FINANCE Secretary Derek Mackay has warned MSPs that public spending cuts may be required to help deal with a possible budget shortfall of more than £1 billion – because of Holyrood’s limited powers.

Mackay said he “may have to look at spending” as the UK Treasury prepares to reduce the block grant over the next three financial years, because the Scottish Government is restricted in the amount it can borrow and the amount of reserve funds it can use.

MSPs on Holyrood’s Finance Committee pressed Mackay on how the Scottish Government will cope with the looming funding shortfall. Reductions to the Scottish budget are forecast to increase from£229 million in 2020/21 to £608m the following year, before falling back to £188m in 2022/23.

Mackay said the situation highlights the “inadequacy” of ministers’ powers.

Scottish Government resource borrowing capped at £300m a year, while only a maximum of £250m a year can be removed from cash reserves.

Mackay said: “The forecast reconciliation at £608m does indeed go beyond any deployment of drawdown of reserves or the borrowing power that we have.

Even if we maxed both it would be true to say that doesn’t reach £608m.”

Mackay insisted he would take a “prudent, fiscally responsible approach” to dealing with the “substantial reconciliations” – although he added the situation is not helped by “Brexit uncertainty”.

With Scotland’s total block grant for the three years still to be determined, the Finance Secretary said that would play an important part in managing the situation.

He told the committee: “As we look at the potential reconciliations, the tools we have to manage that will include what available resources are there at the time, bearing in mind that although we have the availability to draw down from the reserve and we have the borrowing powers, actually it will still be the case that the majority of funding comes from the block grant.

“So the block grant ... is still significant to Scotland’s budget.”

But he also stated: “Yes we may have to look at spending as well, of course, but that will be as well as all the other determinants that set the Scottish budget.”