Are plans to issue Scottish government bonds about providing an appropriate level of public spending or to show that sought-after powers can be achieved short of independence?
Given the current profile on debt in the world’s economy, particularly in the eurozone, is this the right time for any European country to be thinking about additional public sector borrowing powers?
According to the UK government, the answer is ‘yes’. The Treasury is embracing the principle of more borrowing powers for a devolved Scotland and is now actively considering the type of debt instrument that could be used. In its recently issued consultation paper, the Treasury explores the feasibility of borrowing by the devolved Scottish government through a bond issuance of up to £2.2bn.
The background to all of this is, of course, the Scotland Act 2012, which is implementing the work of the Calman Commission from some years ago. The Act adds additional devolutionary powers and also claims to deliver the largest single transfer of fiscal power from Westminster ‘in the history of the United Kingdom’.
Calls for additional borrowing powers (within the current devolved settlement) also come at a time when the constitutional debate in Scotland is focusing on a date for an independence referendum (likely to be sometime in 2014). The Treasury’s paper however (as early as the third paragraph) is explicit in stating that views are not being sought on ‘…bond issuance in an independent Scotland’.
Unfortunately, this statement only has the effect of reminding us that a constitutional shift is almost certainly very much part of the debate. Commentators are unlikely to be able to avoid the matter.
The Act introduces a power to borrow for the first time. It is this power that Scottish ministers (in the context of devolution) seem to have valued above all else. The Act at present stops short of allowing a bond issue, but the legislation could be amended to vary the way Scotland can borrow in future.
Debate amongst politicians has generally been about how much rather than how they should be allowed to borrow. This current consultation moves the focus on to a consideration of bonds. Interestingly, this is the point at which the Scottish National Party entered the debate more than five years ago, in its pre-government state, with a manifesto promise to issue bonds – a power that Scotland did not have at that time.
Some commentators may find it difficult to escape the conclusion, despite the disclaimer about independence, that the focus of consultation and any debate on borrowing will in fact be about the constitution. It will be seen as a political alternative to demonstrate that much sought-after powers can, in fact, be delivered without further constitutional change.
So the risk is that while public perception in some parts of Europe is that of approaching financial meltdown where debt is to be avoided, in the UK we may be in danger of using debt and debt instruments as a form of constitutional carrot.
Missing from the wider debate so far, and omitted entirely from the Treasury’s consultation, is public consideration of just how Scotland should in fact control its future debt. More than ever, we will need to be able to demonstrate in a transparent way that borrowing by Scotland, irrespective of any constitutional change, is not only affordable but is also sustainable.
It will be left then to professionals to challenge and to ask these questions of our politicians. Our starting point will be as basic as asking what safeguards on borrowing will be put in place to provide assurance to Scotland’s taxpayers.
Don Peebles is policy and technical manager at CIPFA in Scotland