Revelatory response from Swinney to increased borrowing powers

The Scottish Government had initially – and rightly – complained that devolution had not given it borrowing powers, pointing to a ridiculous situation where local councils had the statutory authority to borrow where their government did not.

This situation was remedied in the 2012 Scotland Act where, as the Scottish Government says: ‘The Scotland Act enables Scottish Ministers to borrow for capital purposes up to a cumulative maximum of £2.2 billion. HM Treasury have made clear that borrowing in any one year must not exceed 10% of the Scottish Government’s capital Departmental Expenditure Limit (CDEL) which restricts annual borrowing to approximately £240 million. Borrowing may be through the UK Government from the National Loans Fund, or by way of a commercial loan (directly from a bank or other lender).’

This refers to borrowing for spending on capital projects.

The 2012 Scotland Act also made provision for the Scottish Government to borrow to support revenue spending.

The Scottish Government says: ‘The Scotland Act enables the Scottish Government to borrow for certain revenue purposes up to a maximum of £500m. Treasury have indicated that the limit in any one year would be £200 million. Such loans are to be repaid within 4 years. The purpose of these loans is to help smooth fluctuations in tax receipts. In particular, revenue borrowing will be available to provide bridging funding where actual tax receipts fall short of forecasts and where the alternative would be for the Scottish Government to have to reduce spending in-year. The intention is that borrowing of this kind would be available in relation to both devolved tax receipts (and therefore effective from 2015-16) and receipts from the Scottish rate of income tax following the transitional period (from 2018-19 or 2019-20).’

New borrowing for Scotland announced in the Chancellor’s Spending Review

In his Spending Review on Wednesday this week [26th June], Chancellor George Osborne reduced Scotland’s annual revenue budget by 1.9% for 2015-16, a very modest cut in real terms in comparison to the cuts made across the board in the Review. The Scottish revenue budget would reduce to about £25.7 billion in that year.

Alongside this, the Chancellor announced an increased borrowing capacity for the Scottish Government for 2015-16, adding almost £300 million to the available limit, a 13.6% increase.

The impact of capital spending in England does not stop at the border and the estimate of spending there in 2015-16 is estimated to see a further £400 million of capital spending in Scotland.

This increases the total capital spend available in Scotland to £3.3 billion.

Following the announcement, Scottish Secretary Michael Moore was quoted as saying: ‘The Scottish Government has asked for additional capital resource and the UK Government has delivered it. They must now use it to invest in Scotland and help the economy grow.’

Scottish Finance Secretary, John Swinney, responded by saying: ‘Any extra borrowing will have to be paid back with money from a declining revenue budget.’

On the one hand, this is an astonishingly simplistic response. It is in the nature of borrowing that it has to be repaid – and that involves interest paid from revenue; with the capital repayment of borrowing coming from reserves and/or revenue – or earnings.

This is why the EU sets a limit of 60% on the ratio of debt to GDP of the 13 member states of the eurozone. The endemic crisis facing the eurozone arises in part from the fact that several of the eurozone states, as they responded to their individual financial crises, borrowed way above that level, leaving them exposed to unsustainable rises in interest rates.

Mr Swinney’s response then ignores completely the fact that the 2012 Scotland Act also confers upon the Scottish Government the powers to vary the Scottish Rate of Income Tax and to introduce new taxes with the consent of the Scottish and UK governments.

These powers allow the Scottish Government to raise revenue to contribute to paying for any increased borrowing it wishes to employ.

Mr Swinney has got what he asked for and has been given a much better deal than he can have expected. The difficulty is that the Scottish Government does not wish to use the powers it asked for because borrowing more would put pressure on revenue – or cash-in-hand – spending, as every family knows; and raising taxes to help pay for the borrowing would hit the taxpayer.

None of these consequences of the borrowing powers it asked for and got are acceptable to the Scottish Government because they involve unpopularity.

Stable governance in Argyll has taken a serious hit from the SNP party hierarchy’s panic in such circumstances. The party has been seen working to force its own group of Councillors from power locally, for fear of the unpopularity that would arise from the party brand being associated with necessary but tough decisions in cuts to local spending.

Mr Swinney’s response to the increased borrowing powers conferred by the Chancellor would indicate that the Scottish Government did not actually want these powers as much as it wanted to be able to protest that it was not being given them.

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11 Responses to Revelatory response from Swinney to increased borrowing powers

  1. I think John Swinney’s complaint is that Scotland subsidises the UK so why should we incur extra borrowing when we are denied our rightful share?

    Hot debate. What do you think? Thumb up 11 Thumb down 13

  2. I just don’t get it, we are all subsidy junkies up here, a drain on Westminster resources yet they are still so kind to us with such fruitful gifts.
    Smell a rat anyone?

    Hot debate. What do you think? Thumb up 10 Thumb down 8

  3. So why haven’t the SNP government raised taxes or indicated its willingness to use the increased borrowing powers to assist with the economic challenges facing Scotland?

    Like or Dislike: Thumb up 3 Thumb down 5

    • Possibly because there is a referendum to win and they aren’t daft.

      It is conceivable that using existing powers and tightening a few unpopular screws the Scottish government could prepare for the Osbourne-induced immediate future . . . but the big prize is self-determination, and we are only 444 days away.

      Patience, Lowry.

      Like or Dislike: Thumb up 4 Thumb down 1

  4. There is also the (not-so) small matter of interest charged by the Treasury – which, although I do not have the figures, is, I believe, greater than ‘normal’ & this has to come out of the reduced revenue funding

    Like or Dislike: Thumb up 2 Thumb down 0

  5. This is not the right thread for this but as there isn’t a story on it I thought I would just opt for the most recent one relating to the Scottish Government.

    Delighted to see them about to annouce a scrapping of the right to buy scheme. A terrible policy brought in by Thatcher in the 80s which successive governments failed to reverse. Credit where credit is due for a good policy.

    Like or Dislike: Thumb up 1 Thumb down 0

    • We think they announced that they would do this early on in the 2007 government so it’s been a while.
      The negatives of the ‘right to buy’ were the result of pragmatic governments of all political persuasions who thought ‘job done, off our hands’ and did not add to the social housing stock to replace those bought out into the private sector. [We have to evolve a new way of governing ourselves. Our endemically short-termist system is damaging and wasteful.]
      The positives of the ‘right to buy’ were that substantial numbers of people were able to buy their houses and feel assured of a place in the world in a way they had not previously imagined would have been possible. As well as security, this gave many folk an added sense of self worth.

      Like or Dislike: Thumb up 2 Thumb down 0

      • I agree. The Right to Buy brought many of those on low income into home ownership and many have benefitted financially from the property market boom, which will also have a positive outcome for those who will inherit. The properties were sold at very reasonable prices.
        Unfortunately, some of those who now live in social housing are now being informed that under-use of space will not be paid for via benefits. But please let us not forget about all of those families who are waiting on the housing list for housing suitable for their needs.
        I do not agree with the scrapping of the Right to Buy scheme – it has helped so many for the reasons that Newsie states and I suspect a good few bloggers on this website will have either benefited themselves or know of others. What we need is a lot more social housing built from the proceeds of the sales which is what previous governments and councils have failed to do in the past.

        Like or Dislike: Thumb up 2 Thumb down 1

        • Sorry lowry only just noticed your response.

          Governments yes, Councils no – I could be wrong but I am pertty sure that councils were prevented form spending the capital receipts on new houses. The money was ring fenced to clear HRA debt.

          A staggering statistic is that the average discount awarded on right to buy properties is 47% (give or take a few decimal places) and as at the end of 2011 £45.5 billion of capital receipts for the Right-to-Buy scheme had been taken in.

          That means the value of assets given away by the public purse is a staggering £40.4 billion.

          Like or Dislike: Thumb up 1 Thumb down 0

      • I think I should kick off this by saying I have no problem with people who took advantage of the right to buy – if an opportunity like that is provided by the Government it would be insane not took take advantage. My ‘beef’ is that the opportunity should never have been provided in the first place.

        Heseltine claimed it was to be ‘one of the most important social revolutions of this century’ and he wasn’t wrong – he just was wrong in thinking that it was going to be a good thing.

        As the years went by and council houses were sold off it is with noting that the number of people on the social housing waiting list was increasing by almost exactly the same amount (give or take). Yes it could be argued that successive governments have failed to replenish the housing stock (and it is a fair argument) but that need for replenishment should never have been so great.

        Social housing was never intended as a vehicle for profiteering and it certainly wasn’t intended to be manipulated as a cynical vote winner by a Tory Government desperate to tap into the working class vote.

        It wasn’t just people getting on the property ladder and enhancing their security and self-esteem. It was riddled with corruption and abuse by both individuals and companies who managed a plethora of former council houses. Even those who acted out of good faith with no desire to bend the system were let down by the advice they were given by civil servants. Mortgages for ex LA houses were higher than the rent payments, people weren’t equipped for repair and maintenance bills, and the rate of repossession for people who had bought their house were higher than repossession rates for ‘normal’ home owners.

        Much like the ‘misselling ‘of insurance policies, endowment mortgages etc this was cynical manipulation of people through promises of a better life which was not always sound advice.

        Furthermore for those people who it is claimed had enhanced self-esteem let us not forget that the stock that was ‘left behind’ was the lower quality stock (which nobody wanted) and so the people moving into social housing were suffering the exact opposite of enhanced self-esteem. Any decent desire to provide good quality social housing had been replaced by a desire to win votes, remove assets from the balance sheet and reduce the need for repairs & maintenance and administration.

        Thatcher called it ‘popular capitalism’ – probably apt as the majority of those who sign up to that view don’t care too much who gets left behind.

        Like or Dislike: Thumb up 2 Thumb down 2

      • There was nothing wrong with the “right to buy”. Both the Labour party and the SNP opposed it for 6 months intil it hit them that it was popular with “their” voters.
        What was wrong with the overall policy was that the Treasury convinced MrsT that the receipts of the buying were not given to the Councils so that they could build repacement stock to add to the social renting available. And Mrs T ,uncharacteristically, didnt tell them to belt up and do what they were told.

        Like or Dislike: Thumb up 0 Thumb down 0

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