Westminster urged to increase ScotGov borrowing limits by MPs

The Herald Scotland

16-07-2025

Currently, the Government is limited to borrowing £600 million for day-to-day spending and £450 million for capital projects.
A committee of MPs has told the UK Government to look at increasing the Scottish Government 's capital borrowing limits.
But in a report from the Scottish Affairs Committee at Westminster on the fiscal arrangements north of the border, MPs pushed for the limits to be increased.
The report said: 'At present, the Scottish Government's limited borrowing powers constrain its ability to manage fiscal shocks, as it is only able to borrow for resource purposes to cover forecast errors.
'Capital borrowing limits are currently linked to, and grow in line with, inflation, which may not necessarily be the highest metric of growth.'
It added: 'We agree with the Secretary of State that borrowing limits should be linked to the measure which offers the Scottish Government the highest level of flexibility but, crucially, we note that which metric delivers this remains undetermined.
'The UK Government should therefore publish a transparent analysis of what borrowing limits would look like based on the different metrics advised in the evidence for this inquiry.
'At the next fiscal framework review, we encourage the UK Government to consider reforming the Scottish Government's capital borrowing powers, by automatically coupling borrowing to the metric which offers the highest limit.'
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The report comes at the end of an inquiry by the committee which sought to gauge the effectiveness of the Barnett Formula – the measure which dictates the level of funding the UK Government sends to Scotland every year.
The MPs found the measure was 'fit for purpose', although it is 'imperfect'.
The committee also rejected calls for the formula to shift and provide funding to Scotland based on need.
Scotland, the report said, already receives more funding per head than any other country in the UK and a change in the framework could see funding cut.
In written evidence to the committee, Scottish Finance Secretary Shona Robison reiterated the Scottish Government's support for full fiscal autonomy – an arrangement which would see powers over tax and spending devolved.
But the committee dismissed such a move as not being a 'realistic prospect'.
'Fundamental questions remain about how full fiscal autonomy would work in practice, and whether it would be operable within the constraints of the UK's current devolution settlement,' the report said.
'Practicality aside, we do not believe that a compelling case has been made that such a change would automatically result in Scotland receiving a higher level of funding.'
Ms Robison declined an invitation to appear before the committee, leading the MPs to say 'do not see how we can consider this a serious proposition, and we remain to be convinced that this proposal is desirable in principle, let alone workable in practice'.
Responding to the report, Ms Robison said: 'This report rightly recognises that Scotland's finances remain largely dictated by the UK Government's spending decisions, irrespective of the impact on Scottish public services.
'That has meant Scotland has been left with a shortfall of £400 million to pay for the Chancellor's national insurance increase, and saw Scotland short-changed by more than a billion pounds over the next three years at the recent spending review.
'The decisions we have taken to ask higher earners to pay a little bit more – while most income tax payers pay less than in the rest of the UK – mean that we can support vital public services and provide free tuition, prescriptions and the Scottish child payment to help tackle child poverty.'
Scottish Secretary Ian Murray said: 'The spending review provided the Scottish Government with an extra £9.1 billion, giving them a record settlement.
'People will expect that to deliver better outcomes for Scots – lower NHS waiting lists and better attainment in our schools.
'Spending per head in Scotland is around 20% higher than the rest of the UK thanks to the Barnett formula. This report confirms that it appears to be the position of the Scottish Government to scrap that formula that delivers higher funding – they should explain why they want less money for public services in Scotland.
'Their plans for full fiscal autonomy would mean a £12 billion cut in public spending for Scotland.'