Investing for jobs: capital spending review framework 2021-2022 to 2025-2026

Ministerial Foreword

COVID-19 – the single greatest public health crisis of our lifetimes – has had a profound impact on our health, our economy and society, indeed our whole way of life. Scottish GDP fell by 19.4% in the second quarter of 2020: this has been a dramatic shock to our economy. Our clear priority is dealing with the economic, health, and social crises that COVID-19 has brought.

As reported to Parliament, one effect of the pandemic was a necessary delay to our Capital Spending Review, which had been due to be published by end June 2020.

The Scottish Government wants to ensure that society can thrive economically, socially and environmentally, and to deliver sustainable and inclusive growth for all. Making the right investments in the right places is crucial. We need the ability to respond quickly to boost the economy.

Our capital funding supports economic growth by investing directly in businesses to boost innovation and employment, funding research and development, and capitalising the Scottish National Investment Bank.

And capital investment crucially supports employment and economic recovery through our large-scale infrastructure plans.

Around 90% of our capital budget supports infrastructure - from the homes we live in and the water, energy and telecommunication we consume, to how we travel to the places we work, shop and learn.

Our strategic draft Infrastructure Investment Plan covers 2021-22 to 2025-26, and is published alongside this high level Framework. It sets out around £24 billion of key projects and programmes that can be confirmed now, including those deploying revenue finance. Early commencement of these can ensure we deliver our National Infrastructure Mission, to increase annual investment in infrastructure by £1.5 billion by 2025-26.

It is estimated that the £6.4 billion of investment in 2021/22 set out in National Infrastructure Mission, rising to £7 billion in 2025/26, will support 45,000 full time equivalent jobs across those years. This includes the jobs supported directly, mainly in the construction sector, but also the indirect jobs supported in the supply chain.

In recognition of the climate emergency, declared by the First Minister, the Scottish Government announced, in February 2020, that it would ring-fence £2 billion of new funding over the next Parliamentary term. Our Framework ensures that investment.

It further details those specific schemes which make up the first £1.6 billion tranche of new funding. We are already protecting £1.8 billion annual investment in low carbon schemes. So the first tranche of new investment will provide an almost 18% boost in funding for a green recovery over the next Parliamentary term.

Our draft Infrastructure Investment Plan shows how we will bring forward a pipeline of work to help us build back stronger from the pandemic, and the Capital Spending Review Framework shows how funding and finance is matched to our decisions.

This Framework covers the 5 financial years of the next Parliamentary term. It sets out now how we have a full and realistic plan for around £33.5 billion of investment to deliver the ambitious National Infrastructure Mission. Our financial assumptions are prudent. Stakeholders can have confidence in them.

Our high level Framework aims to support transparency and an open dialogue with Parliament, Local Government and other partners about the fiscal context, and our financial assumptions. In its 2017 Budget Process Review Group report, Parliament called for such transparency and the chance to engage in multi-year financial planning.

After such engagement, and once the UK Government has concluded its own upcoming Comprehensive Spending Review, we can publish formal multi-year capital budget allocations, likely alongside Scottish Budget 2021-22.

It is right that we engage at a high level before finalising details, and we are also open about the risk we face from working with the uncertainty around future UK capital plans. Stimulating the economy means being ready to respond quickly once UK plans are clear, which is why we are publishing our Framework now.

But we also need to prepare for delayed UK plans, a new austerity approach, or uneven patterns of UK future investment. Delay risks uncertainty and paused investment, damaging our economy.

There is now, more than ever, a need for greater capital stimulus from the UK Government, and for them to agree increased fiscal flexibilities for the Scottish Government.

The Chancellor announced on 24 March 2020 that the anticipated UK Comprehensive Spending Review would be delayed from July, to enable a focused COVID-19 response.

Whilst we know that the UK Government now intends to publish its own Spending Review in the autumn, we do not yet know how the Chancellor aims to respond to the substantially changed UK fiscal position arising from COVID-19.

We call on the UK Government to deliver on their March 2020 capital stimulus plans, and to extend the Scottish Government's capital borrowing powers to help us respond effectively to the pandemic.

The Treasury has delayed previously announced Capital Spending Reviews, and their response to the UK National Infrastructure Commission, four times so far. COVID-19 and Brexit uncertainties could again affect their plans. Given the significant economic implications of the pandemic, we cannot delay all Scottish planning until the UK Government takes action.

Our coherent focus can provide huge opportunities for Scotland's people. We will drive innovation, ensure access growing global markets, create good, sustainable and green jobs and support a just and fair transition and wellbeing outcomes.

Kate Forbes - Cabinet Secretary for Finance
September 2020