Scottish Government ministers need greater flexibility over Holyrood’s finances, including new borrowing powers, but there is no case for full fiscal powers, according to a committee of MPs.

The Scottish Affairs Committee, whose members until last month included SNP Westminster leader Stephen Flynn, said the Barnett Formula, the mechanism used to adjust the funding to the devolved nations, remains fit for purpose.

MPs said there is no clear need to reform it beyond a few amendments, including greater transparency on how it is worked out.  

The committee voiced concerns about the impact UK Government spending decisions can have on the Scottish Government’s budget, often with little warning.

Its report, published today, emphasises the importance of regular communication between the two governments on UK spending and urges the UK Government to assess and consider the impact of UK budgetary changes on the block grant whilst making decisions. The details of this impact assessment should be released alongside any spending decisions, say MPs. 

They say there is no real benefit to the current system capping the amount stored in the Scotland Reserve and the UK Government should consider removing this cap.  

Similarly, the Scottish Government’s fiscal flexibility is further constrained by its limited borrowing powers. It can only borrow to cover forecast errors, meaning it has a limited ability to manage fiscal shocks. To remedy this, the report recommends that the UK Government reforms the Scottish Government’s capital borrowing powers to offer higher limits.  

The report states that the committee considers the Scottish Government’s call for full fiscal autonomy an “unrealistic prospect”, adding that there is not a compelling case that it would automatically result in higher levels of funding for Scotland.  

Chair of the committee, Patricia Ferguson, Labour MP for Glasgow West, said: “The Barnett Formula has been the subject of continued debate since its introduction, nearly fifty years ago.

“Throughout our inquiry we’ve scrutinised it from every angle and ultimately found that the formula is fit for purpose and support its continued use to determine Scotland’s levels.  

“The formula is in no way perfect, but the committee heard no convincing evidence that there is any need for the formula to be reformed significantly, or that there is a workable alternative.  

“To ensure that the Barnett formula works as well as it can for Scotland, today’s report sets out ways to improve the way it operates in practice, by improving transparency about its application and making changes to Scotland’s broader financial framework.” 

Mr Flynn, MP for Aberdeen South, stood down from the committee last month ahead of seeking election to Holyrood. If elected he will have to resign his Westminster seat.

He was replaced by Dave Doogan, SNP MP for Angus and the Perthshire Glens, thereby maintaining one SNP member alongside six Labour, two Conservative and two Liberal Democrats, chosen to reflect representation in the House of Commons.