Infrastructure Investment Plan 2015: progress report 2017

Overview Report

The 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 up to 2035 sector by sector.

The Scottish Government is firmly committed to infrastructure investment as a key factor in securing economic growth and our focus is on stimulating growth, protecting and creating jobs and promoting Scotland as a great place to do business.

Infrastructure investment is at the heart of Scottish Government economic strategy and it is clear that this must continue in order to provide stability in our economy and support our long-term vision of a prosperous, fair and well-connected country. We recognise that infrastructure investment is key to:

• delivering sustainable economic growth through increasing competitiveness and tackling inequality;
• managing the transition to a more resource efficient, lower carbon economy;
• supporting delivery of efficient and high quality public services; and
• supporting employment and opportunity across Scotland.

The Government Expenditure and Revenues Scotland ( GERS) publication provides details of capital expenditure for Scotland beyond that invested by the Scottish Government and can be found using the following link:

http://www.gov.scot/publications/government-expenditure-revenue-scotland-2016-17-9781788511612//downloads.

It include 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.

The Infrastructure Investment Plan includes 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 Infrastructure Investment Plan - Project Pipeline is based on the 2015 Infrastructure Investment Plan and is updated on a six-monthly basis. It details projects with a capital value of £20 million or more where the Scottish Government has a lead role in procurement or funding. It also includes school and health projects being taken forward through the Scotland-wide 'hub' initiative which form part of the Scottish Government's current revenue funded £3.5 billion NPD/hub investment programme. A summary of the IIP Project Pipeline at March 2018 by funding type and sector is provided at Annex A.

In addition to publishing the IIP Project Pipeline, the Infrastructure Investment Plan - Major Capital Projects Progress Update is published on a six-monthly basis which 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 latest versions of both the IIP Project Pipeline and the IIP Major Capital Projects Progress Update publications can be found by way of the following link:

http://www.gov.scot/Topics/Government/Finance/18232/IIP

Progress to March 2018

Major infrastructure improvements have been delivered and significant progress continues to be made. In total over the course of 2017 and up to March 2018, the following infrastructure projects worth £3 billion opened to the public or completed construction within our project pipeline:

Transport

• Queensferry Crossing (£1.325-£1.35 billion).
• M8 M73 M74 Motorway Improvements Project (£452 million).
• A9 Kincraig to Dalraddy (£45 million).

Health

• NHS Ayrshire & Arran - Building For Better Care (£27.6 million).
• NHS Dumfries and Galloway - Acute Services Redevelopment Project (£275.5 million).
• NHS National Services Scotland - Scottish National Blood Transfusion Service National Centre (£33.3 million).
• NHS Greater Glasgow & Clyde - Inverclyde Continuing Care Beds for Mental Health (£8.8 million).
• NHS Lothian Partnership Centre Bundle (£34.2 million).

Schools

• Anderson High School, Shetland Islands (£64.4 million).
• Applegrove Primary, Moray Council (£4.8 million).
• Ayr Academy, South Ayrshire Council (£25.1 million).
• Baldragon Academy, Dundee City Council (£29.1 million).
• Balloch Campus, West Dunbartonshire Council (£16.5 million).
• Barrhead High, East Renfrewshire Council (£27.3 million).
• Bellsbrae Primary, Shetland Islands Council (£0.7 million).
• Boroughmuir High School, City of Edinburgh Council (32.0 million).
• Broomlands Primary School, Scottish Borders Council (£9.7 million).
• Burnside Primary, South Lanarkshire Council (£7.7 million).
• Campbeltown Grammar, Argyle and Bute Council (£25.7 million).
• Carrongrange ASN, Falkirk Council (£18.1 million).
• Clyde Campus, Glasgow City Council (£21.6 million).
• Crookfur Primary, East Renfrewshire Council (£7.8 million).
• Dalbeattie Learning Campus, Dumfries and Galloway (£25.8 million).
• Duns Primary, Scottish Borders Council (£9.3 million).
• Elgin High, Moray Council (£29.5 million).
• Forfar Community Campus, Angus Council (£38.3 million).
• Garnock Academy, North Ayrshire Council (£42.2 million).
• Halfmerke Primary and West Mains, South Lanarkshire Council (£11.5 million).
• Holy Trinity Campus, East Dunbartonshire Council (£8.6 million).
• Hurlford Primary, East Ayrshire Council (£3.6 million).
• Kelso High School, Scottish Borders Council (£24.6 million).
• Kinross Primary, Perth & Kinross Council (£11.6 million).
• Kirn Primary School, Argyle and Bute Council (£10.6 million).
• Langlee Primary, Scottish Borders Council (£10.6 million).
• Largs Academy, North Ayrshire Council (£51.9 million).
• Marr College, South Ayrshire Council (£37 million).
• Millbank Primary, Moray Council (£4.9 million).
• Muirkirk Primary, East Ayrshire Council (£6.2 million).
• Our Lady and St Patrick's High, West Dunbartonshire Council (£26.7 million).
• Paradykes Primary, Midlothian Council (£15.6 million).
• Riverbrae, Renfrewshire Council (£17.7 million).
• Roslin Primary, Midlothian Council (£7.2 million).
• Seafield Primary, Moray Council (£6.7 million).
• St Fergus Primary, Renfrewshire Council (£5.3 million).
• St Gerardine Primary, Moray Council (£5 million).
• The Waid Academy, Fife Council (£24 million).
• Tulloch Primary School, Perth & Kinross Council (£10.5 million).
• Whatriggs, East Ayrshire Council (£12.4 million).
• Wick High, Highland Council (£53.6 million).

Particular highlights in this progress report include:

• The Forth Replacement Crossing Project (Queensferry Crossing), the largest transport infrastructure project in a generation, opened to traffic on 30 August 2017 and has been completed in six years from the date construction started and within ten years of being first committed to by the Scottish Government in December 2007.

• The M8 ‘missing link’ between Glasgow and Edinburgh was completed on 1 June 2017 with the opening of the M8 M73 M74 Motorway Improvements Project.

• The first section of A9 dualling programme opened in September 2017 as work finished on the construction of the A9 Kincraig to Dalraddy. This is a significant milestone towards achieving a dual-carriageway on the A9 all the way from Perth to Inverness by 2025.

• In April 2017 the NHS Ayrshire and Arran Building For Better Care project became operational enhancing the level of Accident & Emergency Services delivered at the Ayr and Crosshouse Hospitals.

• In 2017 the new Dumfries and Galloway Royal Infirmary which is one of the most advanced hospitals in the country, opened to patients and the Jack Copland Centre which is the new home for the Scottish National Blood Transfusion Service, completed construction.

• NHS Orkney’s £77.4 million New Hospital and Healthcare Facilities project which includes the replacement of Balfour Hospital and which is the biggest in the health board’s history, commenced construction in 2017.

• 41 school projects worth £796 million were completed within the Schools for the Future programme in total over the course of last year and up to March 2018 and 17 schools commenced construction worth £276 million.

• The new £78 million state of the art Forth Valley College (Falkirk Campus) commenced construction in 2017.

• The new £32.3 million Inverness Justice Centre building in Inverness commenced construction in March 2018.

Funding

Projects within the IIP are funded from several funding sources: capital DEL, NPD/hub revenue financed and Regulated Asset Base ( RAB) (for rail projects). The Scottish Government also has the power to borrow up to £3 billion, with an annual cap of £450 million for capital purposes. 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 in place a 5% affordability cap, whereby annual revenue commitments will not exceed 5% of the total block grant from HM Treasury. Committed projects plus planned projects and planned borrowing currently peak at 4.3% in 2020-21 and therefore there is headroom within the 5% ceiling.

It should be noted that following the reclassification of Network Rail from a private to public sector organisation, the funding regime will change from 2019-20 and rail projects will become entirely grant-funded. HM Treasury will take on responsibility for debts accrued by Network Rail in Scotland. In the interests of maintaining comparability current modelling of commitments contain estimates of the Network Rail investment as if it had been RAB funded.

Financial Transactions

In addition, the UK Government has made a subset of capital funding available called Financial Transactions ( FTs). FTs are a subset of capital funding from HMT that were introduced in financial year 2012-13 and which 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 HMT by 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.

The Scottish Government has disbursed a total of £1.8 billion in FTs to 31 March 2018 with a further £1.5 billion available over the period 2018-19 to 2020-21, excluding recycling of any repayments. Our repayment profile, as agreed with HM Treasury and updated annually, incorporates our first repayment of £51 million by March 2020. For the financial year 2020-21 onwards we anticipate a fairly even re-payment pattern based on at least an 80% repayment rate which reflects known and anticipated repayments. The majority of FTs to date have been allocated mainly to support housing and regeneration schemes, support for businesses through Scottish Enterprise and investment in energy efficiency measures over the medium to long-term. There have also been short-term allocations to support farmers which, in general, are repaid the following financial year and made available for re-cycling.

Contribution to Economic Development

Infrastructure Investment contributes to economic development and supports jobs. The contribution made by the individual projects is detailed in 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.

Leverage

In order to maximise the government’s investment in infrastructure, leverage of other funding is pursued where possible. Examples of this include the City Region Deals where it is estimated that the Glasgow City Region Deal will lever in an additional £3.3 billion of private sector investment into the proposed infrastructure investment programme, the Inverness Deal which is expected to unlock an additional £800m of private sector investment and the Aberdeen City Region Deal anticipating around a further £500m of leverage from the private sector and other economic partners.

Publicly funded social housing and mid-market rented ( MMR) attracts matching private investment across the housing programme. There will be variations for individual projects but social housing grant pays approximately half the unit build cost with the remainder being funded by lenders. For many of our innovative MMR schemes supported by loan funding, the private finance leverage can be much higher, generating significant investment at scale into affordable housing in Scotland.

NPD/hub Revenue Funded Projects

The IIP Project Pipeline includes the capital value of revenue funded projects through NPD and hub. These projects may also have a 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 unitary charges are published on the Scottish Government website by way of the following link:

http://www.gov.scot/Topics/Government/Finance/18232/12308/NPDhubPipelinepayments

The graph provided at Annex B shows the total unitary charges payable each year in nominal and real terms. The nominal values represent the cash payments that will be made and the real figures remove the effect of inflation. 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 here 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 Scottish Government is following to support the economy and deliver high quality public services. Investment is maximised through not only utilising capital grant but delivering infrastructure through revenue financed methods, capital borrowing and levering in additionality from the private sector and other sources. The IIP Progress Report and associated IIP monitoring reports set out in more detail the scale and diversity of the infrastructure programme, use of a variety of funding routes and the associated economic benefits.