Scottish independence: Let Scotland borrow £1bn from UK in hard times, say Lib Dems

the Scottish Parliament should be given powers to borrow up to £1 billion from UK coffers in the hard times to boost the country’s economy, an influential Liberal Democrat Commission is to recommend.

The body, chaired by Sir Menzies Campbell, will unveil a worked-up proposal for Home Rule for Scotland today, as it sets out its vision for how the country could be governed if it remains within the United Kingdom.

Sir Menzies will further recommend that the Scottish Parliament is given the power to collect almost all income tax, capital gains tax, inheritance tax and air passenger duty – but not VAT, alcohol or excise duties.

With such changes fundamentally altering the entire balance of the UK, the commission says the entire country could move to a new federal system, with a series of regional parliaments across England also able to decide on such matters.

It would then be for a new federal government to set powers over foreign affairs, defence, currency, welfare and pensions.

The radical proposal is likely to form the Lib Dems’ own offer on a reformed UK going into the 2014 independence referendum.

Labour and the Conservatives are also examining moves to boost the powers of the Scottish Parliament.

However, SNP figures last night criticised the proposals as a “step backward”.

In an introduction to the report, Sir Menzies notes that such a Home Rule settlement for Scotland “can only be 
stable” if the rest of the UK agrees to move to a more federal structure. It proposes that the Act of Union between England and Scotland should be scrapped and replaced with a “Declaration of Federal Union”.

A new federal system, say the Lib Dems, would answer the West Lothian Question, which asks why Scottish MPs should be able to vote on English affairs, but not the other way around.

He notes: “Over time, we are confident that the constitutional debate in England, currently under-developed, will progress and reach a conclusion – but time will be required for that debate.”

Details of the report seen by The Scotsman on borrowing powers recommend that in order to cover “shocks” to Scotland’s tax income, Holyrood should be able to borrow from the Treasury. Under powers already agreed under the Scotland Act, a figure of £500 million has already been agreed, but the report suggests a new cap of £1bn.

One Lib Dem source said: “One of the great advantages of Scotland in the UK is financial security and strength provided in adverse times. We want to retain that advantage of low borrowing costs while giving the Scottish Government greater freedom to borrow to invest in the nation’s infrastructure.”

The source added: “It permits borrowing as long as it can be demonstrated that a revenue stream exists, or can be created, to meet the repayments.”