The Funding of Local Government in Scotland, 2025-2026

How are Capital Projects funded?

All of the funding referred to so far has been for day-to-day running costs, called ‘revenue spend’. In addition to that, councils also spend on longer-term capital projects, such as flood defences, town centre renewal, and road building.

In the past this was funded by approved borrowing, with the Scottish Government then providing a grant to fund interest and repayments. But now the Scottish Government provides a Capital Grant to fund capital projects.

The Capital Grant is also distributed by means of a funding formula, based largely on population and road-length. Some funding is ring-fenced for specific projects such as flood defence. 

Capital funding cannot be used on day-to-day running costs, but councils can use some of their revenue funding to pay for capital projects.

The total Capital Grant provided for 2025-26 was £767 million.

Summary of the different indicators used in the formulae