Mr Swinney told Holyrood that the Scottish Government’s departmental expenditure, the money over which he has direct control, would reduce by just under 1% in the “first real-terms cut in the Scottish Budget since devolution”, saying he had “reluctantly” decided that the £395m project had to be abandoned to ensure the government’s capital spending was sustainable.

Mr Swinney said: “This is a project that will include capital costs for several years and the government has been concerned at the rise in costs associated with the project due to significantly higher estimates of the cost of the need to relocate existing infrastructure.”

However, Steven Purcell, leader of Glasgow City Council, said scrapping GARL was a “dagger in the heart of Glasgow”.

GARL was part of the bid document that won the 2014 Commonwealth Games for Glasgow, but a government spokesman insisted ditching the scheme had “no implications” for the Games.

Improvements to the rail corridor between Glasgow and Paisley worth £182m, which formed part of the scheme, are going ahead as planned.

Other resources have been allocated to continue preparations for the new Forth crossing.

Mr Swinney had just over £29.7bn at his disposal, some £600m more than in the current year but actually equivalent to a cut of just under 1%, when adjusted for inflation, and down by £500m on what had originally been planned until the block grant was cut by Westminster.

In addition he had already spent some £350m in capital spending accelerated from next year’s allocation to combat the recession. If, as seems likely, he is not allowed to do this again next year, it will have a serious impact, particularly on the housing and regeneration budget, which is set to fall by£260m to £441m.

Both health and education budgets rose, with each health board receiving an extra 2.7% and specific allocations for the flu pandemic and hospital infections.

Colleges received a hike of more than 5% and universities gained an extra 2%. But there will be a cut in the teacher training budget, not as an economy, but in order to avoid newly qualified teachers failing to get jobs.

The Finance Secretary also built into his calculation a continuation of the council tax freeze and of the Small Business Bonus scheme, more apprenticeships and continued support for Edinburgh’s capital city spending.

But critics questioned his increase in money devoted to international development and other spending, which they said amounted to “vanity projects” for Alex Salmond.

Swinney also faced questions about an £87m cut in transport spending, with Labour’s transport spokesman, Des McNulty, claiming that further projects were likely to face the axe.

Mr Swinney defended his package as “designed to deliver maximum benefits to the people of Scotland at a time of unprecedented economic and financial challenges”.

But the impact of the economic collapse on public spending plans will see Scotland’s largest local authority attempt to shed potentially thousands of posts in the coming years.

Glasgow City Council is to begin a major workforce review with trade unions claiming up to 10% of the authority’s posts could be under threat in the next three to five years.

Other local authorities, including neighbouring East Renfrewshire, are predicting cuts to their budgets of up to 15% by 2013.