CONSUMER spending power in Scotland is expected to remain stagnant for at least another three years and deal a further blow to hard-pressed retailers and businesses, tax watchdogs have warned.

The independent Scottish Fiscal Commission (SFC) said high inflation and slow wage growth meant disposable household income was unlikely to rise until 2020/21.

The SFC’s economic and fiscal forecasts, published to accompany this week’s draft budget for 2018/19, predicted Scottish GDP growth lagging behind the UK.

It said: “Real household disposable income is not expected to see any growth until 2020-21 because of a combination of slow wage growth, very limited employment growth and inflation. Growth in real household incomes will start to strengthen gradually from 2020 onwards as wage growth starts to increase.”

The SFC also predicted a £6 million boost to first-time homebuyers in the budget would have little effect other than to fractionally increase the price of properties.

The SFC forecast growth would average 0.9 per cent to 2022, compared with the 1.4 per cent forecast by the Office of Budget Responsibility for the UK as a whole.

The “subdued” outlook suggested tax revenues would be £2.1 billion lower by 2022 than the SNP government had estimated in February.

Tax revenues next year alone are down £205m compared with February, more than the £164m Finance Secretary Derek Mackay plans to raise through higher income tax.

Tory MSP Murdo Fraser said Scotland was heading for a “Sturgeon slump” and a £2bn “black hole”.

He urged the government to dump its “Nat tax” and pursue economic growth instead.

He said: “Thanks to the coming Sturgeon slowdown, the Scottish Government is projected to raise £2bn less than expected over the remainder of this Parliament.

“That’s £2bn less going to schools and hospitals because of the failure to match levels of growth we are seeing elsewhere in the UK.”

The Scottish Greens, who helped the SNP pass the last budget, demanded another £150m for councils as their price to support the package for 2018/19.

Local government spokesman Andy Wightman said his party needed to see a real-terms rise in council funding, before backing the minority SNP administration.

Mr Mackay announced a flat cash settlement for councils on Thursday, but said that if they hiked council tax by the maximum 3 per cent it would raise £77m to create a real-terms rise.

However, the council umbrella body Cosla said councils faced a real-terms cut of £153m.

Mr Wightman said: “We want a real-terms increase and that would involve somewhere in the region of £150m as I calculate it.”

He criticised the SNP’s £720m rates relief package for small businesses, saying many firms didn’t need the money, and he wanted business to be taxed “more fairly”.

Mr Mackay denied breaking an SNP manifesto pledge to freeze the basic 20p rate of income tax for low and middle earners. As many as 800,000 of Scotland’s 2.2 million taxpayers are being moved on to a higher rate.

He said he had “changed the income tax structure to be fairer, to be more progressive and to be designed in a fashion that protects lower income earners”, with a £20 tax cut for those earning less than £26,000 a year.

A Scottish Government spokesperson said: “There is no black hole. The independent Scottish Fiscal Commission – who provide these figures for the budget – clearly state that revenues rise year-on-year.

“Under the Fiscal Framework, all forecasts of income tax revenues are founded on revenues in 2016-17, the year before devolution of full Scottish income tax powers.

“The SFC forecast that growth in income tax revenues will outstrip growth in the rest of the UK and provide extra support for public services. Far from their being a black hole, therefore, Scotland is on course to outperform the rest of the UK.”