Call for Scotland to get increased borrowing powers to meet challenge of the pandemic

Funding arrangements for the devolved governments should be reformed to allow them to better meet the challenges of the pandemic and future crises, according to a new report.

Researchers from the Institute for Fiscal Studies, the Fraser of Allander Institute at Strathclyde University, and the University of Stirling Management School said the devolved administrations in Scotland, Northern Ireland and Wales should be provided with minimum funding guarantees or enhanced borrowing powers.

The report also called on HMRC to explore the possibility of making the furlough scheme available on a geographical basis, a move which would allow the devolved governments to tighten Covid restrictions without having to wait for the Treasury to re-introduce the scheme across the UK.

Last week First Minister Nicola Sturgeon wrote to Prime Minister Boris Johnson calling for furlough to be re-instated amid a worrying surge in Omicron cases.

The new report, funded by the Economic and Social Research Council, said fiscal reform would make the arrangements “more robust and responsive in the longer term and for future crises”.

The researchers said enhanced borrowing powers, which are already available to devolved governments in other countries, would provide additional financial “headroom” over and above the funding received from the Treasury via the Barnett formula.

The report said even “fairly substantial borrowing” by the devolved governments would have little impact on overall UK borrowing and debt. However, it would raise concerns about fairness given England would lack such borrowing powers, the researchers said.

David Phillips, an associate director at the IFS and one of the authors of the report, said: “With the Omicron variant of coronavirus surging across the UK, it is vital to learn lessons from earlier waves of the pandemic for the devolved governments’ funding arrangements.

“If new policy and spending announcements start to come in quick succession, the devolved governments should swiftly be given some combination of the funding guarantees successfully deployed last year, and/or enhanced borrowing powers, to allow them to respond in a timely and effective way.

“Without such measures, they could find themselves uncertain about how much funding will be available until announcements are made for England, potentially holding up policy development and implementation.”

David Bell, a professor of economics at the University of Stirling and another of the report's authors, added: “It is not only the fiscal frameworks where change could be beneficial. Effective communication and coordination between the UK and devolved governments is vital for effective policymaking given the interactions between funding and policy decisions taken by these two levels of government. There were improvements during the early stages of the Covid-19 pandemic but stakeholders have told us these have not been sustained.”

Ian Murray, Labour’s shadow secretary of state for Scotland, said: “This report lays bare what is clear to people across Scotland – that both the Scottish and UK Governments must work more closely together, not squabble over the constitution.

“Even in the midst of a pandemic, Nicola Sturgeon and Boris Johnson have been more interested in fighting each other than finding common cause in the face of this emergency.”

Scottish Liberal Democrat economy spokesperson Willie Rennie said: “Scotland is a creative country whose economy has been hamstrung for a decade by two governments who have held us back because they are locked in a bitter battle about independence.

“The fiscal framework review is a chance to hammer out an enhanced devolution settlement to better serve the needs of Scotland

“This report lays out areas where serious progress could be made if only Nicola Sturgeon and Boris Johnson were willing to put grief and grievance to one side.”