Guardian investigation finds public sector borrowing for schools, roads, rail and education is set to dwarf Scottish parliament’s annual £30bn budget, prompting auditor general and opposition parties to call for greater transparency

Public sector debt in Scotland has mushroomed to record levels after an SNP government spending spree funded by billions of pounds’ worth of borrowing from pension funds, international banks and the Treasury.



An investigation by the Guardian has found that total borrowing to build schools, roads, railway stations, colleges and hospitals under the devolved government could reach £50bn by the end of the decade, putting a heavy strain on the public finances.

The scale of the debt, which dwarfs Holyrood’s annual budget of £30bn, has never been set out by ministers or investigated by the Scottish parliament. It has led to calls by Scotland’s auditor general, Caroline Gardner, and opposition parties for greater openness over public finances.

What the Scottish government is doing to add to public sector debt is like PFI on steroids Jackie Baillie, Scottish Labour

Gardner said the need for full transparency was even more urgent given that Holyrood is due to get far greater tax-raising powers and is under significant pressure on public spending. John Swinney, the Scottish finance secretary, is expected to reveal new spending cuts in his budget on Wednesday after a 1.3% cut in Scotland’s block grant from the Treasury in London.

Calling for Swinney to publish whole government accounts that would set out in a single document the full details of all Scotland’s devolved public spending, borrowing and assets, Gardner said: “It is critically important that the Scottish parliament and the people of Scotland have got a very clear picture of what both those assets and those long-term liabilities look like.”

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She added it was a “basic matter of accountability” and necessary “to enable the Scottish parliament to make some of the difficult decisions that it will need to make in future, particularly as it takes on its new tax-raising powers.”

Jackie Baillie, Scottish Labour’s finance spokeswoman, said she would be urging Holyrood’s finance committee to investigate. “Future generations are facing a debt mountain and we’re putting more and more on the nation’s credit card.

“What the Scottish government is doing to add to public sector debt is like PFI on steroids. It is essential with the new powers coming to the Scottish parliament on tax, spending and borrowing that we have complete transparency on the nation’s finances.”

Scottish public authorities and ministers are committed to spending at least £9bn on dozens of privately financed projects overseen by the Scottish Futures Trust (SFT) – the arm’s-length body overseeing infrastructure investment. That is in addition to £22bn-worth of historic private finance initiative (PFI) debts still to be paid off.

There are currently £6bn-worth of privately financed and managed projects under way through the SFT. Including historic PFI repayments, servicing the existing debt already costs £1bn a year. That cost will be at its highest between 2018 and 2028 when Scotland’s public sector will be spending more than £1.2bn a year to repay private finance deals. It will reach more than £1.3bn in 2025.

In addition, Scotland’s 32 councils owe nearly £15bn to banks, public debt agencies and pension funds, and are planning to spend nearly £500m more on new capital projects, in addition to sharing billions of pounds’ worth of private financing through the SFT.

Those debts need to be repaid more quickly than before, official data from the Chartered Institute for Public Finance and Accountancy has shown.

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The latest data from the industry body shows that nearly 50% of the borrowing must be paid back within 20 years. But councils are expected to face deep funding cuts of up to 5% in their £10bn annual funding in Wednesday’s budget.

Scottish ministers have also been cleared to borrow up to £4.9bn on upgrading the rail network by 2019 – more than double the borrowing attributed to Scotland in 2009 – using debt funded by Network Rail at UK level. Scottish ministers are also floating proposals for expensive high-speed rail lines from Scotland, which are not yet funded.

Figures given to the Guardian by the regulator, the Office of Rail and Road, show that Scottish ministers would be due to pay up to £868m on financing and interest costs between now and 2019 to service that borrowing.

Meanwhile, households and taxpayers are forecast to come under additional financial pressure with Scottish graduates and students set to owe £6bn by the end of the next Scottish parliament in 2021, according to an analysis by the higher education funding expert Lucy Hunter Blackburn.

That debt would be three times their borrowing when the Scottish National party (SNP) first won power in 2007 on a promise to abolish student debts. The debt is funded by the Treasury in London and is not directly repaid by taxpayers. But Scottish ministers write off an average of 30% of that debt every year to cover students who do not earn enough to repay it, defaulted loans and subsidised interest payments. The write-off is recorded in Scottish government accounts.

The Scottish government refused to comment on these figures, or the weight of debt on other areas of the public sector, and did not respond to Gardner’s call for detailed public accounts covering all Scotland’s public expenditure.

A spokeswoman said the Scottish government took a prudent view of its borrowing, limiting it to 5% of its day-to-day budgets. She said different public bodies kept their own accounts and reported individually on their assets and liabilities, adding that ministers were “acutely aware of our responsibility to be transparent and accountable”. But this was not just the government’s job, she said.

Scottish students and graduates will owe £6bn by 2021, forecast shows Read more

“Public sector debt and affordability are key responsibilities for all the public sector. The Scottish government is committed to sustainable levels of public sector debt – our approach is to use revenue-funded methods of investment at a sustainable level while not overly constraining our choices in future years,” she added.

Angus Armstrong, director of macroeconomics at the National Institute of Economic and Social Research thinktank, and formerly a senior Treasury economist, said there needed to be far greater clarity on Scotland’s debts and on Holyrood’s legal obligation to repay them before it gets additional borrowing powers.

It would be a matter for the complex but secret talks between UK and Scottish ministers on how to fund Holyrood after new income tax powers come into force in April 2017, but also had implications for UK taxpayers and the Scottish government’s ability to borrow its own money for capital investment, he said.

“All of these things have to be taken out of dark corners into daylight, so people can see what their future obligations will be. For both sides of the border, this would be entirely correct,” Armstrong said.

“I think it is insane that the UK government hasn’t made clear [on] any future borrowing by the Scottish government and the institutions that belong to it, who the creating authority is [for that borrowing], who has the liabilities and in the event of default, whose responsibility it is.”