The Fiscal Framework gives the Scottish Government additional access to borrowing powers from 1 April 2017 to ensure budgetary stability and manage the volatility associated with greater revenue-raising powers.
Under the Fiscal Framework, the Scottish Government has the power to borrow up to £600 million each year for resource borrowing within a statutory overall limit of £1.75bn. Resource borrowing can be accessed for two distinct purposes: in-year cash management within an annual limit of £500m and forecast errors within an annual limit of £300m. Resource borrowing cannot be accessed to generally increase the resource budget.
The Fiscal Framework also puts in place additional flexibilities for resource borrowing when the Scottish economy is facing volatility, referred to in the Framework as a ‘Scotland-specific economic shock’ (SES), defined as when onshore Scottish real GDP growth is below 1% in absolute terms on a rolling 4 quarter basis, and 1 percentage point below UK real GDP growth over the same period, and may be triggered from outturn data or forecasts. In this case, the annual limit for forecast errors would rise from £300m to £600m. However, this borrowing can only be used to meet any shortfalls in forecast tax receipts or increased demand over that forecast for devolved social security payments. It cannot be used to support expenditure more widely or to provide a general economic stimulus.
All resource borrowing would be accessed from the National Loans Fund and the term would be flexible within 3-5 years at the discretion of Scottish Ministers.
The Fiscal Framework gives the Scottish Government access to additional capital borrowing powers to invest in infrastructure in Scotland and so improve economic performance. These are subject to different limits and conditions as set out in the Fiscal Framework. The capital borrowing aggregate limit will increase to £3bn (from £2.2bn). The annual limit will be increased to 15% of the overall borrowing cap (£450million).