The Calman Commission showed signs of unravelling last night as senior Liberal Democrats expressed dismay that their keynote policy of fiscal autonomy was dismissed.

The devolution review was meant to destroy support for independence, but key supporters expressed outrage at the project.

One senior Liberal told The Herald: "My heart sinks. How could they do this? The whole point of our view is fiscal autonomy. How can we have any faith in the rest of this exercise? Ruling this out runs against everything I believe in."

Party leader Tavish Scott said only: "This report is where Scotland is now. Liberal Democrats want a strengthened Scottish Parliament within the United Kingdom - a real home rule settlement.

"Calman must now produce a blueprint for this future."

But many of his colleagues were furious and the Calman process threatens the first crisis of Mr Scott's leadership, even though he inherited it from his predecessor Nicol Stephen.