Infrastructure Investment Plan 2015: progress report for 2020 to 2021

Overview Report

2015 Infrastructure Investment Plan

The Scottish Government's Infrastructure Investment Plan 2015 was published on 16 December 2015 and set out priorities for investment and a long-term strategy for the development of public infrastructure in Scotland. It set out why the Scottish Government invests, how it invests and what it intends to invest in sector by sector.

This progress report will be the last report relating to the 2015 Plan as a new Infrastructure Investment Plan for Scotland 2021-22 to 2025-26 was published on 4 February 2021. The new Plan covers the next five financial years from April 2021 and includes details of around £26 billion of major projects and national programmes with more to be confirmed in future years.

We consulted on the draft Infrastructure Investment Plan for Scotland 2021-2022 to 2025-2026 up until 19 November 2020 in order to ensure the right final approach that benefited the whole of Scotland both now and in the future. The new Plan and the latest five-year Capital Spending Review were published together in order to provide a strong and coherent framework for directing, analysing, shaping, and prioritising future commitments.

The new Plan delivers the National Infrastructure Mission and sets a long-term vision of infrastructure supporting an inclusive, net zero carbon economy in Scotland. It provides a pipeline of public sector infrastructure delivery, giving confidence to construction sector and supporting our economic recovery from COVID-19. It shows how we will enhance our approach to choosing the right future investments and introduces a new infrastructure investment hierarchy. Reporting of the new Plan will commence in the autumn.

National Infrastructure Mission

The Scottish Government is firmly committed to infrastructure investment as a key factor in securing inclusive economic growth and our focus is on stimulating growth, protecting and creating jobs and promoting Scotland as a great place to do business. In recognition of the importance of infrastructure investment to the economy, the 2018 Programme for Government set out our commitment to a National Infrastructure Mission to increase annual investment by 1% of 2017 Scottish GDP (Gross Domestic Product) by the end of the next Parliament.

The Capital Spending Review 2021-2022 to 2025-2026 confirms we will deliver our Mission, ensuring that investment is £1.56 billion higher in 2025-26 than the £5.2 billion the Scottish Government invested in 2019-20. This will deliver total investment value of over £33 billion pounds in the next five years and is estimated to support 45,000 jobs directly in that period, providing benefits right across Scottish supply chains. The experience of Coronavirus highlights how important this extra investment will be for our inclusive economic growth and recovery.

Infrastructure Commission for Scotland

The Scottish Government set up the Infrastructure Commission for Scotland in 2019 and it has brought invaluable independent expertise and insight to the discussion on how we develop our long-term infrastructure strategy. Our Infrastructure Investment Plan for Scotland 2021-2022 to 2025-2026 responds to the Commission's recommendations and shows how we will implement them, including through a five-year implementation plan.

Government Expenditure and Revenues Scotland (GERS)

The latest Government Expenditure and Revenue Scotland (GERS) 2019-2020 publication provides details of capital expenditure for Scotland beyond that invested by the Scottish Government. It includes estimates of spend on capital by the Scottish Government, Scottish Government funded public corporations and local authorities as well as including spending by the UK Government, UK public corporations and UK Government bodies such as Network Rail.

2015 Infrastructure Investment Plan Reporting

The 2015 IIP included both programmes and projects. Programmes co-ordinate, direct and oversee the implementation of a set of related projects. Projects have defined start and end points (usually time-constrained and often constrained by funding or deliverables) and are undertaken to meet unique goals and objectives. Projects can be part of a programme but are not always.

The IIP 2015 - Project Pipeline is updated and published on a six-monthly basis and details projects with a capital value of £20 million or more where the Scottish Government has a lead role in procurement or funding. It has included school projects being delivered through Scotland's Schools for the Future Programme and health projects being delivered through the Scotland-wide 'hub' initiative which formed part of the Scottish Government's revenue funded £3.5 billion NPD/hub investment programme. A summary of all those projects, which have been completed and delivered within the last five years by way of the project pipeline, together with those currently in construction, is provided at Annex A.

The IIP 2015 - Major Capital Projects Progress Update is published on a six-monthly basis and provides information on projects with a capital value of £20 million or more which are at the Outline Business Case (or equivalent) approved stage or beyond.

The IIP 2015 - Programme Pipeline Update is published on a six-monthly basis and includes information relating to ongoing key major infrastructure programmes with an investment of £50 million or more.

The latest and last of these updated three reports relating to the 2015 IIP, can be found by way of the following link:

www.gov.scot/policies/government-finance/infrastructure-investment/plan

Going forward, our reporting of the new five year Infrastructure Investment Plan from April 2021 will include projects with a value of £5 million and programmes with a value of £20 million. This is to further enhance transparency guided by international best practice, including the recommendations of the European Cooperation in Science and Technology (COST) framework^[1] and the OECD^[2] (Organisation for Economic Co-operation and Development).

Key achievements over last five years

Over the course of the last five years, key major infrastructure priorities have been delivered and projects totalling £7.7 billion have completed construction and opened to the public within our project pipeline. These have included projects from across the sectors such as:

Transport

• Queensferry Crossing (£1.325-£1.35 billion)
• Edinburgh Glasgow Improvement Programme EGIP (£870 million)
• Aberdeen Western Peripheral Route/Balmedie to Tipperty (£745 million)
• M8 M73 M74 Motorway Improvements Project (£452 million)
• Aberdeen to Inverness Rail Improvement Project (£330 million)

Health

• NHS Dumfries and Galloway - Acute Services Redevelopment Project (£275.5 million)
• NHS Lothian - Royal Hospital for Sick Children / Department of Clinical Neurosciences (£251.9 million)
• NHS Orkney New Hospital and Healthcare Facilities (£77.4 million)
• NHS Lothian - East Lothian Community Hospital (70.4 million)
• NHS Ayrshire and Arran - Acute Mental Health & North Ayrshire Community Hospital (£54.8 million)

Schools

• 93 schools within Scotland's Schools for the Future Programme (£2 billion)

Further Education

• City of Glasgow College (£228.6 million)
• Forth Valley College Falkirk Campus (£78 million)
• Ayrshire College Kilmarnock Campus (£53.6 million)

Culture

• V&A Museum of Design Dundee (£80.1 million)

Justice

• Inverness Justice Centre (£32.3 million)

Progress to March 2021

Major infrastructure improvements were delivered and in total over the course of 2020-21, the following projects worth almost £660 million opened to the public or completed construction within our project pipeline:

Health

• NHS Lothian - Royal Hospital for Sick Children / Department of Clinical Neurosciences (£251.9 million)
• NHS Lothian - East Lothian Community Hospital (70.4 million)
• NHS Greater Glasgow and Clyde - Greenock Health and Social Care Centre (£22.4 milliion)
• NHS Greater Glasgow and Clyde - Stobhill Mental Health DBFM Beds (£11.5 milliion)

Schools

• Barony Campus (£66.9 million)
• Inverurie Community Campus (£58.8 million)
• Queensferry High (£41.3 million)
• Alness (£37.4 million)
• Jedburgh (Scottish Borders Council) (£35.1 million)
• Merkinch Primary School (£18.7 milliion)
• Lossiemouth High School (£42.3 million)

Funding

Projects within the 2015 IIP were funded from several funding sources: capital grant, NPD/hub revenue finance and Regulated Asset Base (RAB) for rail projects until 2018-19 (thereafter it has been grant funded with HM Treasury taking on responsibility for debts accrued by Network Rail). The Scottish Government also has the power to borrow up to £3 billion for capital purposes with an annual cap of £450 million. Borrowing is added to the total capital grant funding available to determine the overall availability of capital, therefore we do not distinguish between capital grant funded projects and those funded by borrowing.

In order to ensure choices are sustainable, the Scottish Government has a self-imposed revenue finance investment limit in place. Planned and committed projects and borrowing for 2021-22 are estimated to be 2.98% of the Scottish Government resource budget (excluding social security). The corresponding figures are expected to be to 2.91% in 2022-23 and 3.04% in 2023-24.

Financial Transactions

In addition, the UK Government has made a subset of capital funding available called Financial Transactions (FTs). FTs were introduced in financial year 2012-13 by HM Treasury and can only be used to make loans to, or equity investments in, private sector entities, including universities, or individuals.

They need to be repaid to Scottish Government for onward repayment to HM Treasury. No interest is payable to HM Treasury by the Scottish Government. The interest rate to be applied on loans provided by Scottish Government can be at commercial or below market rates depending on the purpose of the loan and compliance with State Aid rules. The repayment period should be appropriate to the nature of the loan or investment and can be short or patient in nature.

Contribution to Economic Development

Infrastructure investment contributes to economic development and supports jobs. The contribution made by individual major projects is detailed within the IIP Major Capital Projects Progress Report on a six-monthly basis. This includes, where possible, the number of jobs supported, the number of sub-contracts awarded to Scottish firms and the number of graduate, apprenticeships and work experience placements positions created. Some examples of how infrastructure investment contributes to economic development are as follows:

The contribution made by major infrastructure programmes include for example, the dualling of the A9 between Perth and Inverness, which is one of the biggest transport infrastructure schemes in Scotland's history. This ambitious programme will bring many benefits for road users, communities and businesses who live along or use this vital route to the Highlands and Islands. In addition, dualling the A96 between Inverness to Aberdeen will ensure the road network between all Scottish cities is of dual carriageway standard. This will provide a number of benefits including delivering economic growth and will help tackle congestion in towns along the route, reduce journey times, improve journey time reliability and improve road safety for all users.

Our commitment to upgrading the A82 between Tarbet and Inverarnan will bring improved road safety and journey time reliability, supporting economic development by better connecting businesses and communities in the Highlands and Islands with the central belt.

The Skye Triangle infrastructure programme is contributing to the economic development of these island populations, communities and businesses by ensuring port infrastructure support and that ferry services continue to operate out of Tarbert (Harris), Lochmaddy and Uig.

Our Scottish Broadband Voucher Scheme is providing opportunities for SMEs (Small and medium-sized enterprises) in the telecommunications market to extend the reach of their networks across Scotland. To date we have 55 suppliers registered offering services across varying technology types including full fibre, 4G, Fixed Wireless Access and satellite.

The Low Carbon Infrastructure Transition Programme (LCITP) has run a number of open funding invitations, including the Green Recovery: Low Carbon Energy Project Capital Funding. This funding invitation targeted £50 million of support for projects that demonstrate innovative low carbon heat solutions for buildings, as well as proposals for integrated energy systems that support the ambitions for Scotland to achieve net zero emissions by 2045 and further catalyse economic recovery from the challenges imposed by the COVID-19 Pandemic.

We have transformed access to affordable housing with record investment of more than £3.5 billion to deliver more affordable and social homes. This is helping to create great places and continuing to ensure the right types of homes in the right places to support Local Housing Strategies and regional development priorities. We recognise the positive social and economic impact that investment in social housing contributes and we are committed to expanding our social housing stock.

Leverage

In order to maximise the government's investment in infrastructure, leverage of other funding is pursued where possible. Examples of this include the Reaching 100% (R100) and Scottish 4G Infill (S4GI) programmes which utilise a gap funding model which is incentivising investment by commercial providers by making the business case financially viable in areas where they would not otherwise invest.

We are providing over £10 million funding to the Scotland 5G Centre, which aims to be Scotland's national platform for collaboration, innovation and knowledge sharing across all aspects of 5G from research to delivery and exploitation. Through a new network of 5G Innovation Hubs, the Scotland 5G Centre will continue to secure and target inward investment either in support of existing seed project activities or by stimulating new innovation and SME growth, with sectoral focus, in the economy. The Scotland 5G Centre is a partner in a 5G New Thinking project that was successful in securing £5 million UK Government funding for 5G in February 2020. With contributory funding from public and private sector project partners, the project is expected to be valued around £9 million. The project will look at the provision of mobile/wireless connectivity primarily using new shared spectrum and local spectrum licencing approaches.

The Low Carbon Infrastructure Transition Programme (LCITP) has run a number of has also run a number of open funding invitations, including the Green Recovery: Low Carbon Energy Project Capital Funding. This funding invitation targeted £50 million of support for projects that demonstrate innovative low carbon heat solutions for buildings, as well as proposals for integrated energy systems that support the ambitions for Scotland to achieve net zero emissions by 2045 and further catalyse economic recovery from the challenges imposed by the COVID-19 Pandemic. This funding has been matched by equivalent investment from both the public and private sector.

For 2019-20, our average grant contribution for the social homes delivered by Registered Social Landlords was approximately 56% (£88,500 per home), with an average of around £69,000 raised through private funding from Registered Social Landlords' rental income.

NPD/hub Revenue Funded Projects

Previous IIP 2015 - Project Pipelines have included the capital value of revenue funded projects through NPD and hub. These projects may also have had an additional capital funded element. The revenue funded element is paid through unitary charges for a period of 25-30 years once the project is completed and is funded from resource budgets. The annual estimated NPD/hub programme unitary payment charges are published on the Scottish Government website and updated on an annual basis.

The graph provided at Annex B shows the total unitary charges payable each year in nominal, real and discounted terms. The nominal values represent the cash payments that will be made and the real figures remove the effect of inflation. The discounted figures remove the effect of inflation and in accordance with HM Treasury Green Book principles, discount to adjust for social time preference. The largest elements of the unitary charge relates to construction and financing which under the terms of the NPD and hub contract, are not linked to inflation, therefore in real terms these costs reduce over the period of the contract.

The Net Present Value (NPV) is calculated as the value of all future cash flows over the entire life of the project, discounted to the date each contract was signed. In accordance with the established HM Treasury Green Book principles, the discount rate applied to calculate the NPV removes the effect of inflation and adjusts for social time preference. The future cash flows and therefore the net present values for each project reflect the capital, financing costs, project company running costs and contracted maintenance costs for each project. With the exception of the two major roads projects, which have an operational period of 30 years, the future cashflows for each project cover an operational period of 25 years. The table provided at Annex C provides the total unitary charges payable for each project and the associated NPV value.

Conclusion

This overview summarises the approach to infrastructure investment that the Scottish Government has followed to support the economy and deliver high quality public services. Investment has been maximised through not only utilising capital grant, but also delivering infrastructure through revenue financed methods, capital borrowing and levering in additionality from the private sector and other sources. The IIP 2015 - Progress Reports and accompanying project and programme reports have set out the scale and diversity of our infrastructure programme and the use of various funding routes together with the associated economic benefits.