The Scottish Government should cut services instead of raising taxes to plug a looming hole in its finances, a leading trade body has said.

The Scottish Retail Consortium urged ministers to take a “more frugal approach” and reduce the cost of government as work begins on the Holyrood budget for 2024/25.

In a submission to Holyrood’s finance committee, the SRC called for a multi-year plan to tackle an estimated £1billion spending gap next year, a figure set to double by 2027/28.

The organisation, which represents shops and online businesses employing around 250,000 people, said the government needed to "think differently" from previous years.  

It said: “We note the Scottish Government faces a forecast £1 billion spending gap in the coming financial year and that this is set to widen in subsequent years. A timely spurt in economic growth would help but seems unlikely in the immediate term.

“Therefore a multi-year plan is needed to eliminate the gap and put government finances on a sustainable path. Tax will presumably form a part of the solution.”

However “extra tax alone, however, is unlikely to be enough to plug the shortfall”, it said, calling for a “candid review of spending and new thinking about how services are provided”.

It went on: “A more frugal approach to devolved public spending and a reduction in the cost of government should form the bulk of the necessary budgetary action. This would help militate against the need for tax rises which could stymie economic recovery.

“Business recognises there are few palatable options for our politicians.

“However, government needs to think differently about how and which services they deliver, and how they deploy their resources efficiently.”

Failure to take action on public spending would mean “the pressure for even higher taxes on households and firms in subsequent years will grow”, the SRC said in its submission.

“Untrammelled tax increases could dampen consumer demand and economic activity and reduce prospects for growth, which is the only path to sustainably strong public finances.

“Business wants to be confident that government has a plan to get on top of the public finances.”

On Tuesday, Humza Yousaf told the Holyrood Sources podcast that one of the reasons he changed finance secretary after becoming First Minister was the prospect of tax rises.

He said he didn’t let Kate Forbes stay in the post after she lost to him in the SNP leadership race because of "some differences around progressive taxation”.

The Scottish Government said: “We continue to face one of the most challenging financial situations since devolution, with the Covid pandemic, the war in Ukraine, and high inflation putting significant pressure on households, the economy and public finances.

“As we set out in this medium-term financial strategy, we will do all we can within our powers to ensure public finances are on a sustainable path.

“We will achieve this through our three key pillars: taking tough decisions to prioritise our spending; ensuring a strategic approach to tax; and supporting sustainable, inclusive economic growth to generate tax revenues.”