Scotland Act 2016 implementation: tenth annual report

6. Borrowing and Scotland Reserve

Capital Borrowing

57. 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. 2025/26: £471.678 million (annual)

b. 2025/26: £3,144.519 million (cumulative)

c. 2026/27: £491.179 million (annual)

d. 2026/27: £3,274.527 million (cumulative)

2025-26 drawdown

58. The Scottish Government borrowed £430 million in 2025-26 to support Infrastructure and Investment expenditure.

59. This was drawn down from the National Loans Fund on 27 March 2026 and will be repaid over 10 years at an interest rate of 4.8%.

2026-27 borrowing plans

60. The 2026-27 Scottish Budget outlined plans to borrow £491 million to support Capital expenditure.

61. The 2026-27 Scottish Budget maintained the Capital Borrowing Policy set out at the 2025-26 Scottish Budget^[13]. 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.

62. Final decisions on the specific borrowing arrangements for 2026-27 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.

63. Full Capital and Resource Borrowing Forecasts are set out at tables 6.1 and 6.2 below. These forecasts assume continued use of the existing National Loans Fund (NLF) structures as the source of borrowing.

64. In November 2025, the Scottish Government announced that it would, subject to the outcome of the 2026 Scottish Parliamentary Election, in-year borrowing requirements and market conditions, proceed with a £1.5 billion multi-year bond programme with the first issuance anticipated in late 2026 or early 2027. Scottish Government bonds would represent an alternative, rather than additional, source of Capital Borrowing and therefore be subject to the same aggregate limits as defined in the Scotland Act 1998 and the Fiscal Framework agreement between the UK and Scottish Governments. Scottish Government published forecasts for Capital Borrowing will continue to assume the NLF as the source of borrowing until an inaugural Scottish Government Bond issuance occurs.

65. Inflationary uplifts for financial years 2027-28 onwards are calculated on the basis of UK GDP deflators published by the Office for Budget Responsibility (3 March 2026) and applied to the 2023-24 baseline limits in line with the 2023 Fiscal Framework Agreement. Annual limits for these years will be finalised at the Autumn fiscal event preceding the applicable financial year.

66. Interest rate assumptions use UK Gilt curves (27 March 2026) adjusted for NLF annuity structures. A further premium is added for prudence to reflect the volatility in both forward rates, and the feasible differential between date of request of funds and date of receipt when interest rates are applied.

Capital debt stock

67. The Scottish Government has accumulated £2.5 billion in capital debt as at the end of 2025-26, 81% of its overall limit. Details of the capital borrowing and repayment schedule can be found in Table 6.1.

• Projections are based on borrowing incurred plus plans outlined at the Scottish Budget 2026-27, with interest rates applied as of 17 September 2026. 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 UK Spring Forecast 2026, which will be revised annually.

Resource Borrowing

68. 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 2023-24, 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. 2025/26: £628.904 million (annual)

b. 2025/26: £1,834.303 billion (cumulative)

c. 2026/27: £654.905 million (annual)

d. 2026/27: £1,910.141 billion (cumulative)

69. 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).

2025-26 drawdown

70. In 2025-26 the Scottish Government did not utilise the resource borrowing facility as it was not needed to achieve a balanced Budget. The positive impact of tax and social security forecast variances and reconciliations on the funding position contributed to this balanced position.

2026-27 borrowing plans

71. In the Scottish Budget 2026-27, Scottish Ministers do not plan to borrow for resource reflecting the current outlook for tax and social security forecast variances and reconciliations.

72. Borrowing decisions for 2026-27 will be finalised in March 2027 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.

• Projections are based on borrowing incurred plus plans outlined at the Scottish Budget 2026-27, with interest rates applied as of 17 September 2026. 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 UK Spring Forecast 2026, which will be revised annually.

Scotland Reserve

73. 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 were abolished. The uprated cap on the Scotland Reserve was £733.721 million for 2025-26 and £764.056 million for 2026-27. Provided that the overall size of the Scotland Reserve remains at or beneath the relevant cap, there are no annual limits for payments into the Reserve.

2025-26 Reserve Position

74. The latest forecast Scotland Reserve position is detailed below. 2025-26 drawdown plans are unlikely to change materially. However, additions are subject to provisional and final outturn processes. Therefore, the final Scotland Reserve position for 2025-26 will not be confirmed until later in the calendar year.

Figures per provisional outturn