A LEADING economy expert has said there is still time for Westminster to give Holyrood more flexible spending powers to help Scotland to recover from coronavirus.

David Phillips, Associate Director of the Institute for Fiscal Studies (IFS), said the rules around financial powers "are not made for a crisis such as this" and suggested that implementing temporary measures now would help prevent further economic damage. 

He told the Herald: “Certainly the rules around borrowing are not made for a crisis such as this.

“You can’t respond rapidly. Scotland and Wales have to wait to find out how much money they will get from Westminster, then crunch their own numbers which does slow things. down.

“If the rules were changed temporarily, even just relaxing them, it would have gone a significant way to give more flexibility and wouldn’t have represented a big change … it’s not necessarily about granting massive new borrowing powers, its about allowing flexibility with the current ones.”

Phillips said that while the Scottish Government can borrow up to £600 million a year, they can only do so if there is an economic emergency specific to Scotland or if the economy grows by less than the rest of the UK.

He continued: “ I do think there was a case, it would have been more beneficial at the start but would still be beneficial now, to relax some of the rules around the fiscal framework. The Scottish and Welsh government both have borrowing powers but their use is relatively restricted. Scotland's borrowing is capped at £600m but you can only access the full £600m if there is what is called a Scotland-specific economic shock.

"That is if Scotland’s economy grows by less than 1%, which it definitely will do, but also if it grows by 1% less than the rest of the UK – which is less clear."

There are limits to what the Scottish Government can spend the £600m on, for instance, covering a shortfall in revenue as a result of forecasting errors.

Phillips added: "You can't use it to just spend more, or to offer targeted tax cuts. The Scottish Government can only do that if there has been forecasting errors.

The borrowing powers are not set up to allow them to respond to the Covid crisis. What I think would make sense is relaxing the rules, and it is not too late to do that."

The Treasury said it had already given the Scottish Government a package of support, including more than £4.6 billion of coronavirus-related funds.

A spokesman said: "The UK’s wide-ranging package of support is one of the most generous in the world, and the Summer Economic Update announced further measures which will benefit Scotland, such as the massive funding boost to jobcentres, a £2bn Kickstart scheme to help young people into jobs, a VAT cut for hospitality sector, and the Eat Out to Help Out scheme.

"This is on top of existing billions of pounds in loans, tax deferrals, more than £6.5bn injected into the welfare safety net, and our income support schemes, which have protected 774,000 jobs across Scotland.

“The Summer Economic Update also confirmed an additional £800 million Barnett for the Scottish Government, taking the total to £4.6 billion through the Barnett formula since March."