Monday, 13 June 2011

Osborne comes bearing gifts for Scotland

On the face of it the UK government's plans to give the Scottish parliament more financial powers, announced today, seem extraordinarily generous and magnanimous.

Mmm, beware of Greeks bearing gifts, I say, or George Osborne saying that he's giving anything away.

I'm no financial whizz but laid out in their simplest terms these new powers appear to be reflected through a haze of smoke and mirrors.

The big one, which was anticipated anyway, allows pre-payments of the block grant to let the Scottish government put a down-payment of £200m on the new Forth Replacement Crossing.

That allows engineering work on the £1.6bn infrastructure monument to the Salmond era to begin. There's a helluva bill coming down the road, but that's for later.

Also amendments to the Scotland Bill, made in response to demands from the Scottish parliament committee, will give Holyrood the option of issuing bonds to access cash from capital markets instead of just going on bended knee to the Treasury

The floor for borrowing is £2.2bn, Scottish Ministers could theoretically ask for more. The bond issue, one beloved of Alex Salmond and dismissed a few months ago as a "vanity project" by UK Ministers, will be subject to a value for money review by the Treasury.

The catch, I guess, is that bond issues are usually more expensive than borrowing from the National lending board. Still, if Salmond wants to flash tartan dollars that he's raised himself from Chinese or Middle East investors, or canny Scots, then he has that option. Very gracious of Osborne to allow this but the £2.2bn, obtained either way, has already been accounted for in Treasury figures.

Additionally Scottish Ministers will be able to insulate public services against any variation in the tax receipts they budget to receive. So, if the tax-raising parliament envisioned by Calman sometime after 2016 falls short of cash because the economy is flat-lining it can borrow up to £125m instead of cutting public services.

Similarly, it can protect itself from sudden changes in spending levels by putting up to £125m into a rainy day fund when times are good.

For Chancellor George Osborne it is all about tidying up the rights and responsibilities of the Calman tax-raising powers, and respecting the wishes of the Scottish parliament.

For Alex Salmond it is a "down payment" on future powers that he wants to wrestle from Whitehall. He's had a not bad result today but the bottom line, I suppose, is that nothing is added to the bottom line of borrowing by the UK Treasury.

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