Greater access to borrowing for devolved governments during times of national emergency should be considered by HM Treasury, says Holyrood’s Finance & Constitution Committee.
In its Pre-Budget Scrutiny report published today, the committee says allowing greater borrowing via the National Loans Fund could enable the devolved governments to tailor their respective spend and policy responses to the current pandemic and economic recovery.
The unanimously agreed cross-party findings say the Fiscal Framework – Scotland’s funding model - has protected Scotland’s budget from a UK-wide economic shock this year, but an imbalance has become apparent in how the framework operates during a time of crisis.
The report reflects that without its own day to day borrowing powers the Scottish Government is dependent on policy decisions at a UK level when determining its own Covid-19 related spending and policies.
By example, the Committee says it would be “very challenging” for the Cabinet Secretary to continue with policies like business rates relief – almost £1billion this year - without Barnett consequentials.
A key question for the Committee is whether the balance between protection against UK-wide shocks and the Scottish Government’s ability to respond to specific circumstances and policy priorities in Scotland is calibrated correctly.
The committee is therefore recommending that HM Treasury consider the case for greater access to borrowing by devolved governments during times of crisis.
Finance & Constitution Committee Convener Bruce Crawford MSP said:
“The Committee recognises the enormity of the economic and fiscal challenge facing the Scottish Government in preparing next year’s Budget. At the same time the Committee welcomes the extent to which the Fiscal Framework has protected the Scottish Budget - as it should - from the impact of the UK-wide economic shock caused by COVID-19.
“But the Committee also notes that the extent of the economic shock has highlighted an imbalance, or ‘asymmetry’, in how the Fiscal Framework operates in an emergency situation.
“On the one hand, Scotland has benefitted significantly from the unprecedented peacetime levels of UK Government borrowing both in terms of UK-wide economic measures and from Barnett consequentials in devolved areas.
“However, without its own borrowing powers to fund day to day spending, the Scottish Government is largely constrained by UK spend and policy decisions when determining its own COVID-19 related spending and policies.
“For example, it would be very challenging for the Cabinet Secretary to continue with policies like business rates relief, in its current form, without Barnett consequentials.”
“It is on this basis that the Committee recommends that in the short-term, and without any presumption in relation to the outcome of the review of the Fiscal Framework, HM Treasury should give further consideration to providing the devolved governments with greater access to borrowing via the National Loans Fund in emergency situations such as the current crisis.
“This could allow the devolved governments to tailor their own spend and policy response to the pandemic and economic recovery in Scotland depending on how this evolves differently from the situation in England.”
Mr Crawford added:
“Our report has the benefit of being unanimously agreed by all Members on this committee. Our findings are very much evidence-based and based on the Committee’s detailed examination of the Fiscal Framework over a number of years. The report therefore has weight and authority; that this is a serious contribution that seeks to improve the Fiscal Framework and the architecture of governance across the devolved nations.”
Find the Finance & Constitution Committee’s full report here.
Built into the Fiscal Framework are arrangements for its review. It states that this will be carried out for the first time following the Scottish Parliament elections in 2021. The framework states that “its effective operation should not require frequent ongoing negotiation, but that the arrangements should be reviewed periodically to ensure that they continue to be seen as fair, transparent and effective.” The review will be informed by an independent report with recommendations presented to both the UK and Scottish Governments by the end of 2021.