Borrowing is a commonly used way for governments either to pay for existing services like schools and hospitals, known as revenue spend borrowing, or to make investment in longer term projects, like wind farms or high speed railway, with the expectation that it will make the money back, known as capital spend borrowing. The UK government borrowed PS93.7bn in 2013/14 – 6.5 per cent of GDP.
The Smith Commission report states that the Scottish government will require more powers to borrow money because of the increased financial responsibilities devolution of income tax, 10 per cent of VAT and air passenger duty tax will bring.
However, it is unclear how much additional borrowing powers the Scottish government will have, as the report says it “should be agreed by the Scottish and UK governments”. Put simply, the future of Scottish government borrowing may be limited by the politics of the UK government.
The Scotland Act (2012) introduced borrowing powers for the first time to the Scottish parliament, with PS2.2bn of capital spend and PS500m of revenue spend. These powers will begin in the financial year 2015/16.
For the Scottish government to raise capital spend investment up to the EU average, it would need to spend at least PS5bn every year.
Click here (http://allofusfirst.org/the-key-ideas/why-and-how-we-borrow-to-invest/) to find out about the Common Weal approach to borrowing and investment.
Picture: The Chancellor of the Exchequer with Treasury ministers inside 11 Downing Street ahead of the Budget statement, 22 June 2010; Crown copyright.