Scottish Government requests new financial powers
Finance secretary Kate Forbes has formally requested new powers to help Scotland meet “the significant economic and fiscal challenges” of coronavirus.
Writing to the Chief Secretary to the Treasury, she details the temporary changes being sought by the Scottish Government.
In the letter, Ms Forbes outlined the specific flexibilities which herself, the Scottish Parliament and the Scottish Government believe they need.
The letter reads:
Ability to offset capital underspend against resource expenditure
As current HMT budgeting rules do not allow capital underspends (grant and financial transactions) to be redeployed to support resource expenditure, I am seeking the ability to switch up to £500 million of annual capital underspend to support our COVID-19 response. This would allow us to use our total existing budget most effectively in responding to the current crisis. In order to support this, a guarantee of no negative capital consequentials in-year would be required.
Flexibility over resource borrowing
In the current circumstances, I believe that the Scottish Government should have flexibility to borrow up to £500m to support the COVID-19 response this year. I propose that this would effectively substitute for the existing power to borrow for cash management, which I do not expect to need.
This would be in addition to the already planned resource borrowing of £207m to fund the tax reconciliation impact, and so would also require a one-off extension of the total annual limit of £600m for all resource borrowing set out in the Fisca Framework.
In addition, repayment periods for borrowing this year should be extended to 10 years (from the 3-5 years currently in the Fiscal Framework), to allow the repayments of this larger sum to be managed in a way that limits the annual impacts of this additional borrowing on planned spending.
These proportionate flexibilities to the annual limits and restrictions could be accommodated within the existing overall cumulative limit of £1.75 billion.
Greater flexibility in relation to reserve for capital
In light of the exceptional circumstances presented by COVID-19, the limits on carry over and drawdown of capital should be increased. The current limit of £100m for Capital and Financial Transactions together is too small to allow access to the current accumulated balance of Capital and Financial Transactions within the Reserve.
Increasing the limit to £220m would allow full access to all existing Capital/FT balances. I would also welcome any possible extension to drawn down limits beyond 2020-21, should that prove necessary, to allow maximum possible access to this funding to support an economic stimulus beyond 2020-21. For example, increasing the annual drawdown limit to match the total of any Capital and FTs deposited to allow maximum flexibility in their future deployment.
Ms Forbes also emphasised the need to discuss permanent new financial arrangements to help the devolved administrations better manage budgetary risk.
The letter has been sent ahead of the latest regular quadrilateral meeting involving finance ministers from the UK, Scottish, Welsh and Northern Irish governments, which is due to take place remotely tomorrow.
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