Scotland Bill

The point of the amendments that will be introduced on Report is to do exactly as I have described. May I make a point about the cyclical impact and the adequacy of current borrowing? In the past downturn, income tax receipts fell by about 6% or 7%, so we are looking at a variation of 6% or 7% of the £4.5 billion estimated Scottish income tax receipts. That is about 1% of the Scottish budget, because it needs to be seen against the continuing bedrock of stability afforded by the block grant. I make that point so that we can place this issue in context. Amendments 53 and 66 would have the effect of removing the borrowing limits. They do not replace the limit with an alternative figure, as has been made clear following a number of interventions from hon. Members, so I have assumed that the intention is for these limits to be determined by a new ““code of practice””, as set out by the hon. Member for Dundee East (Stewart Hosie) and put forward in amendments 52 and 55. There are important reasons why the Bill contains limits, which I have already set out and which include the fact that Scottish borrowing would have an impact on the UK borrowing figures. It is surely right that the limit should be determined by the House, first through its consideration of the Bill and subsequently through approval of any order altering the limit. UK Government analysis continues to suggest that the limits in the Bill for revenue borrowing, together with the Scottish budget absorbing the first 0.5% of the deviation between forecast and outturn receipts, are sufficient in normal conditions. Crucially, the Bill allows borrowing to increase above £500 million but not below, so it is a base. Any such changes would require the approval of the House, but the Government are prepared to look at the specific circumstances in future. There might well be circumstances in which greater flexibility would be appropriate. The capital borrowing limits have been set at £2.2 billion and the Government believe that that represents an acceptable level of borrowing for the UK finances. That figure is based on a 10% annual capital departmental expenditure limit of Scotland's capital budget—equivalent to £230 million in 2014-15—over a 10-year repayment period. Again, the Bill provides for the limit to be increased above, but not reduced below, £2.2 billion. Any such changes would require the approval of the House. Amendments 55 and 52 would introduce a new code of practice between the Treasury and Scottish Ministers governing capital borrowing and placing it on a statutory footing. The full code has not been set out but it might include provisions on how Scottish Ministers should determine and review what they can afford to borrow and the terms and conditions on which sums can be borrowed, including borrowing limits. For reasons I have set out, it is right that borrowing limits and the terms and conditions around borrowing should be determined by the House—first through its consideration of the Bill and subsequently through its approval of any order altering the limit. Amendment 54 would remove both the role of the Treasury in approving capital borrowing and the restriction that such borrowing must be by way of a loan. Let me be clear about the scope of Treasury approval in capital borrowing by Scottish Ministers. If Scottish Ministers wanted to borrow before their full power came into effect, that would impact on the UK's borrowing requirement as set out by the Chancellor in the spending review. The Command Paper therefore sets out a pragmatic way to manage the risks from maximising opportunities for stimulating economic growth in Scotland while retaining control of the overall UK fiscal mandate. Scottish Ministers will need to seek the consent of the Treasury to borrow early, between 2013 and 2015, in a way that does not impact on the fiscal position or alter the plans set out in the 2010 spending review—for example, to make prepayments to fund the construction of the Forth bridge. The rationale for restricting Scottish Ministers' borrowing for capital expenditure by way of loans is simple. Scottish borrowing through bonds would be classified as UK borrowing and, as borrowing through bonds is likely to be more expensive than raising finance through UK gilts, those higher costs would be reflected in increased UK debt interest payments, which would ultimately result in higher costs for the UK. In these uncertain times we cannot afford the risk of extending the power to issue bonds. The hon. Member for Dundee East quoted Professor Holtham, but, because of the likely greater cost of bonds, the professor also made the point that the issuing of bonds by the Scottish Government would essentially be a vanity project. These matters need to be considered in that context.