Section 32: Borrowing by the Scottish Ministers
171.This section amends sections 66 and 67 of the 1998 Act to revise the circumstances under which the Scottish Ministers may borrow to set out the main controls and limits on such borrowing.
172.This section enables the Scottish Ministers to borrow - subject to HM Treasury’s controls and limits - for the following purposes:
to meet a ‘temporary excess of sums paid out of the Scottish Consolidated Fund (SCF) over the sums paid into the fund’ – this means that the Scottish Government can borrow to manage excessive in-year volatility of receipts, where actual income differs greatly from the forecast receipts for that month;
to provide a working balance to the SCF, i.e. enough balance to ensure cash-flow;
to meet the differences between forecast and outturn receipts for devolved taxes or from income tax charged by virtue of a Scottish rate resolution; and
to fund capital expenditure.
173.The Scottish Ministers will be able to run up to £2.7bn of outstanding debt, of which up to £500m of debt can be from current borrowing and £2.2bn of debt from capital borrowing.
174.Scottish Ministers will be able to borrow from the Secretary of State for the purposes (a) to (c) above and from wider sources in addition to the Secretary of State for capital borrowing (purpose (d) above).
175.Subsection (1) introduces the amendments to the 1998 Act.
176.Subsection (2) introduces the amendments to the existing borrowing provisions in section 66 of the 1998 Act.
177.Subsection (3) replaces subsection (1) in section 66. It:
re-enacts sections 66(1)(a) and (b) of the 1998 Act which enable Scottish Ministers to borrow temporarily from the Secretary of State to provide a working balance to the SCF and to manage excessive in-year volatility of receipts; and
extends the Scottish Ministers’ borrowing powers to include borrowing across years to fund deviations between forecast and outturn receipts of the devolved taxes.
178.New subsection (1A) enables the Scottish Ministers to borrow to fund capital expenditure, subject to HM Treasury’s approval. The borrowing must be in the form of a loan either from the National Loan Fund (through the Secretary of State) or from another lender, such as a commercial bank. The section does not allow Scottish Ministers to issue Scottish gilts or bonds as the section requires borrowing to be by way of a loan.
179.New subsection (1B) defines capital expenditure. The definition of capital expenditure is drawn from the rules (provided by HM Treasury to the Scottish Government) governing the preparation of the accounts under section 70 of the 1998 Act.
180.Subsection (4) is a consequential amendment to take account of the fact that not all borrowing need be from the Secretary of State.
181.Subsection (5) inserts a new subsection (5) into section 66 which enables the Secretary of State, by order and with the consent of HM Treasury, to change the manner in which the Scottish Ministers can borrow money for capital purposes, for example, to permit borrowing by the issue of bonds. Orders under this new subsection are subject to the approval of the House of Commons through the draft affirmative procedure (this is provided for by subsection (12)).
182.Subsection (6) introduces the amendments to the existing borrowing provisions in section 67 of the 1998 Act.
183.Subsection (7) specifies that the £500m limit applied to the aggregate outstanding of principal sums borrowed under the existing section 66(1) -which appears on the face of the 1998 Act - now applies to the borrowing powers listed in new section 66(1), i.e. current borrowing.
184.Subsections (8) to (9) amend section 67(3) of the 1998 Act and allow the Secretary of State, by order and with the consent of HM Treasury, to revise the £500m limit on the Scottish Ministers’ current borrowing either upwards or downwards, although never below the initial £500m. These provisions enable the Secretary of State to increase the amount from time to time, for example, to keep pace with inflation or to meet exceptional circumstances. Orders under this section are subject to the approval of the House of Commons through the draft affirmative procedure.
185.Subsection (10) inserts a new section 67A into the 1998 Act which includes further provisions on capital borrowing.
186.New section 67A(1) provides that the aggregate outstanding of principal sums borrowed under new section 66(1A) - borrowing to fund capital expenditure - must not exceed £2.2 billion. This provision, together with that in section 67, means that the total aggregate outstanding of principal (both current and capital) cannot exceed £2.7 billion.
187.New sections 67A(2) and (3) allow the Secretary of State, by order and with the consent of HM Treasury, to revise the £2.2 billion limit either upwards or downwards, but never below the initial £2.2 billion. Orders under this section are subject to the approval of the House of Commons through the draft affirmative procedure (this is provided for by subsection (12)).
188.Section 67A(4), (5) and (6) contain further rules on Scottish Ministers’ borrowing to fund capital spending. In particular:
Subsection (4) provides that lenders are not bound to make enquiries into the power to borrow (such as checking whether the Scottish Government has breached its borrowing limits or is acting without HM Treasury approval). In the absence of such a provision, lenders could fear that doubtful vires could render loans unenforceable and could see the Scottish Government as a risky borrower.
Subsection (5) states that Scottish Ministers are prohibited from mortgaging or charging any property as security for money which they have borrowed.
Subsection (6) provides that any security given in the breach of subsection (5) is unenforceable.
