SNP ministers are facing a £1.7bn downgrade in tax revenues over the next five years, according to the latest forecast from the Scottish Fiscal Commission.

The independent body scrutinising Scotland’s budget process said the outlook for the economy remained “subdued”, with low growth and wage stagnation.

Updating its forecasts from December, it said GDP growth was expected to remain under 1 per cent, below the UK forecast, in each year up to 2022-23.

However employment was expected to stay strong and increase over the same period.

But it warned “continuing weakness in wage growth” had forced a downward revision in tax receipts, with real wages now lower than they were a decade ago.

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Real wages are now anticipated to fall by 0.5 per cent this year, before levelling off in 2019 and starting to grow slowly from 2020 onwards.

The knock-on effect is receipts from devolved taxes - principally income tax - falling £209m or 1.7 per cent this year.

The total tax forecast to 2023 is £1.7bn, or 2 per cent, lower than it was in December.

Fiscal Commission chair Dame Susan Rice said: “The outlook is for subdued growth 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.”

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Tory MSP Murdo Fraser said: “This is the most damning evidence yet that the SNP is unfit to run Scotland’s economy. The SNP has obsessed with the constitution for years now, and we can see the impact of its neglect on areas like the economy in these figures.”

Scottish LibDem leader Willie Rennie said the downgrade in tax take was “grim” and a “clear failure by the Scottish Government to boost the economy after ten years in government”.

He said: “From investing in people and skills to delivering the necessary infrastructure, this government has been found wanting. The real world impact of this adjusted forecast is less money for our schools, our hospitals and our police service.”

The figures emerged as Finance Secretary Derek Mackay published his first medium term financial strategy, and blamed Scotland’s low growth on austerity, Brexit and the UK setting an over-restrictive immigration policy.

He admitted the Commission forecasts raised the prospect of “difficult years ahead” if the Scottish Government was not empowered to grow the economy the way it desired.

He told MSPs: “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.

“We will continue to provide value to taxpayers and certainty for our vital public services during the turbulent and uncertain times ahead.

“We want to grow the economy, invest in public services and give the taxpayers of Scotland the best deal anywhere in the UK. We have set out our key social and economic policies, and despite the challenges ahead of us, we can be trusted to keep delivering for Scotland.”

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Labour MSP James Kelly said Mr Mackay’s announcement was “no comfort to the patients, parents and passengers across Scotland who are paying the price of SNP austerity”.

He said: “This statement once again exposes the timidity of the SNP government and its refusal to fully use the powers of the Scottish Parliament to stop the cuts.

“SNP Finance Secretary Derek Mackay needs to stop promoting another divisive referendum and start taxing millionaires rather than punishing Scottish communities.”