New financial deal agreed with the Scottish Government

The Scottish Government will be able to borrow more under the deal

St. Andrew's House , headquarters of the Scottish Government

By Jonathan Owen

04 Aug 2023

An updated fiscal framework has been agreed by the UK and Scottish governments, which will enable the Scottish Government to invest more in key infrastructure. 

The framework underpins the powers over tax and welfare that are devolved to Scotland. Under the new deal, announced this week, the devolved government's capital borrowing powers will rise in line with inflation.

This will enable it to invest further in schools, hospitals, roads and other infrastructure that will help to create better paid jobs and opportunity, according to HM Treasury and the Office of the Secretary of State for Scotland.

The Scottish Government will keep devolved Scottish taxes and continue to receive funding through the Barnett Formula used to calculate the amounts allocated to the devolved governments. The new deal also updates funding arrangements in relation to court revenues and the Crown Estate.

Under the previous framework, the Scottish Government could borrow £450m per year for capital expenditure within a £3 billion cap, as well as receiving a Barnett-based share of UK government borrowing. These amounts will now rise in line with inflation.

In addition, the Scottish Government’s cap on annual resource borrowing has been doubled to £600 million. Limits on how much can be withdrawn from the Scotland Reserve to spend in future years will also be removed, which will boost spending through borrowing by £90m in 2024/25. All future limits will increase in line with inflation.

A joint exchequer committee of officials from the two governments, chaired by the director general for finance at the Scottish Government and the director of public services at the Treasury on an alternating basis, will oversee the delivery of the framework.

John Glen, chief secretary to the Treasury, said: “This is a fair and responsible deal that has been arrived at following a serious and proactive offer from the UK government. We have kept what works and listened to the Scottish Government’s calls for greater certainty and flexibility to deliver for Scotland.”

Scottish secretary Alister Jack claimed the new deal will be “worth billions of pounds to Scotland over the coming years” and “builds upon work to support economic growth, provide more high skill jobs, investment and future opportunities for local people".

Scotland’s deputy first minister Shona Robison added: “This is a finely balanced agreement that gives us some extra flexibility to deal with unexpected shocks, against a background of continuing widespread concern about the sustainability of UK public finances.”

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