KATE Forbes has warned Scotland faces a "very difficult financial position” over the next few years after leading economists said she may be forced to hike taxes or cut services.

The SNP Finance Secretary said the Government would need to be “canny” with its spending to grow the economy after the pandemic and steer it through the cost of living crisis.

She said “more focused” public sector funds would help tackle child poverty, reach net zero and deliver sustainable services for the future, suggesting cuts in 'non-priority' areas.

The Sunday Times today reported education and justice budgets may be first in line to be squeezed, despite a worsening attainment gap and a huge Covid-related backlog of court cases.

Ms Forbes will publish the first multi-year spending review in more than a decade on Tuesday, setting out the “broad parameters” for Government spending for the next four years, as well as government reforms.

The Scottish Government’s own central projection is for a budget spending gap of £3.5billion in the public finances by 2026/27, equivalent to £640 for every person in Scotland.

Last week, the respected think tank the Institute for Fiscal Studies (IFS) said bridging that gap would be hard in the best of times, but with soaring inflation driving up public sector pay demands and exacerbating poverty, it would be even harder.

READ MORE: Scottish Government facing 'very tough decisions' over £3.5bn funding gap, IFS warns

It said Ms Forbes faced a choice between axing public services, hiking taxes, or hoping the UK Government would ride to the rescue, either by increasing Holyrood’s borrowing powers or ramping up its own spending, with an extra £40bn needed to give Edinburgh £3.5bn.

The IFS said the budget gap was partly the result of factors outside Holyrood's control, such as the pandemic, but expensive policies such as generous devolved social security benefits, had also also contributed to it.

Ms Forbes said: "These are challenging times, and we need to be canny with our spending, but I’m confident that if we work together we can get through this cost of living crisis and still achieve our ambitions.

“That means tackling child poverty, driving our economic recovery from COVID and achieving net zero, while building a stronger public sector that is sustainable for the future.

“We face a very difficult financial position over the next few years with funding increases below inflation levels and the challenge of recovering from the pandemic without the financial tools available to every other government in the world.  

“That means while the spending review is not a budget, it will include difficult decisions, to ensure we can really focus on supporting households and services at this time.

“The Resource Spending Review will detail the funding available over the coming years to achieve these goals, and it will be published alongside the Medium-Term Financial Strategy (MTFS) which gives economic context to the challenges and opportunities which lie ahead."

The Scottish Fiscal Commission, the independent oversight body for Holyrood’s budget, will also publish its five year tax and spending forecasts on Tuesday. 

Opposition parties condemned what they called Scottish Government "mismanagement".

Tory MSP Liz Smith said: "It appears Kate Forbes' response to warnings from the IFS of a £3.5bn black hole in the SNP Government's spending plans is to stick her fingers in her ears. Years of economic mismanagement by the SNP - including squandering taxpayers' cash on failed public sector projects like the ferries fiasco - has left Scotland's finances in a perilous state.

"Yet there is no acknowledgement of this in Ms Forbes' pre-spending review spin.

"The reality is Scots face big public spending cuts, huge tax rises, or a combination of both if the SNP are to bridge the huge funding gap they've created."

Labour MSP Daniel Johnson said the IFS assessment "laid bare" the price of "SNP economic failure". He said: "It is clear that the spending review will reveal the heavy cost of the SNP economic mismanagement."

The Scottish Government has said it is doing all it can within its powers and budget to help people, communities and businesses, including investing almost £770m this year in cost of living support and doubling the Scottish Child Payment to £20 per week. 

Earlier this year it increased eight Scottish benefits by 6%, the rate of inflation at the time, and introduced a range of benefits not available elsewhere in the UK.