The UK government should reform the Scottish Government’s capital borrowing powers to “offer higher limits”, according to the latest report from the UK government’s Scottish Affairs Committee (SAC) of MPs.
The Westminster MPs said the Scottish Government’s fiscal flexibility is constrained by its limited borrowing powers.
The SAC said there is a “clear need for the Scottish Government to have greater fiscal flexibility” with the committee warning that “there is no real benefit to the current system capping the amount stored in the Scotland Reserve.”
To avoid the real possibility that Scotland would have to surrender any of its funds, the UK Government should consider removing this cap, the committee said.
The SAC report said the Barnett formula “is imperfect” and recommends a series of measures to the UK Government to improve its operation.
“The Committee finds that the application of the Barnett formula is not as transparent as it could or should be, with the report highlighting a lack of clarity on how comparability percentages are calculated,” said the report.
“The committee heard no good reason for this opacity, which limits the ability of the public, UK and Scottish Parliaments to hold their respective governments to account.
“To remedy this, the UK Government should publish details of its calculations in future funding policy statements. Transparency could be further improved with the release of an updated Block Grant Transparency document alongside every major fiscal event.”
The committee also voiced concerns about the impact UK Government spending decisions can have on the Scottish Government’s budget, often with little warning.
“The report emphasises the importance of regular communication between the two governments on UK spending and urges the UK Government to assess and consider the impact of UK budgetary changes on the block grant whilst making decisions,” said the SAC.
“The details of this impact assessment should be released alongside any spending decisions.
“There is also a clear need for the Scottish Government to have greater fiscal flexibility, with the committee warning that there is no real benefit to the current system capping the amount stored in the Scotland Reserve. To avoid the real possibility that Scotland would have to surrender any of its funds, the UK Government should consider removing this cap.
“Similarly, the Scottish Government’s fiscal flexibility is further constrained by its limited borrowing powers. It can only borrow to cover forecast errors, meaning it has a limited ability to manage fiscal shocks – to remedy this, the report recommends that the UK Government should reform the Scottish Government’s capital borrowing powers to offer higher limits.
“The report also states that the committee considers the Scottish Government’s call for full fiscal autonomy an ‘unrealistic prospect’, adding that there is not a compelling case that it would automatically result in higher levels of funding for Scotland.”
Chair of the Scottish Affairs Committee, Patricia Ferguson MP, said: “The Barnett Formula has been the subject of continued debate since its introduction, nearly fifty years ago. Throughout our inquiry we’ve scrutinised it from every angle and ultimately found that the formula is fit for purpose and support its continued use to determine Scotland’s funding levels.
“The formula is in no way perfect, but the committee heard no convincing evidence that there is any need for the formula to be reformed significantly, or that there is a workable alternative.
“To ensure that the Barnett formula works as well as it can for Scotland, today’s report sets out ways to improve the way it operates in practice, by improving transparency about its application and making changes to Scotland’s broader financial framework.”