Empowering economic growth or disturbing the recovery?

The borrowing powers of the Scottish Government are strictly limited.

The Scotland Bill, currently progressing through Westminster, proposes that the Scottish Parliament should have the power to borrow directly from the markets by issuing bonds.

The Scotland Act provides for short term borrowing sufficient to cover 'a temporary excess of sums paid out of the Scottish Consolidated Fund over sums paid into that Fund' or for 'providing a working balance in the Fund'.

Currently any such borrowings must only be from the UK Government.

The Scottish Government is responsible for providing most public services in Scotland and significant infrastructure projects, such as investment in roads, schools and hospitals.

How increased borrowing autonomy, within the current framework, will provide greater flexibility in the Scottish Government Budget?

Will it provide an alternative source of financing for major infrastructure projects as and when required?

CIPFA is in the process of analysing the possible consequences of the borrowing power in the bill. We’re very keen to hear from you and your organisation about your views on the Scotland Bill.

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Comments

1. Robin
18 April 2011 - 20:14

Firstly one must consider the role of nationalism and nations in an increasingly global economy. I'll say no more than that, but this has to be a starting point. Let us now assume that devolution is a process, perhaps even a reversible one. At present I believe that there is a political consensus that more powers should be devolved. Calman et al believe that Scotland should have more fiscal autonomy. If that is the case then there should be borrowing powers. Is this an opportune moment to borrow? This depends on your economic and political viewpoint. However, one’s ability to borrow is dependent on the rate of growth of revenues plus the rate of savings are found to fund the borrowing. Just after the global financial crises it seemed that Keynesianism might be making a comeback. Two factors have damped this resurgence. It seems that the more we borrow to stimulate growth the less effective it is. Furthermore, with greater indebtedness of the occidental governments, corporates and households, flowing from the global financial crises, there is a real question whether this debt can be serviced. I very much doubt public sector borrowing will enable the Scottish Government, of whatever shade to increase revenues to finance the borrowing. Do we really need the powers? If the Scottish government was prepared to enter into a contract with Scottish local government to use its powers to borrow then local government could borrow under the prudential regime and use the finance to support the Scottish Governments objectives. At a time of unprecedented fiscal stringency, there would have to be a political accord between CoSLA and the Scottish Government that there would, at least, be agreed levels of retrenchment of the block grant, if not standstill, or even growth. In principle – yes, but is this a good time and are the objectives realistic – no. Happy to provide evidence to support my assertions.