By borrowing from the financial markets, the Scottish government seeks to reduce its financial obligations to the UK government.

Soon, the Scottish government will issue its own bonds. As outlined in the Scottish Government announcement, it is the first step for Scotland to demonstrate to international markets that it is a stable destination for more foreign investment. 

I first wrote about this in 2023. You can read the post here. I covered the options that the government was ignoring, as well as the overall danger and weakness of borrowing in a currency you don’t issue. 

The decision to issue bonds is really a decision to partly switch lenders. In one sense, it is a lot of hot air about nothing much.

Instead of borrowing £3 billion from the UK Treasury, the Scottish Government will borrow £1.5 billion. But it will also borrow the same amount from international financial markets by issuing new bonds.

Scottish Government New Bonds

To properly understand the plan for bond issuance, we need to recognise that it is primarily a political decision steeped in neoliberal, market-based economics. 

The politics is clear, though not explicitly stated in the announcement. 

As a stepping stone to independence, it is prudent to borrow from international markets rather than the UK government. It also starts to disconnect funding under the devolved settlement. This process should build knowledge and experience of international financial markets within the Scottish government, although external consultants EY are managing it. 

It enables international financial markets to become accustomed to lending to the Scottish Government and is an essential stepping stone toward monetary independence after Scotland becomes independent again.

The neoliberal framework is explicit

The Scottish Government considers this ‘buttering up of the financial markets’ both essential and unavoidable. That may be the case, but it is only because the government is making the decisions that make it so.

If you are to use Sterling as an independent nation, Scotland will indeed need to borrow from financial markets. If you issue your own currency, the relationship is very different.

But back to 2026 and Scotland’s place in the Union.

Borrowing from the markets is likely to cost more than from the UK Treasury. Although current borrowing from the UK Treasury is linked to market rates, a commercial lender is likely to charge higher rates. Implementing this new process will also involve a significant chunk of public money heading off to EY.

It is therefore likely to cost a bit more than the status quo, but we are talking about perhaps £100,000s rather than millions. We would hope that the Scottish government would make this clear. Which it hasn’t to date. 

To understand the framework that supports this decision, it is worth looking at the Investor Panel. The Scottish Government announcement mentions its important role:

“The Scottish Government’s Investor Panel recommended making bonds available to market as a means of raising Scotland’s profile and attracting investment.”

Here are the members of the investor panel:

You couldn’t find a more mainstream panel if you tried. You can read more about the panels’ objectives here.

If you ask a group of bankers and lenders if it is a good idea for the Scottish Government to borrow from them and pay them interest, they are very likely to say yes. There is clearly some corporate capture evident here.

There were alternatives to raising this amount without going to the financial markets, and I do not believe that these were properly investigated. 

Credit Rating Agencies

A crucial aspect of this process is the role and perspective of Credit Rating Agencies, and much of the coverage from all sides has focused on Scotland’s credit rating as a borrower.  Moody’s and S&P Global assigned Scotland ratings of Aa3 and AA, respectively, mirroring their ratings for the UK as a whole. This will help Scotland to borrow at lower rates than other institutions.

Credit rating agencies are a central institution in the international financial infrastructure. They underpin governments’ ‘learned helplessness’ by supporting the neoliberal austerity paradigm while encouraging countries to borrow from financial markets rather than issuing their own currency.

Scottish Government New Bonds – No extra funding

Switching lenders is not about raising more money for infrastructure. As John Swinney himself states:

“This is about using the powers we have to borrow better – not more”. 

Better is a strange word, isn’t it? What does he mean, “borrow better”?

Normally, when you borrow, you are looking for ‘cheaper’ or ‘less risky’, or ‘more productive’ borrowing. By better, Swinney injects the politics – better simply means not from the UK. 

The amount to be borrowed must fit within the current fiscal settlement:

“For large-scale infrastructure and capital investments, the Scottish Government can undertake capital borrowing of up to £450 million per year, with a cumulative limit of £3 billion” (House of Commons, Scottish Affairs Committee, 2024)

Scottish GDP was around £220 billion in 2024. So, up to £450 million per year is a small amount to borrow. It’s not even a quarter percent of GDP! This is not about the amount; it is about the process. 

The Scottish government currently borrows from the National Loans Fund (NLF) through a complex process where the loan is sponsored by the Secretary of State for Scotland. The “loan recipient” is the DEPUTY FIRST MINISTER AND CABINET SECRETARY FOR FINANCE, CONSTITUTION AND ECONOMY FOR THE SCOTTISH GOVERNMENT. You can see the agreement here.

So a good or bad idea?

It is encouraging to see the Scottish Government making political decisions in this space. The fact that it just pushes us from the UK Treasury’s door to the City of London is, of course, the obvious sting in the tail.

It is another example of the impact of asking only one ‘type of person’ (those embedded in neoliberal financial markets) and consulting only those with a single view of how our economy works. It also highlights the continued neoliberal frame in which a ‘new’ independent Scottish economy is being considered.

So, in summary, it is ‘better’ from a political perspective. It makes very little economic difference, but it will be slightly more costly for the Scottish government.

For a fuller walk-through of the options that were available, why we need to borrow in the first place, and what impact this has on independence, see: Scotland’s Government Bonds.