The Scottish Government faces tougher UK government controls over its new capital borrowing powers than councils, according to CIPFA.
Responding to a Treasury consultation, the institute notes that although the Scotland Act 2012 extended Holyrood’s borrowing powers, it did not ease existing Westminster constraints on how the money could be raised. However, it does give the Scottish secretary discretion to do so at a later date.
Under the Act, Scotland will be able to raise up to £2.2bn in bond issues to finance capital projects. Currently it can borrow only for cash flow and working balance purposes.
By comparison, local authorities already have capital borrowing powers, and their treasury management is governed by a statutory framework and two professional codes of practice issued by CIPFA. As of March 2011, UK councils had £72.4bn of capital debt outstanding, £10.6bn of it incurred by Scottish local authorities.
‘It would appear that the control framework for the devolved administration is much tighter than that of local government,’ the CIPFA paper concludes.
The consultation reflects Treasury concern over the transparency of sub-sovereign bond issues, and the consequent potential impact on credit ratings. CIPFA argues that the new Holyrood powers would best be exercised under a professional practice framework, as well as being subject to legislative controls.
It suggests that preparation of the Scottish Government consolidated balance sheet, combined with an agreement to follow International Financial Reporting Standards, would increase market perceptions of transparency.
The paper notes with approval the work of the Scottish Futures Trust, established four years ago by the Scottish Government to maximise value for money in Scottish capital projects. It adds that the treasury management skills exhibited by Scottish councils should also strengthen market confidence in Holyrood’s creditworthiness.
‘The Scottish Government may therefore wish to ensure that the existing skills, experience and expertise within the SFT and Scottish local government treasury management services are fully utilised in the development and control of any borrowing plans,’ the CIPFA paper says.
