THE income tax hikes in the SNP’s Budget have merely deferred “deep public spending cuts” for a year, and more tax rises may yet be needed, a leading think tank has warned.

The Institute for Public Policy Research (IPPR) said the £164m of extra income tax due to be raised in 2018/19 was not enough to avoid even tougher decisions in 12 months’ time.

“Serious cuts to public spending remain around the corner,” it said.

Finance Secretary Derek Mackay announced major reforms to income tax in last week’s Budget, including new 19p and 21p bands, and 1p hikes to the 40p and 45p bands.

The changes mean around 1.4m people, 55 per cent of Scottish taxpayers, will pay less than their English equivalents next year, although the difference is just £20, or 38p a week.

Some 1.15m people will pay more than if they lived in the rest of the UK, with 800,000 who had been paying just the 20p basic rate lifted into the new 21p rate starting at £24,000.

It means people earning over £26,000 next year will pay more income tax in Scotland than if they lived south of the border.

Mr Mackay said the changes were needed to help cope with a Westminster revenue cut of £200m next year, as well as grim economic growth forecasts depressing tax income.

The Scottish Fiscal Commission forecast GDP would grow below 1 per cent a year to 2022.

The IPPR’s latest analysis said Scotland’s day-to-day spending budget would fall by £250m in the year after next, compared to the current financial year.

Because the SNP had promised to raise NHS spending and protect the police budget, this would mean a £350m cut, or 2.7 per cent, across all other departments.

IPPR Director Russell Gunson said: “The Scottish Government’s draft budget has proposed income tax increases in Scotland from April next year. However our analysis shows that they will only be sufficient to soften cuts for one year.

“Without further tax increases the year after next, or a stronger economy, deep public spending cuts in Scotland will restart in 2019.”

The famous US economist Arthur Laffer, whose Laffer Curve theory says setting taxes above an “optimal rate” cuts revenue rather than raising more for public services, yesterday attacked the SNP’s tax policy, saying it would “drive businesses and skilled workers” away.

An adviser to Donald Trump’s presidential campaign and former US president Ronald Reagan, Mr Laffer told a Sunday newspaper: “There are clear disadvantages to living in Scotland if your tax rates are higher than the rest of the UK.

“The Scottish Government needs to understand you cannot distribute more than you can produce.These sorts of measures will put Scotland on a par with Greece; they discourage growth.

“Scotland has a large number of low-paid jobs and you cannot grow an economy on low-paid jobs. You can only change that by investment, not increased taxation that ends up doing nothing to boost the economy.”

The Tories said the intervention from someone held up in the Alex Salmond era as an economics guru was "a substantial blow to the SNP’s economic credibility”.

The Scottish Fiscal Commission, the independent body which crunches the government’s Budget numbers, last week warned low productivity and an imbalance of pensioners to people of working age were the key problems facing Scotland’s economy, not tax rates.

Professor David Bell of Stirling University told the BBC Sunday Politics Scotland said the demographic situation may result in more people working into their late 60s and 70s.

He said: “The gradual shrinkage of the working age population hasn’t really kicked in yet, but it will kick in in quite a big way over the next 10 years or so.

"It will be important for the Scottish Government to be looking at policies to try to extend people’s working lives, so that the number of people who continue to work beyond 65 is increased.”

Mr Mackay said: “Scotland is facing continued austerity from the UK Government. Over a 10-year period, Scotland’s block grant will have been cut by £2.6bn in real terms. We face a £500m real terms reduction in spending on day-to-day services over the next two years.

“In order to mitigate those UK cuts, protect our NHS and other public services, and to support our economy, we have reformed income tax in Scotland - our only significant fiscal lever - to provide for a growth in ?revenues.”

The Scottish Tories suggested ending overnight stays for some NHS operations and raising the criteria for minor procedures such as tonsillectomies to save £59m.

The savings were among £210m of “efficiencies” identified by the party as a way of avoiding the £164m of tax rises in the Budget - also included were £89m to be saved by ending NHS spending on agency staff, and £59m by eliminating delayed discharges from hospitals.

However the Tories did not say who would do the work currently done by agency staff, or how delayed discharge - a notoriously stubborn problem - could be prevented.

MSP Murdo Fraser said: “There is no need to raise taxes when there are clear savings to be made."

A spokesman for Mr Mackay said: “The Tory mask has slipped, and with this hit-list of cuts they are finally admitting that they would slash health spending – in fact almost all of the £209 million they identify would be stripped out of the NHS budget.

“That is the reality of Tory tax policy - cuts for the health service and tax cuts for the wealthy.”

Scottish Labour accused the SNP of pulling a £700m council “con trick” in the Budget, by slashing core grants and providing no extra cash for a pay rise for local government staff

MSP James Kelly said: “Local Government in Scotland must be re-empowered, with more economic powers of their own and proper funding from central government.”