Fiscal framework: factsheet

Borrowing powers

The revised fiscal framework gives us additional Resource and Capital borrowing powers.

Resource borrowing

Resource borrowing must be accessed from the National Loans Fund and the term is restricted to between three and five years. Terms of borrowing from the National Loans Fund are set out in the Resource Borrowing Loan facility agreement.

From 2023 to 2024, we can borrow up to £600 million for resource annually within a statutory overall limit for resource borrowing of £1.75 billion, with both limits in 2023 to 2024 prices (meaning these limits will be uprated annually from 2024 to 2025 using the OBR's GDP deflator forecast at the time of our draft budget).

Resource borrowing can only be used for the following reasons:

1. for in-year cash management
2. 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).

From 2017 to 2018 to 2022 to 2023, under the terms of the 2016 fiscal framework agreement, we could cumulatively borrow up to £600 million for resource annually for the following reasons:

1. for in-year cash management, with an annual limit of £500 million or
2. for forecast error with an annual limit of £300 million (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).

In practice, although the 2016 fiscal framework agreement stated we could borrow up to £600 million, in the ordinary course events, the limit was £300 million for forecast error. However, there was a provision in the 2016 fiscal framework agreement that increased the £300 million limit for forecast error to £600 million in the event of a Scotland-specific economic shock. The Scotland-specific economic shock provision was triggered only once.

Under the terms of the revised fiscal framework agreement, agreed in 2023, the Scotland-specific economic shock provision will no longer apply from 2023 to 2024 as the increased limit of £600 million for forecast error makes the provision defunct.

Prior to 2016 fiscal framework agreement, we had a total resource borrowing limit of £500m that could be used in specified circumstances. The Scotland Act 1998 first enabled the Scottish Government to borrow up to £500m from the National Loans Fund (NLF) to meet an in-year excess in expenditure over income or to provide a working balance in the Scottish Consolidated Fund.

The Scotland Act 2012 extended this facility to enable the Scottish Government to borrow from the NLF across financial years when devolved tax revenues are lower than forecast. This form of borrowing is repayable within four years rather than in-year. An annual limit of £200m was set administratively within a statutory £500m overall limit.

Capital borrowing

The fiscal framework gives us access to capital borrowing powers to invest in infrastructure in Scotland and so improve economic performance. We may borrow through the UK Government from the National Loans Fund, by way of a loan (directly from a bank or other lender), or through the issue of bonds.

Terms of borrowing from the National Loans Fund are set out in the Capital Borrowing Loan facility agreement.

From 2023 to 2024, we can borrow up to £450 million for capital annually within a statutory overall limit for capital borrowing of £3 billion, with both limits in 2023 to 2024 prices (meaning these limits will be uprated annually from 2024 to 2025 using the OBR's GDP deflator forecast at the time of our draft budget).

From 2017 to 2018 to 2022 to 2023, under the terms of the 2016 fiscal framework agreement and the Scotland Act 2016, the £450 million annual limit and the £3 billion aggregate limit were fixed and not uprated annually.

The Scotland Act 2012 had allowed the Scottish Government to borrow from the NLF for capital investment, up to a statutory aggregate cap of £2.2 billion.