Scottish Government
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Borrowing powers

First Minister Alex Salmond presented the case for making substantial improvements to borrowing powers in the Scotland Bill recently, stating that the proposals had the unanimous backing of the Scottish Parliament and a powerful democratic mandate.

He emphasised that any borrowing framework for Scotland - whether through the Scotland Bill or through full fiscal responsibility - should be founded on clear and objective principles, offer strong economic levers, and be fit for the long-term.

Earlier this week, Mr Salmond outlined plans for a phased devolution of the Crown Estate in Scotland, focusing on how local communities can benefit from the development of offshore renewables with the creation of a Fund for Future Generations, enabling a share of the substantial anticipated future revenues from offshore energy to be invested for the long-term benefit of the people.

Today he focused on a proposed framework for borrowing based around the core principle of long-term sustainability of debt obligations. The First Minister emphasised that this is the only acceptable basis for borrowing by the Scottish Parliament.

Today's paper is the second in a series of six, prepared by Ministers, and proposing amendments to the Scotland Bill that will support Scotland's economic recovery. Further papers on excise duty, an enhanced role in Europe, corporation tax and broadcasting will be presented to the UK Government in due course.

Under the Scottish Government's borrowing powers proposals, borrowing for capital investment would be permitted up to an annual limit of to 2 per cent of Scottish Government resources annually, with the total stock of capital borrowing capped at the equivalent of 20 per cent.

Borrowing to fund shortfalls in revenue would be subject to a total limit of 5 per cent of Scottish Government resources, which could be drawn down in a single year if necessary and repaid over a period up to five years. Mr Salmond, however, made clear that the Scottish Government would not seek borrowing powers to fund any structural deficit in the Scottish Budget and will seek to at least balance its revenue budget over the cycle.

The First Minister said:

"The Scotland Bill does not address the challenges ahead and that is why the Scottish Government has presented the Treasury with a comprehensive paper outlining proposals to improve borrowing powers in the Scotland Bill.

"There is clear agreement in the Scottish Parliament - which the Scottish Government shares - that more must be done to boost economic activity across the country, and that we must have the levers to shape Scotland's future.

"We are proposing substantial improvements to the UK Government's borrowing powers proposals. The original proposals were not fit-for-purpose, lacked long-term coherence and ambition, and would simply not deliver the changes required to meet the challenges ahead.

"The proposals for capital borrowing outlined by the UK Government earlier this month offer some modest progress, but have been developed without consideration or discussion on their suitability or affordability for Scotland.

"The Scottish Government is open to technical discussions with the Treasury on how to agree a sustainable approach to capital borrowing and our paper outlines the changes that would help take Scotland forward.

"As a result of the decisions taken by the UK Government in the 2010 Comprehensive Spending Review, the Scottish Government's capital budget will fall by 36 per cent in real terms - a reduction in real terms spending power of £4.1 billion over four years.

"The speed and scale of UK Government cuts constrains the Scottish Government's flexibility. This is why it is critical that Scotland's capital borrowing must be designed to support our economic recovery programme to create new jobs, investment and growth.

"We are looking to the UK Government to respond quickly and in detail to our proposals. They reflect not only the position of the Scottish Government, but the firm view of the Scottish Parliament, and the overwhelming democratic mandate for stronger economic powers for Scotland today."

The proposed measure of Scottish Government resources comprises: the block grant; the Scottish Rate of income tax; stamp duty, landfill tax and potentially also corporation tax and excise duty; and other sources of income including fees and charges.

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