JOHN Swinney has been told spending £20 million on an independence referendum next year is "not prudent" as he was urged to reallocate the money to boost the economy.

The call has been made by a pro-UK business group ahead of the Scottish budget this month and comes after a series of demands by opposition parties for the cash to be reassigned following the Supreme Court's ruling that Holyrood cannot hold a vote on leaving the Union without consent from Westminster.

Nicola Sturgeon's plan to hold an independence referendum in October 2023 now appears highly unlikely as Prime Minister Rishi Sunak has refused to agree to one and argued the two governments should work together during the current economic climate.

The First Minister has insisted following the court ruling and the failure of the UK government to agree a new vote, the SNP will fight the next general election as a "de facto" independence referendum.

Civil servants have kept working on papers setting out the Scottish Government’s case.

In a letter to the Deputy First Minister and acting finance secretary Struan Stevenson described plans to spend £20 million on a referendum, which was outlined in the Scottish Government's spending review in May, as “unthinkable” and outlined a range of policies that the money should be spent on.

"Against the current economic backdrop it seems clear that such significant spending on constitutional matters can no longer be thought sustainable or prudent in the current economic climate," the chief executive of Scottish Business UK (SBUK) told Mr Swinney.

"Indeed, having tasked a large civil service team to build a new case for taking Scotland out of the UK, and having spent a reported £1.5 million on activity including a set of three ‘Building a New Scotland’ policy papers ahead of a referendum that is not going to happen, there is an urgent need for a change of direction in this month’s Scottish budget. 

"The capacity of Scottish business and our vital public services to weather the current economic downturn that has seen GDP fall 0.2 per cent in the third quarter of 2022, will only be fulfilled if the Scottish Government is completely focused, working in collaboration with the Westminster government, on shaping the conditions for growth."

He added that the money should be spent on aims in line with the Scottish Government’s own National Strategy for Economic Transformation (NSET).

"If reallocated in the 2023-24 Scottish Budget to support businesses, the Scottish Government can double the level of direct investment in Scottish companies through Scottish Enterprise Growth Investments since the NSET’s publication," he said.

"Alternatively, it could almost double the £25 million Low Carbon Manufacturing Challenge Fund to help Scottish manufacturing companies develop the low carbon products, processes and services that they and the wider economy need to support net zero targets in the midst of the cost-of-energy crisis. 

"Or it could multiply by a factor of ten the amount of investment in computing science hardware in Scotland’s schools since May, thereby helping to upskill the workforce of tomorrow."

He added: "To keep wasting the financial and human resources at the Scottish Government’s disposal when these and a myriad of other practical options are open to ministers is unthinkable.

"Instead, we would urge you to use the forthcoming Budget on 15 December to send a strong positive message to company leaders here, as well as potential overseas investors that would seek to back our key industries, that Scotland is focused on growth and collaboration, not the kind of divisive constitutional distraction that business dreads as a deterrent to recovery."

The use of public money and officials for preparations for a second independence referendum is being examined by Whitehall mandarins with Simon Case, the cabinet secretary, and John-Paul Marks, the permanent secretary to the Scottish Government, in talks about the implications of the court ruling.

Last month Mr Swinney announced a further £615m of cuts to healthcare, education and the justice system, blaming the “calamity” of Liz Truss’s mini-budget.

Describing the combination of Brexit, Covid recovery and the energy crisis resulting from the war in Ukraine as unprecedented, Mr Swinney told MSPs that he had never known a time of greater pressure on the public finances.

Announcing “reductions and reprioritisations” across a range of departments, as well as committing to cost of living support and public sector pay deals, he brought total cuts – when added to previously announced cuts of £560m – to almost £1.2bn.

Responding to the calls from SBUK a Scottish Government spokesman said: “In light of majority support within the Scottish Parliament for an independence referendum, Scottish ministers remain ready to engage with the UK Government at any point on delivering a referendum. 

"The 2023-24 Scottish Budget will be published on 15 December 2022, and will set out the Scottish Government’s spending plans for 2023-4.”