HOLYROOD is set to become one of the most powerful devolved parliaments in the world after a deal on Scotland's future finances was finally agreed.

First Minister Nicola Sturgeon and Chancellor George Osborne brought months of wrangling over the so-called 'fiscal framework' - the complex financial arrangements behind the parliament's new powers - to an end in a five-minute phone call.

It means the Scotland Bill, which will devolve almost full control over income tax and a £2.5billion welfare budget to Holyrood, will be given the go-ahead.

The historic legislation is now almost certain to approved before the Holyrood election on May 5 and, from April 2017, Scots workers can expect to pay all their income tax to the Scottish Government.

Scottish Secretary David Mundell told Holyrood's Devolution Committee there would be "no impediment" to the early transfer of some powers subject to the passing of the Scotland Bill.

Mr Mundell, who will make a statement to the House of Commons on Wednesday on the final fiscal framework deal, said he expects control over income tax will pass to MSPs in time for the next budget of the new Scottish Parliament.

The time-scale for the transfer of new powers over welfare remains to be agreed by the two governments through the joint ministerial group on welfare, he said.

But he added: "My envisaged timetable is that, subject obviously to Parliament bringing forward its legislative consent motion and the Bill proceeding to Royal Assent ahead of the Scottish Parliament elections, a number of the powers will be in place almost immediately after the Scottish Parliament elections.

The deal, which represented a compromise by both governments, was hailed by ministers at Holyrood and Westminster.

Ms Sturgeon said Scotland had avoided a £7billion "cash grab" by the UK Government - a reference to the amount the Treasury's original proposals would have cost Holyrood over a 10 year period.

In her second of two statements to MSPs during a fast-moving day of negotiation, she added: "The more powers this parliament has, the better we can deliver for the people of Scotland."

Mr Osborne said the deal fulfilled the pro-UK parties' pre-independence referendum 'Vow' of further devolution.

He added: "The arrangements we've reached with the Scottish Government are fair to Scotland and fair to taxpayers in the rest of the UK.

"This clears the way for the debate in Scotland to move on to how these tax and spending powers should be used."

After 10 rounds of talks between Finance Secretary John Swinney and Chief Secretary to the Treasury Greg Hands, the two governments had remained deadlocked over how to reduce Scotland's 'block grant,' or budget allocation, from from Treasury to take account of the parliament's new tax powers.

Under the compromise, the Treasury's preferred mechanism for adjusting the grant will be used.

However, it will be tweaked to ensure that Scotland does not lose out if, as forecast, the country's population grows more slowly than England's.

The arrangement meets a key demand of the Scottish Government, which insisted anything less would breach the cross-party Smith Agreement on the new powers.

Crucially, in terms of securing agreement, the arrangements will be reviewed after five years but with the two governments still sharply at odds over a long term solution, the row is likely to resurface after the transition period.

A late concession by the Treasury will ensure both governments must agree a solution after 2022, rather than simply stick with the temporary mechanism.

Ms Sturgeon said that would protect Scotland's budget into the future, adding: "This deal will not allow a single pound or even a penny to be taken from Scotland's budget."

She said the agreement had required "compromise on both sides," while Mr Hands agreed it amounted to a "classic compromise".

Also as part of the deal, the Treasury will provide £200million towards the cost of setting up a Scottish welfare system, four times its initial offer.

The Scottish Government will be able to borrow £3billion in order to manage fluctuations in tax revenues and invest in infrastructure projects.

In a significant concession by the Scottish Government, Ms Sturgeon confirmed tax forecasts will be prepared independently by the new Scottish Fiscal Commission watchdog rather than by ministers themselves.

At Holyrood, opposition MSPs welcomed the deal and joined Ms Sturgeon in praising the efforts of Mr Swinney to make it possible.

But their focus switched quickly to coming election, when tax is expected to become a dominating issue.

Labour's Alex Rowley called on the First Minister to use the new powers to make a "break from austerity".

Scots Tory leader Ruth Davidson said: "This is a major challenge to the SNP because grudge and grievance will no longer wash."