The Scottish Government has been handed new temporary borrowing powers after economic forecasts permitted the move for the first time due to a “Scotland-specific economic shock”.
The move allows the Government to borrow a maximum of £300 million for each of the next three years.
This is in addition to current powers, which enable Scottish ministers to borrow up to £300 million a year.
However the measure – part of the fiscal framework agreed between ministers in London and Edinburgh – only permits the Scottish Government to borrow to cover forecast errors.
Finance Secretary Kate Forbes is now due to borrow the maximum permitted at the moment under the deal – £319 million
She said the “extra flexibilities” are welcome, though she stressed they are “constrained and temporary”.
Speaking about the new powers as she unveiled her draft Budget for 2021-22, she added they “do not change the fact that the Scottish Government cannot borrow at its own hand to fund spending in response to Covid-19 or support the economy in the way that countries around the world have done”.
The Scottish Parliament Information Centre (Spice) explained the new borrowing powers were granted because of a forecast difference in growth between the Scottish and UK economies.
Dame Susan Rice, chair of the Scottish Fiscal Commission (SFC), said the conditions for a Scotland-specific economic shock were met because the UK Office for Budget Responsibility (OBR) was “more optimistic” about the economy in its forecast in November.
She said: “The OBR’s November 2020 forecast was made before the current lockdown was even announced, so they took a more optimistic view of the UK economy for the start of this year 2021 than we have done now for Scotland.”
SFC chief executive John Ireland added: “We think this comes about because of difference in time of forecasts.
“The OBR forecast is slightly more optimistic than ours, it was done in November last year before the harder lockdowns in January this year and before news of the mutant variants.”
He said he expects the forecasts which allowed for the additional borrowing to be triggered will be “revised away”, when the OBR publishes is next forecasts in March.
But he said: “Nevertheless the triggering in the fiscal framework of the additional £300 million borrowing facility each year for forecast error… that lasts for three years, even if the shock is revised away.”
The Scottish Government has demanded further borrowing powers throughout the Covid-19 pandemic, and Spice said it is “somewhat ironic” they have been granted in this way.
The Spice report said: “This disconnect in the timing of the OBR and SFC forecasts is likely not how either government intended additional flexibilities to be delivered, but is yet another consequence of the ‘unprecedented times’ that we live in.”
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