FINANCE Secretary John Swinney has warned of a “tough choices” budget this week as Scotland faces up to another round of painful cuts from Westminster.

Big spending reductions in local government and other unprotected areas are expected as the Scottish Government deals with cuts passed down by Chancellor George Osborne.

However, SNP sources do not want Swinney to use new income tax powers to mitigate the cuts as any changes could affect people on low wages.

According to the Institute for Public Policy Research in Scotland, the size of the Scottish block grant – the cheque passed from Westminster to Holyrood – will fall by 3.9 per cent in real terms by 2019/20.

Swinney will unveil the 2016/17 budget this week and announce where the axe will fall.

However, existing commitments by the Scottish Government are likely to limit his scope for flexibility.

The Government has vowed to protect health spending and made promises on childcare and affordable housing.

With health and local government accounting for the two biggest chunks of expenditure, ring-fencing NHS resources means councils are likely to take the biggest hit.

Council leaders are expecting a 5% cut in 2016/17 on top of deep reductions in previous years.

The SNP Government’s continued commitment to the council tax freeze is also believed to putting extra pressure on services.

However, Swinney could increase the Parliament’s revenues by using new income tax powers that are available for the first time.

Under the so-called Calman proposals, the UK rates of income tax – 20%, 40% and 45% - will be reduced by 10p in the pound.

MSPs now have the power to set the overall rate, but any changes would apply to all bands.

This means Holyrood does not have the power simply to increase income tax for the wealthy.

Senior SNP sources told this newspaper the power was “regressive” and should not be used.

Swinney said: “The Chancellor has imposed real terms cuts on Scotland every year from now until 2020, and more than a billion pounds of those cuts are still to come between now and the end of the decade.

“Now Scotland has to deal with the reality of the Chancellor’s decision. We face tough choices in the coming days.

Labour MSP Jackie Baillie called on Swinney to announce an anti-austerity budget, saying: “Ahead of the most important budget since devolution it’s time John Swinney backed up his anti-austerity posturing with something real. Telling us about pre-election giveaways now and cuts later isn’t good enough. This needs to be a long term budget."