John Swinney has warned of “very difficult” reductions to Scottish finances after unions suspended planned bin strikes to allow workers to consider a new pay offer, backed by £77.5 million of Scottish Government funding.

The First Minister said the decision by Unite, GMB and Unison to call off the eight-day strike was “very welcome”.

It comes after the Scottish Government intervened in the planned eight-day walkout by allocating £77.5 million funding to allow local government body Cosla to make an improved offer.

An overall 4.27% rise will be put to members of the three unions, with the deal also resulting in £1,292 for the lowest paid workers with the Scottish local government living wage increased by 5.63%.

It means that the eight days of strike action by staff at 26 of Scotland’s 32 councils will not go ahead from Wednesday.

Unite have described the offer as “credible”, while GMB hailed it as a “significant improvement”, however, Unison is recommending workers reject it, arguing it is “still not enough”.

But speaking to journalists in Clydebank on Monday, Mr Swinney said the Scottish Government will have to identify which portfolios to take the money from.

Full decisions were yet to be made, he said, with the First Minister stating the scale of the “reductions” will be set out in a statement to Parliament next month.

He said: “All three unions have called off the planned industrial action which is very welcome and they’re consulting with their members.

“That’s come about because of the intervention of the Scottish Government. We thought it was important to avoid industrial action and to ensure that communities weren’t in any way damaged from the presence of industrial action.

“Now we’ve had to provide some flexibilities to local government to enable them to improve the offer but we’ve also had to put in some Scottish Government money and that is going to result in some very difficult choices for the Scottish Government because we’re going to have to reduce other programmes to find that money.

“We do not have any spare money sitting about. We will have to make reductions in other programmes to enable this offer to be made because things are so tight and so tough within the public finances.”

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He added: “We will set out to Parliament in due course the changes we are making to the budget to allow that to be the case.

“We’ve identified some sources of the money but we’ve also got to find other resources to afford this particular offer. We do that because we want to protect communities but it will come with implications for the provision of Scottish Government programmes and services.”

Graham McNab, Unite’s lead negotiator for local government, said: “We believe that the new pay offer is credible. For the first time in years, it will mean all council workers receiving an above inflation increase.

“Unite will now suspend the eight days of strike action so a ballot can take place on the new offer.”

Keir Greenaway, the senior organiser in public services for GMB Scotland said: “It is better than that offered to council staff in England and Wales, would mean every worker receives a rise higher than the Retail Price Index and, importantly, is weighted to ensure frontline workers gain most.

“As a gesture of goodwill, we will suspend action until our members can vote on the offer.”

But Mr Greenaway said it should “never have got to this stage”, accusing council leaders of an “absolute lack of urgency or sense of realism”.

Unison Scotland local government lead, David O’Connor, said: “Unison has suspended recycling and street cleansing strikes while staff are consulted on Cosla’s latest offer.

“Unison’s view is that it’s still not enough. Council staff have seen the value of their pay reduced by 25% over the past 14 years and any pay deal needs to do more to reverse this.

“The union has been clear all along that the wage deal needs to work for everyone in local government. This pause will provide some breathing space for further dialogue.”

Scottish Finance Secretary Shona Robison urged union members to “strongly consider” the new offer and said it “represents the absolute limit of affordability”.