The Outcome of the Targeted Review of the Capital Spending Review – Updated Spending Allocations for 2023-24 to 2025-26

Ministerial Foreword

I am pleased to publish the outcomes of the targeted review of the Scottish Government's Capital Spending Review, together with the updated Medium-Term Financial Strategy and the Resource Spending Review.

I published the original Capital Spending Review alongside the current five-year Infrastructure Investment Plan in February 2021. Since then, there have been changes in three key factors which have a bearing on the Scottish Government's infrastructure investment pipeline of projects and programmes.

Firstly, we received a lower than expected capital settlement from the UK Government's Autumn 2021 Spending Review – reducing the funding envelope by over £750 million. This reduction not only puts at risk the growth we wish to stimulate in the Scottish economy, but also risks disrupting the longer term investment certainty that we provided last year. Also – under the Levelling Up agenda - the UK Government is increasingly willing to make decisions about spending in Scotland without considering the strategic spending plans set by the Scottish Government and local authorities.

Secondly, the establishment of the new Scottish Government in 2021 with an increased commitment to tackle global climate and nature emergencies, reinforced by COP 26. Despite being prominent in our original plans, action was needed to strengthen these commitments to ensure Scotland continues to play its part in addressing these twin global crises. This is underpinned by specific commitments and targets set out in the landmark Bute House Agreement between the Scottish National Party and the Scottish Green Party, which has required a review of the spending plans to ensure the best fit between our mutual priorities and investments.

And lastly, but perhaps most significantly, while Scotland continues to recover from COVID-19, we face the additional impacts of high inflation, supply chain pressures and business disruption due to a combination of the impact of the UK's exit from the European Union, the pandemic and the crisis in Ukraine.

While the implications of these events are still evolving, I know that the cost of living crisis is badly affecting every part of Scotland's economy, and will continue to do so for some time. This emphasises the importance of providing clarity on the available spending allocations going forward to allow investments to be made. However, these plans alone will not be able to fully insulate Scotland from further effects of energy or commodity price changes and further adjustments may be necessary in the future.

I will continue to call upon the UK Government, who face the same challenges as Scotland, to use the levers only they have at their disposal to respond and whose choices in response to these challenges will benefit all of the UK, as well as Scotland. Without a significant change in the position of the UK Government to release additional capital or to agree an increase in the Scottish Government's borrowing capacity, alongside other UK Government actions such as the reduction or removal of VAT on energy and construction costs, it will not be possible to meet all of our commitments within the funding available. In parallel, I will work closely with my colleagues across Scottish Government portfolios to monitor the deliverability of our infrastructure investment plans and make any further adjustments we may need to make as the impact of external influences on our economy evolves.

Despite these challenges, by considering all the options available to me and working closely with Scottish Green Party colleagues, this targeted review will add to, rather than diminish, the positive commitments published in the 2021 Capital Spending Review and Infrastructure Investment Plan. These capital commitments also support the priorities set out in the Resource Spending Review:

• Reduce child poverty through making available more than £3.6 billion for the affordable housing programme, and £220 million of new investment in priorities to support children and families through the roll out of digital devices and school infrastructure, play parks and a system of school age childcare.
• Address the climate crisis through over £5 billion investment in rail infrastructure, £1.8 billion to deliver the Heat in Buildings strategy, and expansion of the Just Transition Fund to over £150 million by 2025-26.
• Build a strong and resilient economy by investing over £525 million to deliver on five years of the £5 billion City Region and Regional Growth Deals programme and supporting Local Government capital investment with £1.9 billion of funding.

In the context of current challenging economic circumstances, the Scottish Government is committed to improving the lives of people in Scotland. As a result of this targeted review of the capital programme, we will focus investment on the key challenges of addressing climate change, tackling child poverty and economic recovery whilst adhering to the strategic investment principles set out in the Infrastructure Investment Plan.

Kate Forbes
Cabinet Secretary for Finance and Economy