Scottish Government given power to issue bonds

19 Feb 14
The Scottish Government will be able to issue its own bonds to fund infrastructure projects, the Treasury announced today.

By Richard Johnstone | 19 February 2014

The Scottish Government will be able to issue its own bonds to fund infrastructure projects, the Treasury announced today.

Chief Secretary to the Treasury Danny Alexander said the Holyrood administration would be able to use the borrowing powers granted to it in the Scotland Act 2012 to issue bonds. The legislation, which will localise stamp duty land tax and landfill taxes to Scotland as well as 10p in the basic rate of income tax, also allows the administration to borrow £2.2bn from April 2015 for capital spending.

The Treasury had originally said the Scottish Government could borrow from both the National Loans Fund of the Public Works Loan Board within the limits.
However, following a consultation on the feasibility of
bond issues, Alexander said this additional power would be granted, broadening the sources of financing available to the government.

This is the first time such powers have been passed to a devolved UK administration, he said.

‘This is an 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,’ said Alexander.

‘In addition to having access to the National Loans Fund, our decision today means that 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.’

Access to the National Loan Fund allows Scotland to benefit directly from the UK’s current low borrowing costs, the Treasury added. But issuing its own debt is unlikely to be as cheap, it warned, and Westminster will provide no guarantee of any bonds issued by the Scottish Government, which would be liable for any debts as local authorities currently are.
The announcement comes amid debate on the impact independence would have on Scotland’s fiscal and monetary policy.
Chancellor George Osborne warned last week that Scotland would not be able to enter a Sterling union with the rest of the UK.

The Scottish Government responded that such a decision would be bad for businesses across Britain, and stated it may not be willing to take on a share of UK debt if it was unable to share the assets.

Speaking today, Osborne said the announcement of new borrowing powers for Holyrood showed it could receive new powers and responsibilities within 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 chancellor said.

A Scottish Government spokeswoman said there was 'nothing new' in the announcement.

'Instead of having the powers to borrow that were needed during the recession, the UK government is instead responsible for 26% cuts in capital spending,' she said. 'This is simply too little too late.

'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. Under independence, we would take our own decisions on public finances that are best suited to Scottish circumstances and priorities.'

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