Infrastructure Strategy 2027-2037: consultation

Chapter 2 - Infrastructure Challenges

The Infrastructure Needs Assessment prepared by the Scottish Futures Trust sets out the key challenges to our infrastructure that we need to tackle over the next 30 years.

Meeting these challenges requires a new approach to how we plan for, prioritise, and deliver infrastructure in Scotland and the Infrastructure Strategy will set out how we will begin to undertake a new more holistic approach.

Rising Delivery Pressures and Fiscal Constraints

We spend around 2.8 per cent of gross domestic product on public infrastructure (and 3.4 per cent on all capital, including support for housing and enterprises as well as research and development expenditure in higher education)^[7]. This is about the same as the Organisation for Economic Co-operation and Development average spending on capital.

However, rising construction costs, up almost 30 per cent since pre-pandemic levels, combined with supply chain disruptions and workforce shortages, have placed significant cost pressures on capital programmes.

The UK fiscal context is a key determinant of Scotland’s infrastructure capacity. The UK Autumn Budget, published in November 2025, shows that Scotland’s CDEL Block Grant is expected to reduce by 0.5 per cent in real terms between 2025-26 and 2029-30. This is compounded by historic real-terms cuts to our block grant by the previous UK Government which has led to an increase in backlog maintenance.

Despite these constraints, the Scottish Government remains committed to delivering economic growth, accelerating the transition to net zero, and improving public services but the scale and pace of delivery are tightly bound by fiscal realities.

To keep infrastructure affordable, we need to reform what public services we deliver and how we deliver them. The core mechanism to reduce pressure on public services (and the supporting infrastructure) is to invest in prevention. This means, for example, building neighbourhoods that encourage healthy lifestyles with active travel and access to green areas.

The Scottish Government is pivoting towards a more resource-efficient approach. This includes optimising existing assets, leveraging digital solutions and attracting private investment to supplement public funding. This Strategy must therefore balance ambition with realism, prioritising high-impact projects and embedding value-for-money principles across portfolios.

Our infrastructure spending includes roads, railways, hospitals, and schools but excludes private and reserved infrastructure, like electricity or communications networks. The Infrastructure Delivery Pipeline provides the detail on projects and programmes that have funding committed to them through Scottish Budget and Spending Review.

Like the rest of the UK, Scotland’s infrastructure investment has been constrained by the limited availability of UK capital grants, resulting in reduced investment in some areas of the public estate. However, the success of the Learning Estate Investment Programme (LEIP) school renewal programme and solid investment in Scottish Water’s assets demonstrate that Scotland outperforms the rest of the UK where we make robust, long-term plans and commitments. Renewing current assets and dealing with existing maintenance backlogs over ten years would require around two thirds of the capital budget and leave little headroom for new developments. This means that we need to make sensible choices on how and where we deliver services better and well-informed decisions to ‘right size’ our asset base to be affordable in the long term.

To achieve our ambitions within these constraints, we are looking to mobilise private finance alongside public investment. A well-designed Public-Private-Partnership (PPP) can help unlock additional resources in the short term, reduce deliverability risk by incentivising projects to be completed on time and within budget.

The Scottish Government is therefore reviewing the use of PPP through the ‘Mutual Investment Model’. While PPP contracts can be more costly than direct public funding, they offer clear advantages: construction cost risk is transferred to the private sector and public funding requirements are spread over a longer period. This approach must be balanced with careful management of risks and costs to ensure value for money for taxpayers. Targeted use of PPPs in projects and sectors where risks can be effectively managed will be key to achieving this balance.

This revenue-funded approach is being considered for a programme of Primary and Community Care facilities.

Long-Term Drivers of Infrastructure Need

To plan for infrastructure over a 10-year horizon requires an understanding of the long-term drivers of infrastructure need. For this strategy we have used projections of population change, the likely disruptions climate change will bring as well as the key public service reform efforts that have a bearing on the infrastructure we need.

Both public and private investment will be required if we are to address these challenges and deliver on our infrastructure ambitions.

Demand for public services is set to increase with population growth

Scotland’s population is projected to increase by around five per cent over the next 20 years. We are expecting net inward migration (including from the rest of the UK) of around 30,000 people a year. Without this migration, our population would decline. Scotland’s population share of the UK population is expected to decline as the rest of the UK population is projected to grow more rapidly.

Population change requires different public service provision

The council areas projected to decline in population are mainly in the West and Southwest of Scotland. The Highland and Island councils are projected to either decrease in population or have an increase below the Scottish average. Areas which are projected to increase above the Scottish average include some of the cities – Edinburgh, Stirling, Glasgow – and their surrounding councils. This changes the public service demand across Scotland, putting greater pressure on growth areas but also requiring adjustments where demand is waning. While investment must deliver best value, we recognise it cannot be allocated solely based on population numbers or unit costs and a whole Scotland approach means we must support essential services in both our mainland and island areas. For instance, housing requirements are influenced by household formation rather than population size alone and even in areas where population is declining the number of households may still increase, creating ongoing demand for housing and associated infrastructure.

Population ageing changes the demand for public services

The number of people aged 75 and over is projected to increase by around a third of a million people over the 25 years to mid-2047, while the number of young adults aged 16 to 29 years is projected to decrease. In the first instance, this lowers the demand for school places and raises the demand for health and social care provision.

Demand for health and social care is set to rise

Apart from greater age-related ill health, other illnesses are on the rise (obesity, mental health, infectious diseases) increasing demand on the NHS. Infrastructure needs to be in place to treat illness but also to enable healthier lifestyles.

Infrastructure needs to reduce carbon emissions

Addressing the cumulative effect of carbon emissions from infrastructure delivery requires a holistic approach that spans sustainable design, material choices, energy use and operational strategies. Greater integration of environmental considerations into decision making processes is key to ensuring that what we build today does not jeopardize the climate goals of tomorrow. Net zero targets are embedded in public sector infrastructure planning. This raises the specification and construction costs, especially for buildings. A key policy and political question is where the costs for these falls. Private and public asset owners have the responsibility for maintaining and upgrading the infrastructure to mitigate emissions – with the public sector providing financial support, where appropriate.

Decommissioning and removal of the oil and gas infrastructure is a major focus. Of the 283 active oil and gas fields in the North Sea, 180 will have ceased production by 2030.

Infrastructure needs to withstand the increasing impacts of climate change and extreme weather

Scotland’s climate is already changing, with more severe impacts already determined for future decades due to historic greenhouse gas emissions:

• summers will be warmer and drier;
• winters will be milder and wetter;
• intense rainfall events will increase in both winter and summer;
• sea levels will rise; and
• weather will remain variable and may become more unpredictable.

These changes will directly affect Scotland’s infrastructure – from transport networks to water supply and drainage systems and our built environment. To ensure our infrastructure can withstand these impacts, increased investment will be required in both:

• primary adaptation infrastructure, such as flood and coastal defences, including blue-green infrastructure^[8]; and
• resilience measures for non-adaptation infrastructure, or “climate-proofing,” to help new and existing assets withstand extreme weather events and slow-onset changes such as coastal erosion and sea level rise – for example, spending on nature-based solutions to support our trunk road networks and protect our drinking water sources; and blue-green infrastructure in our urban spaces to support our drainage infrastructure.

Delivering more climate-resilient infrastructure may require higher upfront construction costs but has been shown to offer long-term savings by reducing damage, disruption and maintenance over the asset’s lifetime. Incorporating nature-based solutions and blue-green infrastructure can also create multiple benefits for people’s health and wellbeing, while helping to store carbon, protect the water environment and restore nature.

Infrastructure drives resilience in other areas

Importantly, policies to reduce carbon emissions and raise the prominence of renewable energy greatly enhances Scotland’s resilience to energy shortages and price shocks. This resilience benefit needs to be considered when evaluating the costs of energy efficiency or renewables schemes.

Building in sufficient infrastructure capacity to deal with rare but devastating events (e.g. pandemics) also needs to be reflected in infrastructure plans and asset strategies.

Cultivating Resilient Supply Chains

To help reduce cost and ensure construction capability and capacity we need to create new and strengthen existing supply chains for infrastructure delivery.

The construction workforce is ageing and investment in transferrable construction skills is key to have a competent domestic workforce that is large enough to build and maintain public and private infrastructure, including housing.

The Scottish Construction Leadership Forum^[9] (CLF), chaired by the Minister for Business and Employment, is the main forum for Scottish Government/Industry collaboration.

CLF Launched the Construction Accord in 2022 as a shared vision for the industry and the public sector, and a Transformation Action Plan to deliver on the commitments in the Accord in January 2024. Actions across a number of key areas including Supply Chains and Skills are now being implemented by CLF working groups.

Island and rural geographies amplify several challenges – dependence on sea and air links, small and dispersed demand, and exposure to climate challenges. These factors need to be surfaced early, and mitigation planned where possible.