Doubling of Scottish Government borrowing powers announced by Treasury

Ministers have been negotiating an updated agreement to the fiscal framework which governs how the budget is calculated for the Scottish Government, with the UK Government announcing today a doubling in the borrowing powers available to Holyrood.

The new deal will see the amount of borrowing allowed jump to £600m a year, however the money can only be used to tackle in-year cash management or mitigating forecast errors which see the Scottish exchequer out of pocket and cannot be used to fund new policy commitments.

Income tax figures confirmed earlier this year that the Scottish Government’s spending power would be reduced by £390m for the 2024/25 financial year due to the difference between forecasts and actual income.

This was significantly lower than the initially forecast income tax reconciliation, with the government budget predicted to be hit by around £700m before confirmation of the final, lower figure.

The increase in borrowing power will allow this to be covered completely by borrowing rather than cuts to policies and budgets, with the UK Government stating this effectively results in around £90m in additional spending power for the upcoming financial year.

The deal also removes limits on the amount that can be withdrawn from the Scottish reserve to spend on future years.

Borrowing allowances will also increase with inflation from now on, ending one of the significant criticisms of the original framework.

The deal maintains the Barnett formula, which governs how cash is distributed to the devolved regions from the Treasury. The previous funding arrangements for tax have also not been changed.

It is understood both governments are content with the deal struck, with further significant reviews of the agreement unlikely in the near future.

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.”

Ms Robison, Scotland’s finance secretary, 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.”