Islands Programme capital fund 2021/22 to 2024/25: grant awards - evaluation

3. Overview of the Islands Programme

3.1 This chapter provides a descriptive overview of the Islands Programme. It sets out key aspects of the programme, describes how the programme has operated and changed over time, and gives a summary of the number and types of projects it funded in Year 1 (when a direct allocation mechanism was used to disburse funds) and in Years 2 to 4 (when a competitive bid process was used). The chapter also briefly discusses the role of the Islands Programme in addressing the strategic objectives of the National Islands Plan.

Common aspects across all four years

3.2 Three aspects of the Islands Programme have featured across all four years, namely (i) the objectives and criteria for funding, (ii) the requirement for expenditure to be legally incurred by the end of the financial year, and (iii) the role of SFT.

Objectives and criteria for funding

3.3 The objectives of the Islands Programme are:

• To sustain, enhance and develop transformational and critical infrastructure projects based on local priorities that align with the National Islands Plan and its strategic objectives
• To create and / or reshape infrastructure projects that meet the objectives and criteria of the project fund, that co-ordinate and / or integrate with other funded and planned initiatives on the islands, thereby driving sustainable growth
• To ensure that all projects (and related delivery) build on clear place-based, community wealth principles to ensure inclusive islands’ growth while working to achieve the Scottish Government’s net zero ambitions and a just transition
• To maximise leverage of partnership, investment and cross-policy funding and impacts of any investment to enhance island life.

3.4 In addition, the primary criteria for expenditure are stated as follows:

• To meet the overall objectives of the Islands Programme
• To link directly to at least one of the National Islands Plan strategic objectives
• To ensure transformational impact against place-based priorities to accelerate local growth
• To align with local critical infrastructure priorities and have the potential to collaborate with other place-based investment opportunities to maximise benefits
• To demonstrate project readiness, collaborative and partnership delivery models, project viability and long-term sustainability.

3.5 These objectives and criteria appeared in the documentation for each funding round. Additionally, the documentation for the three competitive rounds of funding stated that projects were expected to demonstrate alignment with a range of (additional) overarching Scottish Government priorities, some of which overlapped with points listed under the key objectives and primary criteria presented above.^[8]

3.6 Islands Programme funding cannot be used to substitute for funding already committed by the local authority. Nor can it be used to carry out works that fall within the statutory duties of local authorities (for example, the ongoing maintenance of roads – although enhancements to road infrastructure are permitted). Application guidance asks local authorities to set out the ‘additionality’ or improved outcomes that will be achieved for their communities from their use of Islands Programme funding.

Timescale for expenditure

3.7 Islands Programme funding must be fully committed by the end of the financial year for each funding round. This point is included in grant award letters. To provide some flexibility in relation to this requirement, the Scottish Government has stated that grants may be claimed when the expenditure is ‘legally incurred’. Expenditure is seen as ‘legally incurred’ when there is a binding contract in place in relation to a project – for example, when a contractor has been appointed, or when a local authority has a contractual agreement with a third-party organisation (such as a community organisation) to deliver the project.

The role of SFT

3.8 SFT has been funded by the Scottish Government to support the design, delivery, management, monitoring and evaluation of the Islands Programme since its inception. The SFT programme manager for the Islands Programme is a secondee from the Scottish Islands Federation and lives in an island community. SFT’s role has involved:

• Working with the Scottish Government Islands Team (SGIT) to develop the programme, producing application forms and guidance for local authorities
• Supporting local authorities to ensure they (i) fully meet the contractual investment criteria and terms of their grant awards, (ii) are able to commit to the expenditure to draw down their grant, and (iii) deliver their project once the grant is claimed
• Monitoring the progress of funded projects in an ongoing way – including monitoring local authorities’ applications to other programmes / funding sources where co-funding is involved
• Monitoring and reporting on the outputs and outcomes of the programme.

3.9 The programme manager – who provides secretariat support to the Investment Panel but is not involved in assessing bids – has also played an important role in advising and supporting local authorities in considering suitable projects for funding. Two other senior SFT staff (both part of SFT’s Place, Housing and Economic Investment team) have been members of the Investment Panel since 2022/23 and have also supported the programme throughout its period of operation.

The process for awarding grants

3.10 This section provides a description of the process for awarding grants in Year 1, when a direct allocation process was used, and in Years 2 to 4, when a competitive bid process was used. It also provides details of the amount of funding disbursed to local authorities under these two mechanisms.

Year 1: Direct allocation

3.11 In 2021/22, £5m of Islands Programme funding was directly allocated to island local authorities using a formula agreed with COSLA. The allocations were based on (i) the size of the island-based populations in each local authority and (ii) total island road length (seen as an indicator of the geographical size of each island authority’s area of responsibility). A direct allocation approach was used to expedite payments to local authorities in the context of ongoing recovery from Covid and the severe impacts of the pandemic on island economies.

3.12 SGIT was given the task of managing the Islands Programme in autumn 2021, and award letters were issued to local authorities in December 2021. To receive their allocations, local authorities had to submit a claim providing details of their proposed expenditure and confirming adherence to the terms of the grant – including the requirement to legally incur the expenditure by 31 March 2022 (i.e. three months after award letters were issued).

3.13 Local authorities used different approaches to identify local projects to spend their funding on in Year 1. For the most part, this involved drawing on existing knowledge of potential community and local authority projects and identifying those that were the best fit with Islands Programme objectives and at an appropriate stage in development for a funding application to be submitted. However, one local authority reported that they had contacted the area officers from Highlands and Islands Enterprise (HIE) to identify community organisations with ‘shovel-ready’ projects, while another put out a call for potential projects via existing networks and carried out a basic in-house assessment of those put forward. Seeking council approval for projects was part of the process in some cases. In all cases, the process for identifying suitable projects was driven by the limited time available to spend the money allocated.

3.14 Table 3.1 shows the amounts allocated to each local authority in 2021/22 and the number of projects each local authority funded with their allocations. Altogether, £3.9m of the available £5m was passed over to five local authorities and was spent on 37 projects. Note that Shetland Islands Council was unable to claim its allocation of £1,100,000, as it was not able to enter into a contractual agreement with a developer for its proposed project by 31 March 2022.

* Shetland Islands Council was unable to claim its allocation as it was not able to enter into a contractual agreement with the developer for their proposed project prior to the deadline of 31 March 2022.

Years 2 to 4 – Competitive bidding

3.15 From 2022/23 to 2024/25, the Islands Programme used an annual competitive bid process. Under this process, local authorities must submit separate, costed proposals – using a standard application form – for each of the projects for which they are seeking funding. Applications are then assessed by an Investment Panel against a specified set of criteria, stated as ‘deliverability’, ‘need and partnership’, and ‘project outcomes’ in the 2024/25 funding round.^[9] The process for assessing applications and making recommendations for funding involves six stages:

• The SFT programme manager reviews all applications and follows up on any outstanding compliance issues with local authorities.
• Applications are scored by individual panel members using appraisal guidance and scoring criteria.
• SFT produces a ranked list of applications based on each application’s average weighted scores across all criteria. (Note that guidance to panel members stipulates that, in order for any application to be recommended for funding, it must achieve a stated quality threshold.)
• A panel meeting is held to discuss and agree funding recommendations.
• Recommendations about funding are sent by Scottish Government officials to Scottish Ministers.
• Final decisions on funding are made by Scottish Ministers.

3.16 It should be noted that the ranked list, based on average weighted scores, is intended to guide discussion at the panel meeting. The scores are not intended to be the sole basis of the final recommendations for funding.

3.17 The SFT programme manager provides secretariat support to the Investment Panel. This includes producing a written summary of the panel’s discussion and recommendations to inform SGIT’s advice to Ministers.

3.18 Over the three years of the competitive bid process, there was variation in the timetable for announcing the annual funding round. In 2022/23, the funding was announced on 21 March 2022, with a deadline for bids of 10 June, and notification of awards in early September. This gave local authorities seven months to commit their funding. The following year – in response to recommendations from the RAI Committee – the timetable was brought forward. The announcement of funding was made on 31 January 2023, with a deadline for bids of 21 April, and notification of awards on 16 May. This gave local authorities 10 months to commit their funding. However, in 2024/25, due to uncertainty about the Scottish Government’s annual budget, the announcement of funding was not made until 24 May 2024, with a deadline for bids of 30 August, and notification of awards on 7 October. This gave local authorities just under six months to commit their funds. Although local authorities were generally informed of their awards before the official announcement was made, contracts were only issued after the official announcement. Issues relating to the Islands Programme timetable, and the timescales for committing the funds, are discussed further in Chapter 4.

3.19 Table 3.2 provides information about the number of awards made and the amounts received by each local authority between 2022/23 and 2024/25. Altogether, 33 applications (out of 48 submitted) received funding, and a total of £11,292,728 was disbursed.

* Argyll and Bute Council was awarded £157,265 in 2024/25 for one project but was unable to proceed with the project and claim the grant because of the significantly higher than expected costs of the tenders received in a formal procurement process for the work.

Changes made to the competitive bid process after the first year

3.20 Following the first round of competitive funding, the Islands Programme came under scrutiny from the RAI Committee, with Committee members and representatives of local authorities expressing a range of concerns about its operation. These focused on the perceived resource intensive nature of the process, the wide-ranging funding criteria, the make-up of the Investment Panel, the timing (and timescales) for submission of applications, and the limited time available from the confirmation of awards to the deadline for drawing down the funds.

3.21 In response to recommendations made by the Committee, a number of changes were made for the second round of the competitive bid process. These included: (i) increasing the support available from SFT, (ii) streamlining the application form and the application process overall, (iii) removing the cap on the number of applications from any one local authority (which had been set at five in 2022/23), (iv) launching the fund earlier in the financial year and giving earlier notification of outcomes to local authorities, and (v) increasing representation from island communities on the Investment Panel.

Membership of Investment Panel

3.22 The Investment Panel was established in the first year of competitive bidding (2022/23) and comprised eight members (plus the SFT programme manager as a non-voting member providing secretariat support). Membership was based on recommendations from SFT, the Scottish Islands Federation and Scottish Government officials, and was approved by Scottish Ministers. Panel members were selected because of their experience of connecting policy with infrastructure spend, their experience of island infrastructure investment, and / or their experience of participating in similar bid assessment panels. The selection of panel members was also informed by the importance of minimising conflicts of interest.

3.23 Following feedback from local authorities and the RAI Committee, SGIT took steps to expand the membership in 2023/24 to include greater representation from the islands. Panel membership was increased from 8 to 13. The new members had current and past involvement in island local authorities, island-focused public bodies, island-focused representative groups, and / or personal links to islands, and included members of the Young Islander Network. Membership of the panel was refreshed again in 2024/25.

Outputs from Year 1 compared to outputs from Years 2 to 4

3.24 There were similarities and differences between the outputs of the Islands Programme in Year 1 (under direct allocation) compared to Years 2 to 4 (under competitive bidding). In terms of similarities, in each year, across all four years, more than half of projects have been delivered by community organisations. In addition, across all four years, the Islands Programme provided around 40% of the estimated total costs of the projects funded.^[10]

3.25 In terms of differences, the number of projects receiving Islands Programme funding was markedly higher in Year 1 when funding was delivered as a direct allocation to local authorities than in Years 2 to 4 when the competitive bid process was in place. Altogether, 37 projects received funding in Year 1, compared to 33 in total across Years 2 to 4. However, the average size of the grants received by projects was substantially larger in each of the competitive bid funding rounds than in the direct allocation round.

• In 2021/22, the average grant per project was £105,438 (range: £17,240 to £443,782).
• In 2022/23, the average grant was £404,545 (range: £72,000 to £1,683,169).
• In 2023/24, the average grant was £307,692 (range: £55,000 to £730,998).
• In 2024/25, the average grant was £315,859 (range: £50,500 to £651,000).

3.26 Another difference is the proportion of funding received by local authorities under direct allocation and competitive bidding. Under direct allocation (Year 1), there was a large variation in the share of funding received by individual local authorities, due to the allocation formula. Shares ranged from 5.2% (North Ayrshire Council) to 27.6% (Comhairle nan Eilean Siar). Under competitive bidding (Years 2 to 4 combined), there was a more equal distribution of funds, ranging from 13.3% (Argyll and Bute Council) to 21.7% (Orkney Islands Council).

3.27 Annexes 2 and 3 provide details of the outputs of the Islands Programme, and a complete list of the projects awarded funding between 2021/22 and 2024/25. Note that some projects received awards in more than one year. In addition, some projects that were unsuccessful in obtaining Islands Programme funding in a particular year were successful in a subsequent year.

The Islands Programme contribution to the National Islands Plan

3.28 The National Islands Plan has 13 strategic objectives – of which 12 are thematic in nature. (The 13th objective relates to implementation of the Plan.) The 12 wide-ranging thematic strategic objectives are as follows:

1. Population levels: To address population decline and ensure a healthy, balanced population profile

2. Sustainable economic development: To improve and promote sustainable economic development

3. Transport: To improve transport services

4. Housing: To improve housing

5. Fuel poverty: To reduce levels of fuel poverty

6. Digital connectivity: To improve digital connectivity

7. Health, social care and wellbeing: To improve and promote health, social care and wellbeing

8. Environmental wellbeing and biosecurity: To improve and promote environmental wellbeing and deal with biosecurity

9. Climate change and energy: To contribute to climate change mitigation and adaptation and promote clean, affordable and secure energy

10. Empowered island communities and strong local partnership: To empower diverse communities and different places

11. Arts, culture and language: To support arts, culture and language

12. Education: To promote and improve education for all throughout life.

3.29 In their applications under the current allocation mechanism, local authorities are asked to indicate the primary National Islands Plan strategic objective – and any other strategic objectives – addressed by their proposed project.

3.30 Monitoring data collected by SFT indicate that projects with a primary objective of ‘sustainable economic development’ were awarded the largest amount of funding over the four years (£4.6m). This was followed by projects with a primary objective of ‘empowered island communities’ (£2.8m) and ‘health, social care and wellbeing’ (£1.9m). None of the projects awarded funding had primary objectives of addressing fuel poverty, or climate change and energy – although some projects may have addressed these issues as secondary objectives. See Table A2.2 in Annex 2 for details.