Holyrood will be able to pay for capital projects such as roads, hospitals or schools by issuing bonds for the first time, following an announcement today from the UK Treasury.

The Scottish Government will have the power to borrow up to £2.2 billion from April when provisions from the Scotland Act 2012, which delivered the last stage of devolution before the Smith Commission, are activated.

The Act already permitted borrowing from the National Loans Fund and commercial loans, but today’s announcement opens up a third way to reach the £2.2bn limit if required.

The Treasury will introduce legislation allowing the Scotland Office to amend the sources of capital borrowing available to Scottish ministers so they will be able to issue bonds.

Bonds effectively allow people to lend money to government in exchange for a return on their investment.

The Scotland Office will now be able to lay the amendment order before Parliament rises for the Christmas recess, allowing bonds to be issued from April 1.

Danny Alexander, chief secretary to the Treasury, said: “This is a big step that shows that the UK Government is keeping its devolution promise to Scotland.

“By beginning this process now we will be able to have legislation in place to ensure that Scotland can issue bonds from April next year.

“Being able to issue bonds will give the Scottish Government an additional source of capital funding as part of its new tax and borrowing powers contained in the Scotland Act 2012.

“By the time we have fully implemented this Act and the Smith Commission’s agreement, the Scottish Government’s new powers will make it one of the most powerful devolved administrations in the world.”

The government first announced in February 2014 that the Scottish Government would be given the power to issue its own bonds, following a public consultation in 2012.

This will broaden the sources of financing available to the Scottish Government for capital investment such as major transport projects, hospitals, schools and flood defences.