Scottish ministers will be able to spend hundreds of millions more on public services each year after striking a deal with the UK Treasury to lift restrictions on its budgets.

The agreement will allow ministers in Edinburgh to double their annual borrowing to protect day-to-day spending to £600m, as well as increase the amount they can borrow for major projects by inflation and also keep underspends in later years, without any limits.

The deal also preserves a longstanding agreement where the Treasury heavily subsidises Holyrood’s spending under the so-called Barnett formula which redistributes spending around the UK, subsidising less wealthy areas.

The Treasury said that element of the updated fiscal agreement meant Scottish ministers had £8bn more to spend last year than they would have had if Scottish spending was set at the same per capita rate of spending for the UK as a whole.

The new £600m figure for day-to-day borrowing ensures that Scotland can fill any holes in its day-to-day spending if its income tax receipts fall below forecasts.

If there are shortfalls in tax receipts, Scottish ministers can borrow money to cover the gap but that money must be repaid to the Treasury. That shortfall has grown to £390m, which breached the previous £300m borrowing limit. The Treasury has agreed to double that to £600m.

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