Fiscal agreement

Holyrood gets more flexible borrowing in new deal

Shona Robison
Shona Robison: extra flexibility (pic: Terry Murden)

Scottish Government ministers will be able to borrow more for public services under a new deal reached with Westminster.

The updated Fiscal Framework, announced today, will see Holyrood’s capital borrowing powers rise in line with inflation.

The new deal maintains the Barnett formula, through which the Scottish Government receives over £8 billion more funding each year compared to levels of UK Government spending per person elsewhere in the UK. It also updates funding arrangements in relation to court revenues and the Crown Estate.  

The amount the Scottish Government can borrow to mitigate against errors in forecasting will be increased from £300 million to £600m, with no limits to the amount that can be drawn from the Scotland Reserve, which Holyrood says will provide some greater flexibility to handle funding volatility.

Borrowing and reserve limits will grow in line with inflation and will therefore be maintained in real terms.

Chief Secretary to the Treasury, John Glen, said: “This is a fair and responsible deal that has been arrived at following a serious and proactive offer from the UK Government.  

“We have kept what works and listened to the Scottish Government’s calls for greater certainty and flexibility to deliver for Scotland. 

“The Scottish Government can now use this for greater investment in public services to help the people of Scotland prosper. These are the clear benefits of a United Kingdom that is stronger as a union.” 

The funding arrangements for tax will be continued, with the Scottish Government continuing to keep every penny of devolved Scottish taxes while also receiving an additional contribution from the rest of the UK. 

Under the previous Fiscal Framework, the Scottish Government could borrow £450 million per year within a £3 billion cap, as well as receiving a Barnett-based share of UK Government borrowing. Instead, these amounts will rise in line with inflation.

Scottish Secretary Alister Jack said: “The renewed Fiscal Framework shows what can be achieved when there is a collaborative focus on delivering economic opportunity and why we are stronger and more prosperous as one United Kingdom.   

Alister Jack at SAC hearing
Alister Jack: benefits of the UK

“The deal – worth billions of pounds to Scotland over the coming years – builds upon work to support economic growth and provide more high skill jobs, investment and future opportunities for local people, such as the establishment of Investment Zones and Freeports in Scotland. 

“The UK Government knows that high prices are still a huge worry for families. That’s why we’re sticking to our plan to halve inflation, reduce debt and grow the economy. 

“As well as providing targeted cost of living support, we are directly investing more than £2.4 billion in hundreds of projects across Scotland as we help level up the country.”  

Scotland’s Deputy First Minister Shona Robison said: “This is a finely balanced agreement that gives us some extra flexibility to deal with unexpected shocks, against a background of continuing widespread concern about the sustainability of UK public finances and while it is a narrower review than we would have liked, I am grateful to the Chief Secretary to the Treasury for reaching this deal.  

“As I set out in the Medium-Term Financial Strategy, we are committed to tackling poverty, building a fair, green and growing economy, and improving our public services to make them fit for the needs of future generations.

“We still face a profoundly challenging situation and will need to make tough choices in the context of a poorly performing UK economy and the constraints of devolution, to ensure finances remain sustainable.”

Scottish Labour Finance spokesperson Michael Marra said “I welcome this new settlement, which will give the Scottish Parliament more flexibility than ever. This puts to bed once and for all the SNP’s false claim that they don’t have any borrowing powers.

“As the devolution settlement continues to evolve, it must be used to meet the needs of the people of Scotland. 

“Under the SNP the devolved powers are going unused and devolved finances are being mismanaged – these new powers must be used responsibly to tackle the major challenges Scotland is facing. 

“The SNP is out of excuses for failing to deliver for the people of Scotland – they must use the powers and financial flexibility they have to achieve real change.”

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