Henry McLeish, the former Scottish First Minister and UK government minister who piloted the legislation setting up the Scottish Parliament through the House Of Commons, said yesterday that the decision at the time to give Holyrood tax-varying powers did not make sense.

Mr McLeish, who as Minister of State at the Scottish Office was key to the passage of the Scotland Act in 1998, made the assertion at the Calman Commission which is considering the future powers of parliament in Edinburgh.

His verdict appeared to confirm suspicion at the time and since, that allowing Holyrood to vary the basic rate of income tax by up to 3 pence in the pound was Tony Blair's Government attempt to make devolution more acceptable to Scots.

Those tax-varying powers have never been used by either Labour-led or Nationalist administrations at Holyrood, it is thought, because it would mean different income tax rates for Scotland and the rest of the UK.

When Scots voted in the devolution referendum in 1997, one major issue was the ability of the Scottish Parliament to raise its own cash. A question of giving the Parliament tax-varying powers was included in the referendum ballot paper and backed by a majority of Scots.

Mr McLeish said that, “on reflection”, he did not think that the tax powers could be used and that he considered them a problem.

He said: “Clearly if you move towards a situation where there's full fiscal freedom or independence that makes a difference.

“We imposed through a referendum a tax measure that, on reflection, I don't think can ever be used.”

He continued: “It's not a point of renegotiating the Scotland Act but it's actually trying to get us powers that make sense. I don't think the current plus or minus three (pence) makes sense.

“The plus or minus three (pence) is a real, real problem now and should, in a way, be taken aside because it does not contribute anything.”

The Commission is taking evidence on whether the powers of the devolved Parliament in Edinburgh should be changed and whether more financial powers would increase Holyrood's accountability.

In a recent speech Gordon Brown , the Prime Minister, conceded that there was a “problem” about devolution because although MSPs could be held responsible for how they spent their £30 billion block grant from the Treasury, they were not accountable for how the cash was raised.

Mr Brown's words were widely interpreted as a sign that he was coming round to the argument that Holyrood should either have control over some less important forms of tax, such as stamp duty, or that Scotland should be “assigned” some of the taxes raised in Scotland.

Mr McLeish also repeated his call for a more federal approach to government within the UK.

Increased autonomy for Holyrood would help stem “grief and anger” from English voters and head off Nationalist gains.

England, he added, had been ignored under the devolved arrangement and there was a case for giving England a Parliament of its own. “They need a voice,” he said. “But that voice has to come from the Union, it has to come from Westminster, it has to come from London.

“But on the other hand, asymmetrical devolution (where devolved Parliaments in different parts of the UK, excluding England, have different powers),I don't think will be sustained”, said Mr McLeish.

“We must move towards some balanced framework, a quasi-federal framework, where it can make some sense rather than the English feeling aggrieved.

“At the end of the day, their grief and their anger spills over on to us.”

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