David Eiser, FAI
The Scottish Government’s capital borrowing powers
Under its fiscal framework, the Scottish Government can borrow up to £450 million annually to fund capital investment, as long as it remains within a total borrowing envelope of £3bn.
The catch with borrowing of course is that you have to pay back what you have borrowed, with interest. If it chose to use its borrowing powers, the government would be able to borrow via the UK Government through the National Loans Fund (NLF). (It could also borrow by issuing its own bonds, but it is unlikely to face lower interest rates through this channel than through the NLF).
At the moment, the government could borrow for a 25-year period at an interest rate of about 1.9%. On a £450m loan, this would imply total repayments of around £570m, or around £23m per annum. Alternatively, it could borrow for a 10-year term at an interest rate of around 1.5%. Total repayments would be lower (£490m) but the annual repayment would be higher, at around £49m.Continue reading