JOHN Swinney has set out more than £500million of spending cuts to balance the Holyrood budget in light of surging inflation and public sector pay settlements.

The deputy First Minister and acting Finance Secretary told MSPs the measures showed the “harsh reality” of limited tax and borrowing powers under devolution.

“The Scottish Government simply does not have access to many of the levers that would provide the greatest support in this crisis - taxation of windfall profits, regulation of the energy market or borrowing,” he said.

The money is equivalent to 1 per cent of the £56billion budget for 2022/23.

Mr Swinney said that an emergency budget review and potentially more cuts would follow in the wake of the UK emergency mini-budget later this month, especially if inflation continued on its steep upward path.

“In short, what I've set out to do is just the beginning of the hard choices,” he said. 

He was criticised for not using the £20million earmarked for a second independence referendum.

With inflation more than 10 per cent, the Scottish budget is worth £1.7billion less than when it was outlined in December, with recent public sector pay deals costing £700m more.

Refugee support schemes following the outbreak of war in Ukraine also resulted in costs of £200m the Scottish Government had not planned for.

Mr Swinney said that with Holyrood unable to change income tax rates mid-way through the financial year, unable to borrow for day-to-day spending, and with its reserve funding fully allocated, the only option was to take money away from previously allocated spending areas.

“The Scottish budget is at the absolute limits of affordability,” he said.

"“Difficult choices must be made. There is no an allocated cash. There is no real reserve that has not been utilised. Every penny more on one policy is a penny less on another policy.” 

He had therefore informed Holyrood’s finance committee of around £500m in reducations in planned spending and forecasting made in recent weeks.

These include cutting £53m from employability schemes designed to help people into work, using £56m generated by the ScotWind licensing process intended for green energy projects, using £33m intended for agricultural funds, and taking £37m out of the concessionary travel scheme based on a “risk-based” assumption of lower demand.

The letter to the committee also showed the Scottish Government intended to spend £82m in Barnett formula consequentials intended to help with the cost-of-living and child poverty.

In addition to £440m of resource savings, the Government will also “reprioritise” £120m of capital spending “via “natural re-profiling”, meaning pausing construction projects.

Mr Swinney said: “In all of my experience, now and during my previous tenure as Finance Secretary, there has never been a time of greater pressure on the public finances.

"Our budget was based on a UK Spending Review that simply did not foresee the levels of inflation that are now a reality.

“That alone would require the budget to be revisited.  But in times of crisis the job of the finance secretary is not simply to balance the books.

"It is to find the money to help families, to back business and to fund the priority projects that improve lives for the long term.

"And so, the Emergency Budget Review must both identify funding to cope with inflation-driven cost increases and aim to support those who most need our help during this crisis.

“This is the harsh reality of a fixed budget and limited powers. The Scottish Government simply does not have access to many of the levers which would provide the greatest support in this crisis. We will do everything we can. We will make the hard choices. 

“But only the UK Government can act to end this crisis. They should do so - and I encourage them to do so now.”

Tory MSP Miles Briggs said: “It’s astonishing that as part of an ‘emergency’ £560m public spending cut to finance the pay settlement for council workers, the cash earmarked for an independence referendum has somehow escaped John Swinney’s axe.

“Talk about skewed, self-serving priorities.

“People up and down Scotland, who’ll bear the brunt, will rightly be furious that no matter how deep the cuts bite, the SNP will always safeguard spending on their pet obsession – a divisive constitutional vote that most Scots don’t even want.

“It’s also shamelessly predictable that the Deputy First Minister – like Nicola Sturgeon 24 hours earlier – continues to peddle the line that the SNP is providing £3billion in support to help people cope with the cost-of-living crisis.

“Independent analysis has shown that less than one-sixth of this is new money, so ministers need to stop misleading hard-pressed Scots.”

Mr Swinney pointed out the £20m earmarked for Indyref2 would be in next year's budget, not this year's, which was the one being changed.

Labour’s Daniel Johnson called for “greater clarity, honesty and transparency” over the government’s choices.

He asked: “Can (Mr Swinney) set out what plans he’s asked civil servants to examine, and when he will confirm both when they will be put in place and the timelines for implementing them?”

The Deputy First Minister replied: “The budget process will go through the normal process of parliamentary scrutiny, and the ultimate budget revisions will go to the Finance Committee in due course.

Scottish Liberal Democrat MSP Willie Rennie pointed out that £82m of the savings were Barnett consequentials from the UK Government as part of cost of living announcements in the spring.

He said: “I think people deserve to know what the real impacts will be on rural communities, on trading funds, and of course, on employability schemes.”