Scotland Act 2016 implementation: seventh annual report
Report to inform parliament of the implementation work that has been carried out on fiscal powers devolved in the Scotland Act 2016.
6. Borrowing and Scotland Reserve
51. 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.
52. The Scottish Government borrowed £300 million in 2022-23 to support Infrastructure and Investment expenditure.
53. The borrowing was drawn down from the National Loans Fund on 30th March. This will be repaid over fifteen years at an interest rate of 3.48%.
2023-24 borrowing plans
54. The 2023-24 Scottish Budget, outlined plans to allow for £450 million of Capital funding to be made available from borrowing and other funding sources. In line with the Scottish Government’s Capital Borrowing policy, the initial assumption is that £250 million of this will be funded through borrowing at a tenor of fifteen years.
55. The Scottish Government’s medium term financial strategy details the Scottish Government Capital Borrowing Policy. Borrowing £250 million at a tenor of fifteen years is almost indefinitely sustainable in long term under the fiscal framework even within the £3 billion cumulative limit imposed by the fiscal framework agreement.
56. Final decisions on the specific borrowing arrangements for 2023-24 are taken over the course of the year, reflecting an on-going assessment of programme requirements and value for money assessment of the options available. Final borrowing decisions for 2023-24 will not therefore be taken before March 2024.
Capital debt stock
57. The Scottish Government has accumulated £2,026 million in capital debt as at the end of 2022-23, 68% of its overall limit. Details of the capital borrowing and repayment schedule can be found in Table 6.1.
|Debt stock at start of Year||607||1,036||1,258||1,617||1,744||1,814||2,026||2,177||2,312||2,434||2,541||2,633||2,710||2,784|
|New In Year Borrowing||450||250||405||200||150||300||250||250||250||250||250||250||250||250|
|Total Resource Cost||-||15||37||64||74||83||103||112||112||112||111||111||98||85|
|Resource Cost of Projected Borrowing||-||-||-||-||-||-||-||15||38||61||84||107||130||154|
|Projected Total Resource Cost||0||15||37||64||74||83||103||127||150||173||195||218||229||239|
|Notional Borrowing Repayments||9.4||20.5||20.5||20.5||20.5||20.5||20.5||20.5||20.5||20.5||20.5||20.5||20.5||20.5|
|Debt Stock at end of Year||1,036||1,258||1,617||1,744||1,814||2,026||2,177||2,312||2,434||2,541||2,633||2,710||2,784||2,855|
|Percentage of Debt Cap||35%||42%||54%||58%||60%||68%||73%||77%||81%||85%||88%||90%||93%||95%|
Projected Borrowing based on Scottish Government Capital Borrowing Policy with interest calculated on forward rates as of 27/04/2023. A 50 basis point premium is applied to all interest rate assumptions
58. Since 1 April 2017, the Scottish Government has had the power to borrow up to £600 million each year within a statutory overall limit for resource borrowing of £1.75 billion.
59. The Fiscal Framework sets out the conditions and limits for elements of resource borrowing:
60. A Scotland Specific Economic Shock was triggered in 2021-22 and therefore the annual Resource Borrowing Limit for forecast error reconciliations increases to £600 million for the period between 2021-22 and 2023-24.
61. In 2022-23 the Scottish Government borrowed £47 million from the National Loans Fund at an interest rate of 3.68% over a five-year repayment period. This was in respect of final reconciliations relating to 2019-20 Scottish Income Tax, 2020-21 fully devolved taxes and social security BGA reconciliations, and in-year variances on 2022-23 social security and devolved tax positions. This represented an increase of £32 million against the plans outlined at the 2022-23 Scottish Budget.
2023-24 borrowing plans
62. In the 2023-24 Scottish Budget Scottish Ministers plan to borrow £41 million to address adverse tax and social security reconciliations.
63. Borrowing decisions for 2023-24 will be finalised in March 2024 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.
|Debt Stock at start of Year||207||505||480||414||596||446||286|
|New In Year Borrowing||319||47||41||300||0||0||0|
|Total Resource Cost||21||77||114||124||166||174||120|
|Debt Stock at end of Year||505||480||414||596||446||286||176|
|Percentage of Debt Cap||29%||27%||24%||34%||25%||16%||10%|
64. The Scotland Reserve has applied since 1 April 2017. It replaces the Budget Exchange mechanism and enables the Scottish Government to manage volatility associated with its fiscal powers. The Scotland Reserve is capped in aggregate at £700 million, with annual drawdown limited to £250 million for resource and £100 million for capital. There are no annual limits for payments into the Scotland Reserve.
65. In years impacted by a Scotland Specific Economic shock, the drawdown limits are waived. Therefore there are no restrictions on drawdowns for the period between 2021-22 and 2023-24
2022-23 Reserve Position
66. The latest forecast Scotland Reserve position is detailed below. 2022-23 drawdown plans are unlikely to change materially however additions are subject to provisional and final outturn processes. The final Scotland Reserve position for 2022-23 will not therefore be confirmed until later in the calendar year.
|2022-23 Opening balance||605||81||14||700|
|2022-23 Forecast Additions*||0||0||50||50|
*2022-23 Additions will be determined by the outturn versus final HM Treasury budgets. Figures in this table are indicative (but in line with 2023-24 Scottish Budget assumptions) updates will be provided to the Scottish Parliament through Provisional and Final Outturn processes.
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