Holyrood should be granted borrowing powers that match or exceed the recommendations made by the Smith Commission, leading Scottish economists have told the Sunday Herald.

The remarks were made ahead of the Scottish Government’s draft budget, which SNP finance secretary John Swinney will present to Parliament on Wednesday.

The Smith report, published after last year’s independence referendum, called for an increase in the borrowing powers of the Scottish Parliament that both reflects “the additional economic risks, including volatility of tax revenues, [Holyrood] will have to manage when further financial responsibilities are devolved” and is compatible with “a sustainable overall UK fiscal framework.”

But experts have warned that Scotland could find itself exposed to financial instability were revenues from incoming devolved taxes, such as Income Tax and Air Passenger Duty, to fall sharply while Holyrood lacked the borrowing powers necessary to cover sudden shortfalls.

“The Scottish Parliament must see borrowing powers at least in line with what the Smith Commission recommended,” Russell Gunson, director of the social and economics think-tank IPPR Scotland, said.

“Without this, Scotland's hands may be tied, with the devolution of financial risk to the Scottish Parliament through increased powers over taxes and benefits but without the ability for Scotland to borrow to reduce that risk in any real way.”

Stephen Boyd, Assistant Secretary of the STUC, echoed Gunson’s analysis.

“The STUC has always argued that borrowing powers must at least sufficiently reflect the economic risks inherent in the accumulation of new tax powers. The Scottish Government should be able to borrow to both help smooth the economic cycle and remedy the long-term deficit in infrastructure investment.”

Boyd added that Holyrood should eventually be able to borrow without direct oversight from London.

“Given new financial responsibilities for English local authorities and the other nations of the UK, a long-term enduring settlement is likely to involve all devolved authorities borrowing freely on their own account but without the prospect of a bail-out from the centre.”

The Scottish Government is already borrowing up to its currently sanctioned limit. Over the course of one parliamentary term, it can borrow up to £500m for spending on day-to-day services and up to £2.2bn for longer-term capital or infrastructure spending.

However, neither the UK Government’s Scotland Bill Command Paper, which built on the recommendations of Smith, nor the Scotland Bill itself specify the extent of the increase in Holyrood’s borrowing capacity.

The SNP has repeatedly threatened to block the Scotland Bill unless the Treasury guarantees that its implementation won’t leave Scotland at a fiscal disadvantage.

“We continue to discuss [borrowing powers] with the UK Government as part of a new fiscal framework for Scotland, however ministers are clear that the Scottish Government will not sign up to any fiscal framework that is not fair to Scotland,” a Scottish Government spokesperson said.

“The Smith Commission recommended the Scottish Parliament should have enhanced borrowing powers to reflect the increased financial responsibility of the Scottish Parliament. Significantly increased borrowing powers would ensure budget stability and provide choice on the scale and timing of infrastructure investment.”

Negotiations over a new fiscal framework for the UK’s devolved bodies began early this year. The Joint Exchequer Committee (JEC), which stages the negotiations, has met five times, most recently on Monday December 9 in London. John Swinney attended the meeting alongside Conservative MP and Chief Secretary to the Treasury Greg Hands, the UK Government’s JEC representative. No date has been agreed for the completion of the talks.

According to Dr. Angus Armstrong, Director of Macroeconomics at the National Institute of Social and Economic Research (NIESR), the Smith reforms, which all Scotland’s main political parties consented to, will make Holyrood one of the most powerful devolved legislatures in the developed world in terms of tax but not in terms of borrowing.

“While the UK is not a federal state, comparator sub-central governments in the big five federal nations - Australia, Canada, Germany, the US and Switzerland - have less tax raising powers but all have far greater borrowing powers than suggested for Scotland (sometimes without limit),” Armstrong said.

Mike Danson, Professor of Enterprise Policy at Heriot Watt University, accused the Treasury in Westminster of obstructing the devolution of adequate borrowing powers to Holyrood.

“To date the Treasury has shown no willingness to support a transfer of borrowing powers to Scotland that would allow us to address the problems inherent to the expected tax raising powers,” Danson said.

“There is general agreement within Scotland that increased borrowing powers are desirable and indeed essential if the other fiscal powers being devolved are not to prove a poisoned chalice.”

As a result of last month’s Autumn Statement, Scotland’s capital budget is set to rise by £1.9bn (14 percent) over the next four years. This increase comes after a series of deep cuts to Scottish capital spending imposed by the Conservative-LibDem Coalition Government during the last parliament. Between 2010/11 and 2013/14, Scotland’s capital budget fell from £3.5bn to £2.5bn before gradually starting to rise again in 2014/15.