Cladding remediation: capital spend forecasting

This is an initial ex-ante estimation of the public sector capital spend requirements to assess and undertake essential remedial works on residential buildings over 11 metres. It should be considered indicative and subject to change.

Headline results

To assess and remediate government supported buildings in Scotland, could require public funding in the range of £1.7 billion to £3.1 billion. This is estimated over a potential 15-year programme of works. This estimate includes adjustments for construction price inflation and optimism bias (an adjustment to the tendency especially at the onset of a capital project to underestimate costs). These adjustments are very material to the results as they account for just under half of the required capital spend.  

15-year Programme capital costs

Forecast capital spend (£bn)	Lower	Central	Upper
Capital costs (nominal terms)	0.9	1.2	1.7
Optimism bias contingency	0.2	0.3	0.4
Inflation	0.6	0.8	1.0
Total capital spend (accounting for contingency and inflation)	1.7	2.3	3.1
Note: Forecasts are based on a scenario where the number of buildings requiring remediation, the scope of remedial works and average costs are comparable to those published by the former UK Government Department for Levelling Up, Housing and Communities in May 2022. Cost figures are rounded to nearest £0.1 billion

This is not a best case and worst-case scenario. The range is included to account for a degree of uncertainty in the scale of remedial works require, unit costs and the percentage of buildings that may require government funding. A number of these assumptions are highly uncertain; therefore, an adjustable approach will be adopted so that the forecasts can be updated when additional information becomes available. Estimates will continue to move, potentially significantly, as areas of uncertainty become clearer.

Methodology

The methodology is based on analytical work undertaken to estimate the number of residential buildings over 11 metres in Scotland. 

It then uses existing information from the rest of the UK including the percentage of buildings that are likely to need remedial works, the extent of these remedial works by height, unit costs by height, and the percentages of buildings that are directly government led and funded.  

The key assumptions are as follows:

• overall building estimates include those that may be taken forward by other partners. For the costs we have assumed that a proportion of these are for Scottish Government. The evidence base is predominantly based on information from the UK Government’s cladding remediation programme published in May 2022.
• the estimated number of residential buildings in Scotland which are 11 metres or more in height is around 13,400
• of these, we estimate 1,260 - 1,450 of the residential buildings in Scotland which are 11 metres or more in height require work to alleviate external wall system (EWS) life-safety fire risk
• of these, around 1,020 – 1,200 are estimated to be between 11 to 18 metres in height and 250 are estimated to be over 18 metres.
• we assume 84% will require full remediation and 16% will require partial remediation
• to estimate costs, we apply various assumptions around the average cost rates for assessment, design and remediation. These adjust for building height, the scale of remedial works required and the proportion that will be developer-led. Given the uncertainty around these, a range of possible values has been used for several key assumptions, with the central estimate based on the mid-point of the range
• we then apply an optimism bias adjustment of 24% to the total capital spend based on the HM Treasury’s Optimism Bias Guidance on standard building projects
• further adjustments are made to account for changes in the price level over a 15-year programme of works, based on forecasts for construction sector inflation (approximately 3.4% per annum)

The evidence base is predominantly based on information on mid-rise buildings from the UK Government’s cladding remediation programme published in May 2022.

Confidence in results and limitations

A central assumption of the methodology is that the residential built sector in Scotland has a similar historical profile to that in England. It therefore requires a comparable degree of remedial works to take buildings to a tolerable level of risk.   

However, it is recognised that Scotland may not be like the rest of the UK due to potential differences in the profile of the building stock and building regulations. The costs will continue to be refined as more information becomes available. This includes from the work the Scottish Government are undertaking to establish buildings of interest.

Interpretation

The estimates may not represent what will be spent by the Scottish Government Cladding Directorate in any given financial year or over the lifetime of the programme as a whole. The budget that will be available to spend on assessment, mitigation and remedial works will be dependent on the overall budget passed by Parliament.

The capital allocation in any given year will be subject to an assessment of the total number of buildings requiring financial support and the stage that buildings are at in the assessment and remediation process. The level of financial support building owners receive is subject to subject to the criteria determined by Scottish Ministers and may change from time-to-time. Scottish ministers have stated that individual homeowners should not have to pay for assessment or essential remediation works on their properties. Registered Social Landlords, including local authorities may be eligible for financial support where they are unable to meet the costs of remediation.

In addition, these are initial estimates based on a range of assumptions which will continually be refined as more information becomes available.