SNP ministers will be able to borrow double the amount of money to spend on day-to-day budgets after the UK Government permanents agreed to hike the limit to £600m a year.

The changes to the fiscal framework between Westminster and Holyrood comes after the Scottish Government has consistently called for more flexibility over its spending powers.

Scotland’s Deputy First Minister warned the deal was “a narrower review than we would have liked”, but said it will help protect Holyrood’s budgets “against a background of continuing widespread concern about the sustainability of UK public finances”.

Under the new arrangement, Holyrood’s spending powers for capital projects like schools and transport infrastructure will now rise in line with inflation.

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The UK Government said it will continue to top-up the Scottish Government’s tax revenues, worth £1.4 billion last year.

Tory ministers have agreed a permanent doubling of the resource borrowing annual limit from £300 million to £600 million, which the Scottish Government said will better help it mitigate against errors in forecasting.

The deal also removes limits on how much can be withdrawn from the Scotland reserve to spend on future years, with the Treasury claiming the latter change boosts spending through borrowing by £90 million in the next financial year.

SNP ministers said the removal of limits that can be drawn from the Scotland reserve will provide some greater flexibility to handle funding volatility.

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Under the previous fiscal framework, the Scottish Government could borrow £450 million per year within a £3 billion cap, as well as receiving a Barnett-based share of UK Government borrowing.

Under the new arrangements, these amounts will now rise in line with inflation amid concerns over a real-terms cut.

The UK Government insists it has listened to calls from the Scottish Government for greater certainty and flexibility to help them manage their Budget with the permanent doubling of the resource borrowing annual limit from £300 million to £600 million.

It added that limits on how much can be withdrawn from the Scotland Reserve to spend in future years will also be removed. This will boost spending through borrowing by £90 million in 2024/25 and all future limits will increase in line with inflation.

The UK Government’s Chief Secretary to the Treasury, John Glen, said: “This is a fair and responsible deal that has been arrived at following a serious and proactive offer from the UK Government. “We have kept what works and listened to the Scottish Government’s calls for greater certainty and flexibility to deliver for Scotland.

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“The Scottish Government can now use this for greater investment in public services to help the people of Scotland prosper. These are the clear benefits of a United Kingdom that is stronger as a union.” 

SNP Deputy First Minister Shona Robison said: “This is a finely balanced agreement that gives us some extra flexibility to deal with unexpected shocks, against a background of continuing widespread concern about the sustainability of UK public finances and while it is a narrower review than we would have liked, I am grateful to the Chief Secretary to the Treasury for reaching this deal.

“As I set out in the Mmedium-term financial strategy, we are committed to tackling poverty, building a fair, green and growing economy, and improving our public services to make them fit for the needs of future generations.

“We still face a profoundly challenging situation and will need to make tough choices in the context of a poorly performing UK economy and the constraints of devolution, to ensure finances remain sustainable.”

Scottish Conservative shadow finance and local government secretary, Liz Smith, said: “This is a renewed and vitally important commitment from the UK Government to the future of the Barnett formula, which provides over £8 billion more funding for the Scottish Government compared to equivalent UK Government spending elsewhere in the UK.

“As such, it provides a greater level of certainty and flexibility for the Scottish Government.

“It means that the Scottish Government will continue to receive every penny of the revenue it raises through devolved taxes and that is added to increased borrowing provision and a record block grant adjustment.

“This settlement has been agreed collaboratively by both governments and illustrates the benefits of being part of the wider UK economy.”