Implementation of the Scotland Act 2016: ninth annual report

6. Borrowing and Scotland Reserve

Capital Borrowing

54. Since 1 April 2017, the Scottish Government has had the power to borrow up to £450 million each year, up to a maximum total of £3 billion, to support investment in capital infrastructure. Following the 2023 Fiscal Framework Review both limits will be maintained in 2023-24 prices (meaning these limits will be uprated annually using the OBR's GDP deflator forecast at the time of the Scottish Government draft Budget). The uprated limits are:

a. 2024/25: £457.547 million (annual)

b. 2024/25: £3.050,316 billion (cumulative)

c. 2025/26: £471.678 million (annual)

d. 2025/26: £3.144,519 billion (cumulative)

2024-25 drawdown

55. The Scottish Government borrowed £139 million in 2024-25 to support Infrastructure and Investment expenditure.

56. The was drawn down from the National Loans Fund on 27 March 2025. This will be repaid over 10 years at an interest rate of 4.47%.

2025-26 borrowing plans

57. The Scottish Budget 2025-26 outlined plans to borrow £472 million to support Capital expenditure.

58. The Scottish Government published a memorandum^[20] alongside the 2025-26 Scottish Budget detailing its revised borrowing policies in the context of the Fiscal Framework review. For capital borrowing the Scottish Government has adopted the following guidelines:

• Use £300 million of capital borrowing per annum as the default assumption; and
• This will be amended as necessary to meet budget specific or in-year requirements; and
• Ensure, by way of a fiscal test, that at least £1.5 billion of capital borrowing headroom remains available for the subsequent parliamentary term.

59. Final decisions on the specific borrowing arrangements for 2025-26 will be taken over the course of the year, reflecting an on-going assessment of programme requirements and value for money assessment of the options available.

Capital debt stock

60. The Scottish Government has accumulated £2.2 billion in capital debt as at the end of 2024-25, 74% of its overall limit. Details of the capital borrowing and repayment schedule can be found in Table 6.1.

Table 6.1: Capital Borrowing and Repayment Schedule (£ million) (See supporting documents)

• Projections are based on borrowing incurred plus plans outlined at the Scottish Budget 2025-26, with interest rates applied of 27 March 2025. A 50 basis point premium is applied to all future interest rate assumptions
• Forecast Debt Cap limits are based on GDP deflator forecasts as at the Scottish Budget 2025-26, which will be revised annually.

Resource Borrowing

61. Following the Fiscal Framework Review, the Scottish Government can borrow up to £600 million for resource annually within a statutory overall limit for resource borrowing of £1.75 billion from 1 April 2024, with both limits in 2023-24 prices (meaning these limits will be uprated annually using the OBR's GDP deflator forecast at the time of the Scottish Government draft Budget). The uprated limits are:

a. 2024/25: £610.063 million (annual)

b. 2024/25: £1.779,351 billion (cumulative)

c. 2025/26: £628.904 million (annual)

d. 2025/26: £1.834,303 billion (cumulative)

62. Resource borrowing cannot be accessed to increase the discretionary funding. However, it can be used for the following reasons:

I. for in-year cash management;

II. for forecast error (in relation to devolved and assigned taxes and demand-led welfare expenditure arising from forecasts of Scottish receipts/expenditure and corresponding UK forecasts for the block grant adjustments).

2024-25 drawdown

63. In 2024-25 the Scottish Government did not utilise the resource borrowing facility reflecting the improvement in the tax and social security positions between the start and the end of the financial year.

2025-26 borrowing plans

64. In the Scottish Budget 2025-26, Scottish Ministers outlined plans to not borrow for resource.

65. Borrowing decisions for 2025-26 will be finalised in March 2026 given the revised reconciliation profile and in the context of the overall resource budget monitoring position and the latest forecasts of future year funding availability.

Table 6.2: Resource Borrowing and Repayment Schedule (£ million) (See supporting documents)

Scotland Reserve

66. The Scotland Reserve has applied since 1 April 2017. It replaced the Budget Exchange mechanism and enables the Scottish Government to manage volatility associated with its fiscal powers. The Scotland Reserve was capped in aggregate at £700 million but following the 2023 Fiscal Framework Review, the £700 million cap is indexed to inflation and the drawdown limits of £250 million for resource and £100 for capital were abolished from 2024-25. The uprated cap on the Scotland Reserve was £711.740 million for 2024-25 and £733.721 million for 2025/26. There are no annual limits for payments into the Scotland Reserve.

2024-25 Reserve Position

67. The latest forecast Scotland Reserve position is detailed below. 2024-25 drawdown plans are unlikely to change materially however additions are subject to provisional and final outturn processes. Therefore, the final Scotland Reserve position for 2024-25 will not be confirmed until later in the calendar year.

*2024-25 Additions will be determined by the outturn versus final HM Treasury budgets. The nil figures reflect that there were no planned additions to the reserve and any subsequent additions will simply reflect the final underspends versus the Budget Aggregates.