New analysis by the Commission shows a continuing weakness in wage growth, which has consequences for the forecasts of income tax receipts.

GDP growth is expected to remain below 1% a year over the five-year forecast period, reaching 0.9% in 2023, but employment will continue to increase.

However, the Commission has revised down its outlook for real wage growth in Scotland. Real wages are now anticipated to fall by 0.5% during 2018, before levelling off in 2019 and starting to grow slowly from 2020 onwards.

This feeds through to the income tax forecast, which has also been revised down from the Commission’s previous forecast by £209m (or 1.7%) in 2018-19. This shortfall is forecast to increase to £437m by 2022-23, with the total downgrade over the five years totalling £1.7bn, including small cuts in anticipated amounts from other taxes including air passenger duty.

The Commission now forecasts Scottish tax revenues of £15.8bn in 2018-19; forecasts of social security expenditure amount to £428m in the same year.

Dame Susan Rice, chair of the Fiscal Commission, said: ‘Our view of the Scottish economy has not fundamentally changed since December – the outlook is for subdued growth in Scotland over the next five years. The drivers of this are modest population and productivity growth; with productivity forecast to improve slowly from the weak performance experienced over 2016 and 2017.

‘We have reduced our expectations for wage growth which feed through to a reduction in income tax revenues throughout our five year forecast.’

The Scottish finance secretary Derek Mackay has proposed alternative UK fiscal plans which he said would provide valuable additional resources for Scotland’s public finances to support key commitments and public services while keeping the public finances on a sustainable path.

Mackay said the Scottish government’s medium term financial strategy outlines its approach to financial management and fiscal rules; sets out a range of possible funding scenarios for the Scottish Budget over the next five years; and details key policy priorities and approach to supporting Scotland’s economy.

Mackay said: ‘This strategy clearly lays out the consequences of UK choices on Scotland's public finances, including UK imposed decisions on austerity, immigration policies that don’t suit Scotland, and taking us out of the single market through Brexit.

‘We will always deliver responsible government and balance the books, and I challenge the Chancellor to change course. I have therefore set out fiscal alternatives that would mean a fairer deal for Scotland with substantial investment to support our public services and stimulate our economy.’

Scottish Fiscal Commission May 2018 fiscal and economic forecasts are here.

Report by Pat Sweet