Nicola Sturgeon will have to choose between a £420 million funding gap and forcing Scots to pay higher taxes than the rest of the UK.
Economists have warned that once the Tory leadership election is over, the SNP-led Scottish Government will face a politician’s nightmare.
Both Rishi Sunak and Liz Truss have promised to cut taxes if they are elected Prime Minister.
A 1p reduction in the basic rate of income tax in 2024 is already UK Government policy, and both candidates support it, saving the average taxpayer £175 per year.
The Foreign Secretary has promised over £30 billion in cuts, primarily by rolling back the increase in national insurance and lowering corporation tax.
Meanwhile, Rishi Sunak has promised that, in addition to lowering the income tax rate in 2024, he will lower it to just 16p by the end of the decade.
However, because income tax policy has been devolved to Scotland, the plans of the two candidates will leave the Scottish Government in a bind.
“UK Government plans to cut the UK basic rate of income tax from 20p to 19p in 2024 will not apply in Scotland,” said David Eiser of the Fraser of Allander Institute.
“The more closely that the Scottish government tries to match tax cuts made by the UK Government, the less revenue it will have to fund public services in Scotland.”
The economist warned Boris Johnson’s replacement that lowering income tax would cost a whopping £400 million.
The new financial headache for the Scottish Government comes after Ms Sturgeon’s deputy first minister begged the UK Government for additional funding earlier this week.