Crunch talks aimed at resolving how Holyrood will be funded when MSPs are handed new powers have broken up without a deal being reached.

The Scottish and UK governments have been locked in protracted negotiations on the issue for weeks, with one deadline for agreement having already passed.

Deputy first minister John Swinney met chief secretary to the Treasury Greg Hands in London on Friday for the tenth round of talks between the two. The discussions are centred on how the block grant Scotland receives from Westminster will be adjusted when tax-raising powers are devolved.

SNP ministers had originally wanted an agreement in place by February 12.

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First Minister Nicola Sturgeon later told the Prime Minister a deal on the “key areas of principle” needs to be in place by the end of this week.

Mr Swinney said: “We have not managed to reach an overall agreement today but we have made progress on a number of issues that are relevant to the agreement.

“We don’t have a lot of time on our side because the parliamentary scrutiny of the Scotland Bill and the fiscal framework is due to commence in the Scottish Parliament on Tuesday, there will be business in the House of Lords on this question on Monday, so it is important that we work with all speed to try to resolve the outstanding significant issues.”

The two governments must agree on how Scotland’s budget – the block grant – should be adjusted to take into account new tax-raising powers being transferred to Holyrood.

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Any deal must meet the principles of taxpayer fairness and “no detriment” – the idea that neither government should gain or lose financially simply as a result of the decision to devolve.

The Scottish Government has already warned it will pull the plug on the Scotland Bill by recommending MSPs veto the legislation if an agreement over funding cannot be found.

Mr Swinney said: “We have managed to resolve a number of the issues that were involved because the fiscal framework has been about a range of different issues, not just about the principle of no detriment in the block grant adjustment.

“So some progress has been made but we have outstanding questions – significant questions – that have yet to be resolved.

“We are committed as a Government to resolving those issues and to working with the UK Government to enable that to be undertaken and we will concentrate on that work in the course of the next few days to try to resolve these outstanding questions.”

The SNP administration in Edinburgh has been in lengthy negotiations with the UK Treasury over the fiscal framework, the financial deal which will underpin the new Scotland Bill.

Critics have claimed that the SNP administration may be considering walking away from a deal to shore up nationalist support in May’s elections, but Mr Swinney said: “There are very significant powers that are being transferred to the Scottish Parliament, powers that the Scottish Government would want to exercise on behalf of the people of Scotland.

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“So we are energetic and enthusiastic about securing those powers and being able to exercise those powers. But we have said all along we can only do that if we have a fair fiscal framework in place.”

Mr Hands said: “The UK government is absolutely committed to implementing the Smith agreement in full and willing to go the extra mile in order to secure an agreement.

“Today’s fiscal framework talks mark a step forward in the negotiations with progress being made in a number of important areas.

“We’ve agreed that UK and Scottish Government officials will continue discussions over the weekend and I remain confident that a deal can be reached that is fair to Scotland and fair to the rest of the UK, now and in the future.”

Scottish Labour leader Kezia Dugdale has written to the First Minister calling on the Scottish Government to stay at the negotiating table even if the Scottish Parliament’s deadline is missed.

She said in the letter: “I would like to see the negotiations completed before the deadline set by the Devolution (Further Powers) Committee. However, if they are not completed by this date, both the UK and Scottish governments should continue to negotiate until the pre-election period commences on March 24.

“In doing so, you will have the full support of the Scottish Labour Party. While this means that the final deal may not receive Parliamentary approval before the election, it does mean that we will be in the best possible position to approve a deal in May following the elections.

“I believe there is no reason why there should be a month-long pause in negotiations between the UK and Scottish governments.”

Meanwhile, with the Scottish Parliament being dissolved in March ahead of May’s elections, MSPs on the Devolution Committee have warned there would be “very substantial impacts” on their ability to scrutinise any proposals if talks go beyond Friday.