SCOTS face tax hikes and spending cuts as a result of a looming £1 billion income tax black hole, the Scottish Government’s official forecaster has warned.

The independent Scottish Fiscal Commission (SFC) said “less money will be available for future Scottish budgets” under a predicted shortfall in income tax receipts.

Critics branded it a “devastating blow for Scotland’s finances” and raised fears a “horror show” is in store for public services.

READ MORE: Cross-border 'tax gap' widens to record level today

But Finance Secretary Derek Mackay said it "should not be unexpected" and may be followed by future cash windfalls.

Meanwhile, Scotland's economic growth is expected to slump from 1.3 per cent in 2018 to 0.8% this year due to the ongoing uncertainty caused by Brexit, with GDP forecast to lag behind the rest of the UK.

Mr Mackay said Scotland’s public finances were set in a context of “unprecedented austerity” from the UK Government.

He said: “At the end of last year, UK public spending as a share of national income had fallen for a ninth successive year in a row, the only time that this has happened since the Second World War.”

He said the SFC had directly linked slowed growth to the “ongoing uncertainty created by the UK’s EU negotiation process”.

And he said forecasts pointed to a resilient Scottish economy, with employment rising further over the next five years, unemployment remaining at near record lows, and earnings accelerating.

It came as the SFC published its official five-year economic, tax and social security forecasts.

The independent body said it is “currently forecasting a series of large negative reconciliations for income tax over the next few years”.

Reconciliations are the adjustments made to account for differences between forecasts and the amount actually raised from tax.

The SFC estimated there will be an income tax shortfall of £229 million in 2020-21, £608 million the following year and £188 million in 2022-23.

It added: “These negative reconciliations mean less money will be available for future Scottish Budgets.

“The Scottish Government will be able to manage some of this through borrowing or use of the Scotland Reserve.

“However, the borrowing powers available to the Scottish Government and the rules about withdrawing funds from the Scotland Reserve mean that these will not cover all of the expected reconciliations.

“The Scottish Government would have to adjust its spending plans or increase taxes, and this should be borne in mind when formulating current policy.”

However, it said the actual size of the reconciliations will only be known once the full data is available.

It comes after tax changes ushered in this year mean those earning over £50,000 in Scotland pay £1500 more in income tax than their counterparts in England and Wales.

Scottish Tory shadow finance secretary Murdo Fraser said the latest forecasts were a “devastating blow for Scotland’s finances totalling more than £1 billion”.

He said: “This is disastrous news for public services as well as hardworking Scots who may be in line for even more of their payslip being seized by the SNP government.

“We already knew Scotland’s growth and productivity was worse than the rest of the UK, and that people north of the border receive comparatively lower pay. Now we learn that’s all set to continue for the years ahead."

Scottish Liberal Democrat leader Willie Rennie said: “Scottish ministers are presiding over forecasts that hold a horror show in store for Scottish public services next year."

Addressing MSPs, Mr Mackay said: “The SFC notes that, due to historic forecast errors for such a large tax, there will be negative reconciliations.

“That should not be unexpected and we may see extended periods of positive reconciliations in the future. We have been acting to grow our economy, and there is vindication for putting some resources into the reserve so that any volatility can be managed. We have borrowing powers as well. However, we are confined and bound by austerity.”

READ MORE: Cross-border 'tax gap' widens to record level today

Elsewhere, the SFC said the devolution of social security benefits means there are greater uncertainties facing Scotland's budget.

Dr Stuart McIntyre of the Fraser of Allander Institute said the income tax forecasts are “going to bring forth a number of very difficult choices for the Scottish Parliament".

Writing on Twitter, he added: “Worth bearing in mind that by the end of this Parliament around half the Scottish budget will be devoted to health which, given political commitments from many to protecting and growing health spending, makes the political decisions about where to find this money even tougher.”

Dame Susan Rice, chair of the SFC, said: “Managing the Scottish Budget becomes far more difficult from next year. The income tax reconciliations and major social security powers that begin in April 2020 introduce substantial risks.

"The Scottish Government will need to set its spending plans to accommodate these challenges.”