Holyrood’s ‘historic’ powers for Scottish bonds

The Scotland Act will also see new powers handed to the Scottish Parliament. Picture: Neil Hanna

The move would add to the growing accountability in the way the Scottish Government manages its finances, by making it answerable to private investors through the markets.

But it could prove a more costly way to borrow, as Scotland may be seen as a “credit risk” and Westminster last night warned it would “not guarantee” Scottish bonds.

The Scottish Government is already being given new responsibilities to borrow up to £2.2 billion from 2015-16 to fund major building projects such as hospitals, schools and transport as part of the Scotland Act.

But this initially only effectively earmarked borrowing from the UK government through the National Loans Fund and commercial loans.

Chief Secretary to the Treasury Danny Alexander will announce today that the Scottish Government will also be allowed to issue its own bonds.

Speaking last night, he said: “This is a historic announcement, demonstrating once again how Scotland can grow and prosper within the UK.

“From 2015, Scotland will be able to borrow up to £2.2bn to invest in its hospitals, roads and other capital projects. In addition to having access to the National Loans Fund, our decision means the Scottish Government can directly issue its own debt.

“It will of course be up to the Scottish Government to manage their borrowing, but this is complemented by the tax powers in the Scotland Act, providing the Scottish Government with an independent source of revenue to support borrowing costs.”

The SNP government has already indicated it plans to borrow through the National Loans Fund route when the new powers come into force in 2015.

The Scotland Act will also see new financial powers handed to the Scottish Parliament, as income tax is effectively cut by 10p and MSPs are then responsible for raising it back up to the required level in line with need.

The Scottish Government had, for some time, been appealing for the power to issue Scottish bonds. Supporters of the idea have argued it offers a political advantage as a “symbol of Scotland’s increased autonomy and potentially a symbolic precursor to independence.”

The UK government has already consulted on whether these powers should be extended to allow bonds to be issued, as part of the total £2.2bn borrowing limit.

Chancellor George Osborne said: “Being able to issue its own bonds gives Scotland new powers and new responsibility, within the security of the UK.

“Alongside the considerable new tax and spending powers we have already given in the Scotland Act, it is further evidence of why being part of the UK gives Scotland the best of both worlds.”

The consultation suggested that bonds are unlikely to be cheaper for the Scottish Government as the cost of issuing them would be “significantly above the UK’s cost of borrowing”.

This reflects the view among international markets that the Scottish Government would be a “worse credit risk” than the UK.

A Treasury statement last night warned the Scottish Government would be “solely responsible” for liabilities.

A Scottish Government spokeswoman last night said: “Without the full fiscal powers of independence, the ability of any Scottish Government to borrow to boost investment in infrastructure will continue to be constrained by arbitrary limits imposed from outside Scotland.”