Raising income tax above levels elsewhere in the UK would risk long-term damage to Scotland’s economy and take “years to repair”, a leading business figure has directly warned Nicola Sturgeon.

Scottish Chambers of Commerce President Tim Allan said in a speech to the organisation’s annual dinner at the Glasgow Hilton last night – with the First Minister present – the country “cannot afford to be associated with higher taxes than elsewhere in the UK”.

With Finance Secretary Derek Mackay expected to alter Scotland’s income tax bands in next week’s Budget, Mr Allan said: “Our concern is that, at a time of sluggish growth and faltering business investment, a competitive Scotland cannot afford to be associated with higher taxes than elsewhere in the UK.

“A high-tax Scotland would be easy to achieve, but the damage could take years to repair.”

He went on to say: “Unless tax revenues were ring-fenced to drive growth and job creation, the cost for a small nation in terms of lost investment is incalculable.

“We want a level playing field on tax throughout the UK to keep Scotland competitive.”

Scottish Conservative shadow finance secretary Murdo Fraser said: “Tax hikes would be a disaster not just for hard workers, but businesses right across the country.”

Last month the SNP leader published four illustrative options from a discussion paper on taxation, most of which envisaged Scots earning above £24,000 paying more in income tax to help pay for public services.

Ms Sturgeon told last night’s event the Scottish Government recognised the “crucial importance of providing a good environment for all businesses here in Scotland”.

She said: “Next week, we will publish our draft budget for the year ahead.

“We’ll set out how – at a time when our block grant for day-to-day expenditure is declining in real terms – we intend to fund first-class public services, a fair social security system, and how we achieve our ambitions for Scotland’s economy.

“In doing that, we recognise the crucial importance of providing a good environment for all businesses here in Scotland.”