‘Borrowing makes sense’: @ScotGov debt to fund multi-million investment


Investment in infrastructure will provide long-term benefits, claims Swinney

MILLIONS OF POUNDS in extra borrowing powers will boost Scotland’s economy in the next financial year, according to the Scottish Government.

New devolved powers to borrow for infrastructure investment programmes will be used for the first time in 2016-17 in an attempt to improve economic performance.

Borrowing, one of the key instruments of national financial planning, can only be used on a small scale by the Scottish Government. However, supporters of greater financial investment argue that the move is a key step towards improving Scotlands economic health.

A spokesperson for the Scottish Government explained: “Infrastructure investment remains a central part of the Scottish Government’s economic strategy. Following sustained cuts by the UK Government, the Scottish Government’s capital budget will be over half-a-billion pounds lower in real terms in 2020-21 than in 2010-11. Scottish Ministers have indicated they will use borrowing powers if required to support infrastructure investment, at a time of constraint in conventional capital budgets.”

Global interest rates for borrowing are currently at record lows, with some national banks even offering negative interest rates – meaning that it is incredibly attractive to borrow and invest in government procurement projects.

“Borrowing to invest is very sensible. As long as investment grows the economy, it will generate revenues to pay back the debts.” Alistair Davidson

Director of policy at Common Weal, Ben Wray, stated : “For governments, borrowing especially makes sense for big infrastructure projects that are expensive in the short term but pay for themselves over the long-run through increased economic activity, jobs and tax receipts. Bridges are one obvious example of major infrastructure investment that will usually involve borrowing, so is high speed broadband.

“Another is borrowing where there is a direct return on the investment. Housing is an obvious example of this: borrowing to build council housing will (if done properly) pay for itself in rent returns over a 30-50 year period.

“Because governments are huge entities, much bigger than any one company, lenders can be highly confident in their ability to pay the money back, and therefore they can borrow at low rates of interest.

“Borrowing for capital investment built the NHS and millions of council homes after the Second World War. The only people it helps to depict borrowing in a purely negative light is the most exploitative lenders like commercial banks and pay-day loans companies who charge governments and individuals respectively with high rates of interest.”

Wray added that current restrictions on borrowing to 10 per cent of the Scottish Government’s capital budget – PS328m for 2016-17 – represented less than 0.2 per cent of national Gross Domestic Product.

In contrast, UK national debt totals over PS1.5 trillion – 81.5 per cent of GDP.

Alistair Davidson, editorial board member at Bella Caledonia and SNP activist, added: “Borrowing to invest is very sensible. As long as investment grows the economy, it will generate revenues to pay back the debts. The more that countries have cut since the financial crisis, the bigger their debts, because people thrown out of work don’t pay tax. It’s like a person struggling to pay their rent quitting their job because it will save them the bus fare – a false economy.”

Right-wing campaigners have warned that new borrowing represents the Scottish Government going into debt for the first time since 1707.

Greater borrowing powers will be devolved to the Scottish Government, if the fiscal framework is agreed.

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Picture courtesy of Ben Sutherland