Infrastructure Investment Plan 2015: progress report 2019 to 2020

Overview Report

The Infrastructure Investment Plan

The 2015 Scottish Government Infrastructure Investment Plan (IIP) was published on 16 December 2015 and sets 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 sector by sector.  

The 2015 IIP includes a set of guiding principles for infrastructure investment, which provide the framework for investment decisions and how they promote the Scottish Government’s overarching objectives.  These are:

• 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 next Infrastructure Investment Plan will be published later this year and will focus on three core long-term outcomes of Inclusive Economic Growth, Tackling the Global Climate Emergency and Building Sustainable Places.  These three themes will guide our strategic approach to ensuring the right investments are made in the right places that generate inclusive growth and tackle the climate emergency.  It will also be important for all aspects of our Infrastructure Investment Plan to contribute to economic recovery after Coronavirus, which may particularly influence the scale and nature of the best projects to take forward over medium term.

National Infrastructure Mission

International evidence from studies by the International Monetary Fund (IMF), Organisation for Economic Co-operation and Development (OECD), World Bank and European Union, all demonstrate a strong link between government infrastructure investment and longer-term economic growth. The Scottish Government is firmly committed to infrastructure investment as a key factor in securing inclusive economic growth and our focus is on stimulating growth, protecting and creating jobs and promoting Scotland as a great place to do business.  

In recognition of the importance of infrastructure investment to the economy, the 2018 Programme for Government set out our commitment to a National Infrastructure Mission to increase annual investment by 1% of 2017 Scottish GDP (Gross Domestic Product) by the end of the next Parliament. This will mean an additional £1.56 billion of investment per year by 2025-26.  The experience of Coronavirus highlights how important this extra investment will be for our inclusive economic growth and recovery. 

The Scottish Government set up the Infrastructure Commission for Scotland in 2019 and it has already published its first phase report, ‘A Blueprint for Scotland’, covering the right priorities for the years ahead.  The Scottish Government recognises the importance of this report, and as such, is taking the necessary time to consider and reflect on its detailed recommendations carefully.  The Commission will report again in 2020 with further advice on the delivery of infrastructure, including the potential role of a Scottish National Infrastructure Company.  The Commission’s advice will help to shape future investment in Scotland’s infrastructure.  The Scottish Government will set out an approach that builds on these findings and the need for economic stimulus in its next Infrastructure Investment Plan to be published later this year.

Government Expenditure and Revenue Scotland (GERS)

The Government Expenditure and Revenue Scotland (GERS) publication provides details of capital expenditure for Scotland beyond that invested by the Scottish Government.  It includes 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 publication can be found at the following link: www.gov.scot/news/government-expenditure-revenue-scotland-2018-19

Infrastructure Investment Plan Reporting

The Infrastructure Investment Plan (IIP) 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 projects which are being delivered through Scotland’s Schools for the Future Programme and those health projects being taken forward through the Scotland-wide 'hub' initiative which form part of the Scottish Government's revenue funded £3.5 billion NPD/hub investment programme.  A summary of the IIP Project Pipeline at March 2020 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 Infrastructure Investment Plan - Programme Pipeline Update is also published on a six-monthly basis and this includes information relating to ongoing key major infrastructure programmes with an investment of £50 million or more. 

The latest versions of the IIP Project Pipeline, IIP Major Capital Projects Progress Update and IIP Programme Pipeline Update publications can be found by way of the following link: http://www.gov.scot/Topics/Government/Finance/18232/IIP

Progress to March 2020

Major infrastructure improvements have been delivered and significant progress continues to be made. In total over the course of 2019-20, the following infrastructure projects worth more than £1.8 billion opened to the public or completed construction within our project pipeline:

Transport

• Edinburgh Glasgow Improvement Programme EGIP (£858 million).
• Aberdeen to Inverness Rail Improvement Project (£330 million).
• Shotts Electrification (£160 million).
• A737 Dalry Bypass (£57.9 million).

Health

• NHS Orkney New Hospital and Healthcare Facilities (£77.4 million).
• NHS Forth Valley - Stirling Care Village (£37.8 million).
• NHS Greater Glasgow and Clyde - Woodside Health Centre (£21.2 million).

Schools

• Bertha Park High School (£31.7 million).
• Tullibody South Campus (£15.8 million).
• Cumbernauld Academy (£38.5 million).
• Black Mount Primary School (previously known as Elsrickle) (£2.5 million).  
• Inverness High School (£14 million).
• Hayshead Primary School (£13.9 million).
• Queen Margaret Academy (£26.6 million).
• Sighthill Campus (£21.8 million).

Further Education 

• Forth Valley College (Falkirk Campus) (£78 million).

Justice

• Inverness Justice Centre (£32.3 million).

Particular highlights in this progress report include:

• The redevelopment of Glasgow’s Queen Street station in March 2020 saw the completion of the Edinburgh Glasgow Improvement Programme, which comprised a comprehensive programme of improvements to Scotland’s railway infrastructure, rolling stock and service provision.  
• Infrastructure works completed in August 2019 for phase one of the phased package of improvements to the railway line between Aberdeen and Inverness and the associated enhanced passenger services were implemented in December.  Electric services by the new fleet of Hitachi class 385 units commenced in April 2019 following the Shotts electrification of 74km of single track between Holytown Junction in North Lanarkshire and Midcalder Junction in West Lothian.
• The new 3.8km bypass to the east of Dalry together with associated junctions, opened to traffic in May 2019 and this will deliver long-term benefits including better journey time reliability for road users and public transport as well as encouraging improved economic and employment opportunities.
• In June 2019, the biggest project in NHS Orkney’s history became operational.  The award-winning New Hospital and Healthcare Facilities project saw the development of a purpose built facility to replace the existing Balfour Hospital in Kirkwall, two GP practices and the Public Dental Service.  The new Stirling Health and Care Village facility opened in November and the innovative development includes a new GP and Minor Injuries Centre, the Bellfield Centre, refurbished Outpatient Centre and new base for the Scottish Ambulance Service.
• Forth Valley College’s new Falkirk Campus opened its doors to students in January 2020 marking a historic moment for the local area and the new campus will serve as Forth Valley College’s headquarters, host 450 members of staff and cater for 2,000 full-time students.
• The new Inverness Justice Centre opened in March 2020 and has a range of organisations providing justice related services such as the Inverness Sheriff and Justice of the Peace Court, Crown Office and Procurator Fiscal Service, Highland Council’s Criminal Justice Social Work, and Police Scotland.
• 8 school projects worth £165 million were completed within Scotland’s Schools for the Future programme in total over the course of the last year.  These included Bertha Park High in Perth and Kinross, which was first non-replacement new secondary school built in Scotland for more than two decades and the new state-of-the-art Queen Margaret Academy in South Ayrshire.

Funding

Projects within the IIP are funded from several funding sources: capital grant, NPD/hub revenue finance and Regulated Asset Base (RAB) for rail projects until 2018-19 (thereafter it has been grant funded with HM Treasury taking on responsibility for debts accrued by Network Rail). The Scottish Government also has the power to borrow up to £3 billion for capital purposes with an annual cap of £450 million. 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 a self-imposed revenue finance investment limit in place.  Prior to Budget 2019-20 this was set at 5% of the total Scottish Government Budget.  At Budget 2019-20 this limit was tightened to 5% of the Scottish Government resource budget only (excluding social security) to ensure that the National Infrastructure Mission can be delivered in the most fiscally prudent manner.  Under the new limit, planned and committed projects and borrowing for 2020‑21 are estimated to be 3.11% of the resource budget. The corresponding figures are expected to be to 3.05% in 2021‑22 and 2.9% in 2022‑23.    

Financial Transactions

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

Contribution to Economic Development

Infrastructure investment contributes to economic development and supports jobs.  The contribution made by the individual projects is indicated 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.

For example, a key benefit of the Early Learning and Childcare expansion will be that more parents will be able to participate in work, training or study and the expansion is a major investment in the ‘social infrastructure’ that supports families, and will make a contribution to inclusive economic growth.

The Low Carbon Infrastructure Transition Programme aims to support Scotland's transition to a low-carbon economy and has provided capital funding to 18 projects that are innovative and demonstrate economic, social and low carbon benefits.

Our investment in housing, will, on average, leverage economic output in the region of £1.4 billion per year, supporting around 10,000 to 12,000 jobs per annum in the construction and related industries in Scotland.

We have committed £1.8 billion over the next 10-15 years to City Region and Growth Deals and associated investments. This investment will create up to 80,125 new jobs, helping to drive inclusive growth that will deliver significant and lasting economic benefits for individuals, businesses and communities across Scotland.

Leverage

In order to maximise the government’s investment in infrastructure, leverage of other funding is pursued where possible.  Examples of this include the Reaching 100% (R100) broadband and Scottish 4G Infill (S4GI) programmes which utilise a gap funding model which is incentivising communications investment by commercial providers by making the business case financially viable in areas where they would not otherwise invest.

The Low Carbon Infrastructure Transition Programme has a number of open funding invitations, including the Scottish Low Carbon Heat Funding Invitation, Transformational Low Carbon Demonstrator Invitation and the Innovative Local Energy Systems Invitation and has offered over £40 million of capital funding to 18 low carbon projects.  This funding has been matched by equivalent investment from both the public and private sector.

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.  We have provided £102.5 million in loan funding which has enabled LAR Housing Trust and PfP Capital to attract £160 million of institutional and private investment creating a total public/private package of £262.5 million to provide up 2,000 MMR homes across Scotland (£65 million from Scottish Widows and PfP Capital, £10 million from Castle Rock Edinvar, £25 million from Strathclyde Pension Fund and £60 million from the Nationwide Pension Fund).

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 an additional 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: https://www.gov.scot/policies/government-finance/infrastructure-investment/#npd

The graph provided at Annex B shows the total unitary charges payable each year in nominal, real and discounted terms. The nominal values represent the cash payments that will be made and the real figures remove the effect of inflation. The discounted figures remove the effect of inflation and in accordance with HM Treasury Green Book principles, discount to adjust for social time preference. 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 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.