‘Significant’ amount of Government’s borrowing ability used, report finds

The Scottish Government has used a “significant” amount of its ability to borrow money, which may constrain the choices of future governments, economists have said.

The Fraser of Allander Institute (FAI) said the fiscal situation is likely to be “quite tight” in the years beyond 2024/25.

Under the fiscal framework agreement between the UK and Scottish governments, ministers in Edinburgh are able to borrow to fund capital investment.

However this is limited to a total capital debt stock of £3 billion, with a maximum of £450 million in a single year.

As part of its annual report on the upcoming Scottish Budget, the FAI analysed how this borrowing would evolve in the current decade under the Scottish Government’s plans.

With borrowing of £250 million each year, it is forecast to reach 83% of the cap by 2028/29.

In a briefing to journalists, FAI director Professor Mairi Spowage was asked about the future of public spending.

She said: “It is quite difficult to know what the outlook for the Scottish budget past 24/25 is, but I think that it’s going to be quite tight and quite difficult.”

Prof Spowage said the UK Government appears to be facing a difficult fiscal situation, which will affect how much Scotland receives through the block grant.

Discussing capital borrowing, she said in a few years’ time debt interest payments could reach the same amount as the Scottish Government is allowed to borrow under the yearly limit.

Prof Spowage said: “It’s kind of in an interesting place for future governments, the extent to which they’re going to have the capacity to borrow.”

Currently it is paying around £100 million or £200 million on debt interest, she said.

Prof Spowage added: “A significant amount of the cap already has been used, which does limit future governments’ potential.”

A Scottish Government spokesperson said: “The Deputy First Minister has been very clear, Scotland is facing one of the most challenging budget settlements since devolution as a result of sustained high inflation and a UK Government autumn statement that failed to deliver the investment needed in Scotland’s public services.

“In May, the Deputy First Minister set out in our Medium-Term Financial Strategy how we will ensure Scotland’s finances remain on a sustainable footing.

“The Scottish Budget will build on this, outlining the tough choices that have been required to target funding at our three key missions – equality, community and opportunity.”