Finance Secretary told MSPs this morning that he was postponing the assignment of almost £6bn of VAT revenues to the Scottish budget as it was overly-reliant on estimates.

“The level of risk is such that we are not in a position to sign this off,” he said, warning the data may never be good enough to go ahead with the plan.

It is now expected to be delayed beyond 2022.

Nicola Sturgeon later said the government had fundamental concerns that the “enormous risk” attached to assigning VAT could “result in a significant hit to the Scottish budget”.

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The Scottish Tories said it was another on a growing list of powers that the SNP had demanded then failed to take forward.

The assignment of half the VAT raised in Scotland was first proposed by the Smith Commission on greater devolution in 2014.

Under the plan, receipts from the first 10p of the standard 20p rate and the first 2.5p of the reduced 5p rate of VAT in Scotland will be assigned to the Scottish budget.

The revenue would be the second largest element of the budget after income tax.

In theory, the more VAT raised in Scotland, the more money Holyrood would have to spend.

However, because there is no definitive figure for VAT receipts in Scotland, the assignment is based on estimates, and there are fears these could shortchange the budget by hundreds of millions of pounds each year if the associated reduction in the block grant was too high.

The respected Fraser of Allander Institute said it was “exceptionally difficult” to work out how much VAT was raised in Scotland, and warned the Scottish Parliament would be taking on a “significant and unreasonable risk” based on the current plans.

“It should, at the very least, press for a delay in the assignation of VAT to the Scottish Budget,” it said in December.

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As a dry run, the assignment process is being tested in the current financial year, 2019/20.

However it is not due to come into effect, and alter the budget, until 2020/21.

Holyrood’s finance committee has also flagged concerns about the assignment plan.

Giving evidence to the committee, Mr Mackay said the lack of data meant there was a “disproportionate risk” associated with VAT assignment, and he had raised concern with Chief Secretary to the Treasury Liz Truss.

He said that in light of Brexit and concerns over the reliability of the estimates, “it doesn’t feel like we’re in a position to sign this off”.

Asked by Tory MSP Adam Tomkins whether it was ever possible to have confidence in the estimated figures, Mr Mackay said: “I fear not. Because it’s survey on survey, estimate on estime, the accuracy issue is very difficult to overcome.

“We have not found a way of addressing that issue of risk.

“The level of risk is such that we are not in a position to sign this off.”

Under EU law, VAT must remain consistent throughout a member state, meaning the power to set VAT cannot be devolved at present.

However Mr Mackay said that if Brexit went ahead, the UK Government could in theory devolve VAT-setting powers to Holyrood.

Appearing later before Holyrood's committee conveners, the First Minister said there was too much risked attached to the VAT calculations involved.

She said: “We want as many powers as possible to lie with parliament. On VAT, the current proposal doesn’t devolve any power over VAT to the Scottish Parliament.

“The decisions around the rates and levels of VAT remain reserved. This is simply about assigning a portion of the revenues from VAT to the Scottish Government budget with consequent reductions in the block grant funding.

“The concern here comes from the methodology. There is never intended to be any real outturn data that will guide the decision. It is based on estimates.

“While that in normal times would give rise to concerns, in a time where there is such instability as the moment, largely because of Brexit, then proceeding, in the Scottish Government’s judgment, could absolutely result in a significant hit to the Scottish budget."

She went on: "I would stress the point there is no power here. It’s not about not taking on a power or postponing a power, it’s about a way of calculating the Scottish budget that has enormous risk attached to it.

“If the UK is leaving the European Union that opens up discussions as to whether, instead of a VAT assignment, we should have proper devolution of VAT and that’s part of the discussion we may want to have in the period ahead.

"So we’re being very open and frank with the committee when it comes to our fundamental and quite profound concerns we have about the implications for the Scottish budget.”

Tory MSP Murdo Fraser said Ms Sturgeon was running a “return-to-sender government”.

He said: “It’s bad enough that she handed back social security powers earlier this year, then suddenly decided she wanted nothing to do with control over air departure tax this week.

“Now we learn the SNP government doesn’t even have the wherewithal to cope with the VAT assignment it so furiously demanded previously. This is a government which said it could have an entire separate country up-and-running within just 18 months.

“Yet when powers begin to arrive at Holyrood, instead of embracing them and making them work for Scotland, the nationalists hand them straight back. That’s the hallmark of a grievance-driven, incompetent administration whose time has long been up.”

Labour MSP James Kelly said: “This is quite a climb-down from Derek Mackay and also makes a mockery of claims the SNP could have set up a separate state within 18 months.

“While the SNP government again hands Scotland’s powers back to the Tories, Labour would use them to invest in Scotland’s people, communities and public services.”

Scottish LibDem leader Willie Rennie said the VAT delay showed the SNP was becoming “increasingly incompetent in government”.

He said: “Their main focus is achieving independence, rather than making Scotland a better place to live. The SNP need to have a long hard talk with themselves in the mirror.

“This is a dramatic U-turn that shows they are turning their backs on creating a more powerful Scotland within the UK.

“They are throwing away opportunities on taxation and social security for a more federal system and in doing so stopping Scotland becoming a more powerful part of the UK."