SCOTLAND would have to bear the costs if people left the country to escape higher rates of tax, the Chancellor said.

George Osborne was speaking about the prospect of Scotland setting a higher rate of income tax then the rest of the UK, following the devolution of more powers.

He said there should be no detriment to the UK or Scotland as a result of decisions of the other government.

However, he said if the Scottish economy benefits from devolved decisions it should enjoy the proceeds but also if wrong decisions are made it should bear the costs.

Mr Osborne said: "If the Scottish government pursues policies, including tax and spend policies allowed to it under this Smith agreement, that improve the Scottish economy relative to the rest of the UK economy then the benefit of that should accrue to the people of Scotland and its Parliament and its government.

"That is at the heart of what we are trying to achieve with devolution, but of course the reverse is also the case - if a set of decisions are taken that damage the Scottish economy relative to the rest of the UK then Scotland and, more to the point, Scotland's elected representatives, should bear the consequences of that and be held accountable for that."