Infrastructure Investment Plan 2015

Chapter 2: How We Will Invest

This chapter considers how the Scottish Government invests, how that investment is financed and how investment is delivered.

2.1 FUNDING MODELS

As discussed in Chapter 1, the Scottish Government seeks to maximise investment in infrastructure through the capital budget and by use of alternative approaches that fund investments through revenue instead of capital, such as the NPD/hub models and the use of the Regulatory Asset Base ( RAB) for rail infrastructure investment continue to be taken forward. We are promoting innovative ways of funding infrastructure investment, including by using Scottish Government funding as a means to enable, or unlock, other funding streams.

Innovation in the funding and delivery of public infrastructure is key to unlocking future development and boosting sustainable and inclusive economic growth. Innovation can take many forms: developing new solutions to drive value for money; making more efficient use of existing public funding; leveraging additional funds and resources, and building partnership between the public and private sector.

The Scottish Government will make decisions on the overall balance of public funding within a sustainable financial framework. We aim to ensure we use revenue funded methods at a sustainable level so as to not overly constrain our choices in future years. We will continue to cap our future revenue commitments (including existing PFI commitments we have inherited, future debt repayments, NPD, hub and RAB payments and the cost of borrowing) at a maximum of 5 per cent of our expected future annual DEL budget to ensure long-term affordability. Up to date information about the long-term affordability of Scottish Government investments has been included in the Draft Budget 2016-17.

2.1.1 TRADITIONAL CAPITAL FUNDING

Traditional capital funding continues to be the most common method of financing public sector capital projects where development and construction costs are paid from capital budgets at the time of building the asset. In general, funding infrastructure investment through public capital ensures the lowest cost of finance for a typical project. Capital funding will continue to provide funding for most infrastructure projects. We will continue to seek to use a range of other funding mechanisms to ensure ongoing investment in essential infrastructure and support to the construction sector.

Financial transactions funding enable innovative opportunities to be explored to support investment through loans and equity investment. To date these have predominantly been used in the housing sector but are now being used more widely across government. For example, in the energy sector and by Transport Scotland to support a low carbon vehicles initiative.

2.1.2 CAPITAL BORROWING STRATEGY

The Scottish and UK Governments are engaging in detail to agree a new Fiscal Framework that can reflect the devolution of further powers to Scotland within the United Kingdom, including capital borrowing. Additional powers to borrow would give the Scottish Government greater flexibility to manage capital investment and to determine priorities according to the needs of the Scottish economy and public services. A borrowing strategy for Scotland will be developed in due course, once it is clear how the new Fiscal Framework will operate.

In the interim, the Scottish Government has set out in the Draft Budget 2016-17 its plans to borrow up to £316 million to support infrastructure investment under the existing Scotland Act 2012 capital borrowing powers.

Scottish local authorities have a statutory power to borrow for capital investment purposes. These powers are exercised applying prudential principles, requiring decisions on borrowing to be both prudent and in the long term sustainable. In 2014-15, around £896 million of capital spend was financed by local government borrowing.

2.1.3 REVENUE FUNDING: NPD/HUB PROGRAMME

The NPD/ hub programme

This programme is delivered through two channels:

• procurement of large projects such as major roads or large hospitals by relevant public sector organisations using the NPD model;
• procurement of smaller Design, Build, Finance and Maintain ( DBFM) projects delivered via the Scotland-wide hub initiative in partnership with local authorities, health boards and other public bodies.

Non-Profit Distributing Model

The Non-Profit Distributing ( NPD) model was developed as an alternative to the traditional Private Finance Initiative ( PFI) model in Scotland and a range of projects in three main sectors - further education, health and transport - have been delivered or are either under construction or in development.

The model involves a partnership with a private sector provider who designs, builds, finances and maintains as asset. The public sector then pays an annual charge over a 25-30 year period to the private sector provider from the revenue budget, once the asset has been built.

The model seeks to transfer risk and exert private sector discipline during the construction phase of a project and throughout its lifetime, but without the excessive private sector profits associated with past PFI projects. Key projects under construction through the NPD model include the Aberdeen Western Peripheral Route, the Dumfries and Galloway Acute Service Redevelopment Project and the Edinburgh Royal Hospital for Sick Children. Recent changes in EU guidance (the European System of Accounts 2010 ( ESA10)) on classification and the view taken by the Office for National Statistics ( ONS) on its application to the AWPR, have had implications for the budgeting treatment for a number of NPD projects and this is reflected in the Draft Budget 2016-17. There will be no impact on the delivery of the projects themselves.

The Scottish Government has asked SFT to consider the implications of ESA10 for the contractual and governance arrangements that should apply within the NPD programme going forward. The Scottish Government remains committed to the delivery of projects in the NPD pipeline and SFT will work closely with project partners to progress their further development.

hub DBFM Model

The Scotland-wide hub initiative reflects a national approach to the delivery of new community infrastructure. It brings community planning partners, including NHS Boards, local authorities, police, and fire and rescue services together with a private sector development partner to increase joint working and deliver best value through the shared delivery of sustainable community buildings - from small GP practices to large combined community, health and sports centres.

The hub initiative has been implemented across five geographical territories in Scotland, each with a population of around one million people. Five hubCos have been established in the South East, North, East Central, West and South West regions of Scotland. Under this initiative a supply chain of contractors, designers and consultants of all sizes is created.

Whilst not all hub projects are DBFM projects (many are Design and Build ( D&B) and do not have the Finance and Maintenance elements included in the contracts), a significant part of the hub pipeline for community health and schools projects will be delivered through the hub DBFM model. While projects will mostly be new buildings, they can also include refurbishment and asset management services of existing infrastructure. Contractors, designers and consultants interested in working on hub projects can apply to join a supply chain.

Following the ONS' decision that the AWPR should be classified to the public sector under ESA10, the ONS has now also considered proposals developed by SFT for revised hub DBFM arrangements and has confirmed that, based on these proposals, hub DBFM projects will be classified to the private sector. All hub DBFM projects are now proceeding on the basis of the revised model.

Regulatory Asset Base

The Scottish Government continues to make full and proper use of the Regulatory Asset Base ( RAB) model, specifically for rail infrastructure investment through Network Rail. This approach is supported by independent economic regulation from the Office of Road and Rail ( ORR).

Network Rail's infrastructure services in Scotland are funded through a conventional regulatory approach where renewals and enhancement expenditure is mostly capitalised and added to the RAB. The costs of historic investment and of renewing and enhancing the rail infrastructure in Scotland are met in full by the Scottish Government through an amortisation allowance and an allowed return on the RAB as set by the ORR. This is payable by means of direct grant to Network Rail and track access charges subsidised through the ScotRail and Caledonian Sleeper franchise contracts.

Network Rail was reclassified as a central government body from 1 September 2014 - a statistical change driven by ESA10. Network Rail is no longer able to issue debt in its own name and instead borrows directly from Government via a loan facility provided by the UK Department for Transport. A separate, ring-fenced borrowing arrangement has been agreed between the Scottish and UK Governments to initially cover rail infrastructure investment over the current regulatory control period to March 2019. The servicing requirement for this borrowing arrangement is unchanged and all costs continue to be met by the Scottish Government.

2.1.4 INNOVATIVE FINANCING

A number of innovative tools to stimulate private sector investment, economic growth and regeneration, through targeted public sector support, have been developed and continue to be refined. These include initiatives such as Tax Incremental Financing ( TIF) and the Growth Accelerator ( GA); alongside a uniquely Scottish response to City Deal, including collaboration with the UK Government where appropriate; a range of innovations, in collaboration with housing sector partners such as local authorities and housing associations, to deliver new affordable homes and complement the grant funding programme; new loan/equity schemes; and exploration of the opportunities presents by sovereign wealth funds and other large investors.

These models create a partnership of investment between Scottish Government, local authorities and the private sector, with clear identification of investments that will unlock growth for their area. This is reflected in risk-sharing structures that seek to balance the basis of any financial support against the achievement of key outputs and impacts, particularly where these are unlocked by public sector intervention.

Tax Incremental Financing ( TIF)

TIF seeks to support existing sources of funding available for regeneration and economic growth by creating the right environment for the private sector to invest, thereby levering in additional private sector capital. The TIF model allows for an alternative funding approach through initial borrowing by local authorities to fund infrastructure which is anticipated to stimulate investment. Loans are then repaid through future increases in non-domestic rate revenues ( NDR), grown as a result of the resultant wider public and private sector investment. Six pilot TIF schemes were developed through secondary legislation under existing provisions of the Local Government Finance Act (1992). This pilot approach has allowed this model to be tested in Scotland.

Six pilots are in course, covering different scales of authorities, types of investment and both urban and rural areas. Of these authorities, four have moved to Full Agreement and TIF construction work has begun on the Glasgow, Falkirk and Argyll and Bute TIF pilots. Fife TIF is anticipated to commence during the next spending period. The remaining two TIF pilots (North Lanarkshire and City of Edinburgh) will be reviewed in the course of financial year 2015-16 to consider the best route to achieve the investment sought. The six pilots in total will see over £300 million of public sector investment with a private sector leverage of around 1:5, translating essentially into significant employment and growth opportunities alongside this capital investment.

Further thought is being given to the future use of TIF. During the next spending review period, the TIF model will be reviewed and its role in stimulating regeneration, amongst a basket of tools, will be considered; to ensure the investment options available are be fit for purpose and where in use deliver additional investment.

The Growth Accelerator

Reflecting the need for a range of investment options to stimulate growth, the Growth Accelerator ( GA) has been developed. Whereas TIF focuses on the growth in NDR within a defined area to demonstrate the private sector investment, the GA mechanism seeks to identify the impact of intervention and investment across both a wider economic geography and measure wider relevant impacts that align with the priorities of the investment; reflecting the government's economic strategy.

The first GA project has been agreed with City of Edinburgh Council, for the St James Quarter, with up to £60 million of public sector investment unlocking up to £1 billion of new retail, leisure, hotel and residential development in the city centre. The mechanism to measure the success of the project reflects both the anticipated growth within the immediate and wider property market; as well as inclusive growth priorities, through a number of targeted employment measures. Achieving these measures will unlock the availability of an annual grant from the Scottish Government.

GA, therefore, allows a number of growth priorities to be articulated and supported. Other GA projects will be developed where this is agreed to be the best tool for investment.

City Deals and Regional Partnership Plans

The City Deal approach provides an opportunity to develop greater regional collaboration and strengthen regional economies. The approach encourages local authorities to operate strategically at the regional level and it supports a long-term focus on the interventions required to deliver economic growth. It is important that city deals inform and are informed by land use planning at strategic and local scales to ensure the projects add greatest value to communities. Each City Deal is bespoke to the city region and incorporates non-infrastructure measures such as welfare, skills etc. so as to maximise the impact of any infrastructure investment. Deals will typically run over 20 years with the UK Government contribution channelled through Scottish Government in addition to the Barnett settlement.

The Scottish Government, along with the UK Government, is supporting the 20 year, £1.13 billion Glasgow and Clyde Valley City Deal, a partnership of eight local authorities. Over 20 years, the local authority partners estimate that the City Deal will support an overall increase of around 29,000 jobs in the city region and lever in an estimated £3.3 billion of private sector investment.

City Deals work at a larger geographical level, however, the principles of both TIF and GA continue to be relevant; whereby Scottish Government will support interventions to achieve clearly articulated outcomes which benefit their regional economy. The principles of payment by results will also continue, helping ensure that value for money, through evidence of results, is central to this model.

Scottish Government is prepared to support Scotland's other cities to develop City Deal proposals where this is seen to stimulate effective collaborative working and regional investment that can demonstrate best value. The Scottish Government welcomed the Chancellor's confirmation that the UK Government was willing to continue talks on City Deals for Aberdeen and Inverness.

This approach is not just for Scotland's cities and we are committed to working with groups of local authorities who can demonstrate that collaboration will challenge barriers to regional growth, moving beyond business-as-usual.

Innovation in Housing Finance

National Housing Trust

The National Housing Trust initiative ( NHT) was the first guarantee-based scheme for housing in the UK. Over 1,000 homes have been completed to date, with NHT on track to provide over 2,000 homes in communities across Scotland. The initiative does not involve grant subsidy and supports jobs in construction and the wider economy. For every 1,000 NHT homes built, our guarantee of £2.8 million unlocks around £146 million of housing development and supports approximately 1,300 jobs.

Partnership working has been integral to NHT's considerable success. It is a pioneering example of creative working amongst the public, private and non-profit sectors. NHT has demonstrated that a high-leverage model can work at scale, and has encouraged others to think creatively about non-traditional ways of funding the provision of affordable housing.

The Local Affordable Rented Housing Trust

Building on the success of NHT, the Scottish Government announced in October 2015 support for the Local Affordable Rented Housing Trust ( LAR) - a pioneering affordable housing model that will deliver up to 1,000 homes for mid-market rent. LAR is supported by a £55 million loan from the Scottish Government which is expected to attract matching private investment to lift the overall funding package to more than £100 million. The LAR approach is highly replicable and SG is exploring a variety of ways in which this type of approach using loan funding can help further in closing the gap between housing need and supply.

Charitable Bonds

We are the first, and remain the only, national government in the UK to invest in Charitable Bonds . By 2016, we'll have invested £37 million in these bonds, creating loan finance to fund affordable housing in Scotland, and generating charitable donations of £1.4 million for regeneration charities and around £7 million for social housing. This could support the delivery of up to 600 new affordable homes. The programme has the potential for substantial expansion.

Supporting pension funds to invest in affordable housing

Scottish Government has been actively supporting initiatives to enable large-scale investors, delivery partners and local authorities to work collaboratively to boost the supply of affordable housing. There has been an early success with the Falkirk Local Government Pension Scheme ( LGPS) fund. The fund has agreed to invest £30 million into affordable housing, with Scottish Government providing the initial grant funding towards social rent homes delivered through the investment. This trailblazer project aims to deliver around 300 homes from the Falkirk investment and has the potential to expand and deliver over 1,000 new homes if other pension funds can be attracted to invest.

Help for Homes

Help for Homes will be a new equity loan scheme to enable owner occupiers with limited income to carry out essential repairs and energy efficiency improvements to their homes. Eligible homeowners will borrow from the Scottish Government and repay when they sell their home, die or transfer ownership. The scheme is under development as part of Scotland's Energy Efficiency Programme ( SEEP).

European Structural and Investment Funds ( ESI Funds)

The Scottish European Regional Development Fund ( ERDF) and European Social Fund ( ESF) programmes were approved in December 2014. The 2014-2020 programmes will deliver approximately £800 million of EU funding over the next seven years and focus on three European themes of 'Smart, Sustainable and Inclusive Growth'.

To date, the use of ESI Funds has focused on enhancing SME access to finance but shall also form an integral part in progressing the move to a low carbon economy. There is further opportunity to use ESI Funds in the following areas:

• Urban Regeneration;
• Digital;
• Skills Development Loans;
• Community Finance; and
• Research and Development.

2.2 PROCUREMENT

The Procurement Reform (Scotland) Act 2014 and the new EU Procurement Directives will provide the statutory foundations for the Scottish Model of Procurement, simplifying, standardising and streamlining procedures for both businesses and public bodies. It will build upon our work to date to improve public procurement and will place sustainable and socially responsible purchasing at the heart of the process. For example, the Act introduces a Sustainable Procurement Duty on public bodies to consider how, through their procurement activities, they can improve economic, social and environmental wellbeing; how they might facilitate the involvement of SMEs, the third sector and supported businesses; and to consider how they can promote innovation. In fulfilling this duty public bodies undertaking capital projects will want to consider a range of existing economic development strategies which can help secure benefits for communities and Scotland as a whole.

The Scottish Government's promotion of community benefit clauses has led to a range of economic, social and environmental benefits being delivered under public contracts. For example, these clauses are currently used in Scotland to promote supply chain opportunities for SMEs and social enterprises and contractualise additional recruitment, training and employment opportunities via major construction contracts.

Construction Procurement Review

The value of construction taking place each year across Scotland's public sector totals approximately £4 billion. Such a level of investment plays a significant role in Scotland's overall economy as well as being a key component in supporting the construction industry and the thousands of people that work within that sector.

A Review of Scottish Public Sector Procurement in Construction was published in October 2013 by Robin Crawford and Ken Lewandowski. The report's core recurring themes were that construction procurement should become more collaborative, more efficient, more sustainable and more outcomes focused. We are working in partnership with the SFT, the wider public sector and businesses to implement the recommendations.

Through the initial work, a new Community Benefit Toolkit for Construction has been published in response to the recommendations of the review and aligns to the forthcoming requirements of the Procurement Reform Act 2014. This toolkit is to support the public sector embed sustainable outcomes and benefits within their procurement processes. This is through a structured methodology for including community benefit requirements within procurement to leverage additionality for communities and promote equality and inclusive growth within the wider economy.

An early recommendation, endorsed by Scottish Ministers, was the trialling of Project Bank Accounts to improve cash flow to SMEs by reducing payment periods to the supply chain within construction projects. Since 2013, Project Bank Accounts have been trialled by Scottish Government across a range of pathfinder projects. The lessons learned from these pathfinder projects will be reported to Ministers by the summer of 2016. This will also include recommendations on the future use of Project Bank Accounts within Public Sector Procurement.

Going forward other key work streams include the implementation of 'Building Information Modelling', which promotes a whole life approach to infrastructure investment and developing efficient ways of working to improve environmental outcomes within infrastructure.

2.3 ACHIEVING MULTIPLE BENEFITS

We are committed to a smarter way of delivering our infrastructure in Scotland. We must ensure that infrastructure projects identify and exploit opportunities for synergies whenever possible so as to ensure value for money and efficient delivery.

The right processes must be in place to ensure that major infrastructure projects always take into account opportunities across disciplines, for example roads and digital. Major capital project procurements will be required to explore, at an early stage, potential opportunities for additional benefit by providing or facilitating associated infrastructure. Early discussions across disciplines are essential to make this happen.

There are a number of advantages of taking this synergistic approach:

• enabling previously poorly served locations to be better connected by 'piggy-backing' on a planned infrastructure intervention;
• minimising disruption by co-ordinating and 'only digging the hole once';
• minimising the overall footprint and, therefore impact on communities and the environment, of infrastructure and utilities by combining in one corridor;
• projects can deliver better value for money by increasing their benefits, potentially without significant increases in cost owing to economies of scale and streamlined procurement;
• with collaboration in land use planning, for example between utilities and housing providers, projects can be synchronised and achieve better value for money and faster impact through agreed and predictable timing; and
• funding can potentially be leveraged to make a bigger intervention that serves multiple interests.

We already have examples of projects which have endeavoured to work in this collaborative way. The Scottish Government has collaborated with industry on an infrastructure mapping project, which has provided an updated view on the extent, and location, of telecoms infrastructure across Scotland. We are using these links to publicise the potential opportunities for telecoms suppliers arising from public investments in infrastructure and other major developments.

The Aberdeen Western Peripheral Route ( AWPR) project showed strong engagement across utilities and wider development opportunities. The A9 project is a good example of where engagement and collaboration across delivery partners, local stakeholders and utilities to develop proposals which take advantage of a major construction project to widen benefits to less well connected communities. There are also instances where future opportunities are being actively explored, for example between Network Rail and Digital colleagues to explore opportunities to utilise the rail infrastructure and systems assets to improve telecommunications services to remote and rural areas of Scotland.

Opportunities of this type will continue to be made available to telecoms suppliers. As part of our World Class Digital Infrastructure programme, the Scottish Government, in conjunction with SFT, is looking to ensure that we utilise all available infrastructure to extend broadband and mobile services across Scotland. One example is the work aimed at accessing Network Rail's fibre infrastructure. This is far from straightforward, and there are a number of regulatory barriers to overcome, but we will continue to work with UK Government and other partners on this, and other opportunities like it, aimed at finding new ways to extend digital connectivity right across Scotland.

We are integrating action on domestic and non-domestic energy efficiency and will bring this together with the roll-out of district heating where practicable, through Scotland's Energy Efficiency Programme. We are working with a diverse range of stakeholders to develop and tailor the new programme to Scotland's specific needs. Over the next two years we will pilot new and different models of delivery to test integration and to get a better understanding of what communities want.

A key finding of the Planning for Infrastructure Research related to the need for greater focus on the costing, funding and delivery of infrastructure through Strategic Development Plans ( SDPs) and the important role that all stakeholders, including infrastructure providers, have in this. The delivery of a single piece of infrastructure requires collaboration and co-ordination of a number of different stakeholders.

SDPs set out the strategy for development across city regions in Scotland. The scale at which they operate reflects the reality of how people choose to live their lives in the largest urban areas of the country; often crossing local authority boundaries for work and leisure. SDPs are required by legislation to take account of the infrastructure for their area. The city-region approach means that issues and impacts of projects that cross local authority boundaries can be addressed and supported by the constituent authorities.

2.4 DELIVERY PARTNERS AND RESPECTIVE ROLES

There are many partners involved in delivering investment within Scotland. We want to ensure that Scottish Government investment is targeted to maximise synergy with other investment in Scotland, whether that is funded by the private sector, central Scottish Government capital budgets, local government's prudential borrowing or Westminster departments.

This section considers the roles of different partners within the delivery of programmes and projects. The various roles are discussed in more detail below, including the collaborative approach taken between the Scottish Government and other organisations to deliver the right investments in the right place at the right time for the best value.

2.4.1 SCOTTISH GOVERNMENT

Scottish Ministers decide on the priority given to the range of potential investments. Priorities are articulated through Spending Reviews, Infrastructure Investment Plans and the National Planning Framework. Funding is allocated through the Spending Review process and approved annually by Parliament in the Draft Budget. The spending allocations within the Draft Budget are scrutinised and approved by the Scottish Parliament. National Planning Framework is approved by Ministers following consideration by the Scottish Parliament.

Delivery of programmes and individual projects is delegated to the appropriate level, and varies between sectors. The responsibility for delivering the projects and programmes receiving funding rests with accountable officers within the portfolios. The major areas of portfolio spend - Transport Scotland, NHSScotland, Scottish Funding Council (for higher and further education), Scottish Prison Service, housing and Scottish Enterprise - have dedicated finance functions and robust governance arrangements in place to ensure effective management of their infrastructure expenditure. The sector plans in Chapter 3 give some more detail for each sector.

A central oversight function is performed by the Scottish Government's Infrastructure Investment Board ( IIB) a small, senior level board, which reviews management and governance arrangements for the whole capital programme and scrutinises investment plans at portfolio and project level.

An Infrastructure Projects database, which includes the details of infrastructure projects with a capital value of at least £5 million and for which an Outline Business Case has been prepared, provides the IIB with a valuable source of management information. Each project on the Infrastructure Projects database is assessed to determine its overall complexity and risk potential and the Scottish Government provides independent assurance support to those projects most likely to encounter complex procurement or delivery issues.

2.4.2 SCOTTISH FUTURES TRUST

Scottish Futures Trust ( SFT) is a company, established by the Scottish Government in 2008, with responsibility to deliver value for money across public infrastructure investment. SFT works collaboratively with Scottish Government and other partners to focus efforts on achieving the very best value when money is spent on public sector infrastructure such as roads, schools and hospitals and more recently on non-traditional infrastructure such as digital.

In addition, SFT seeks to attract and secure long-term additional investment over and above traditional capital to help bolster and stimulate economic growth. Pursuing alternative funding allows projects to be brought forward that would have otherwise had to have waited years for budgets to become available.

In the relatively short space of time since becoming operational, it has built a highly professional and commercial team which works collaboratively with every local authority and NHS Board across Scotland to deliver high-quality, sustainable infrastructure which in turn helps protect jobs in the construction industry in Scotland. As an independent company with all shares owned by the Scottish Government, SFT is set a challenging target of achieving £100 million to £150 million of efficiency savings and benefits each year.

SFT's existing infrastructure programmes and initiatives collectively contribute to the delivery of this plan and as such supports the Scottish Government's purpose.

2.4.3 ENTERPRISE AGENCIES

Our objective is that Scotland is the most competitive place in the UK to do business and to invest. Both Scottish Enterprise and Highlands and Islands Enterprise investment in infrastructure is targeted towards creating a high quality business environment and infrastructure that helps companies and key sectors to grow faster and supports connections to the global marketplace.

Their focus is primarily on projects of national or regional importance which have the potential to offer long-term returns for the Scottish economy building on the strength of our people and natural resources developing our economy in partnership with businesses and communities, providing more better paid jobs for our people that moves them out of poverty through work which is fairly paid.

2.4.4 SCOTTISH CITIES ALLIANCE

The Scottish Cities Alliance brings together Scottish Government with the seven city local authorities to build further on the strengths and opportunities that exist within cities and their regions to attract investment, create growth and support Scotland's cities to compete internationally. It has a focus on attracting investment, both infrastructure and commercial, and published its first prospectus in October 2014 including £10 billion of investment propositions from cities and their regions.

2.4.5 LOCAL AUTHORITIES

Each local authority has its own capital programme, to deliver both national and local investment priorities. The Scottish Government currently allocates around one quarter of its capital budget directly to local government to support those infrastructure investment programmes. Local authorities are able to supplement their funding from the Scottish Government through borrowing, using receipts from asset sales and other income. The Scottish Government provides additional support for strategic investment through other initiatives set out in this document such as Scotland's Schools for the Future programme, TIF, GA and City Deals. Details of collaborative projects are set out elsewhere in this document under the specific portfolio sections.

Co-operation between local authorities as part of the Strategic Development Planning Authorities, at the city-region scale, provide an opportunity to address issues the cross local authority boundaries. These require leadership to establish support and enable delivery of matters that are beyond local interests and of benefit to the wider area.

In addition to delivering strategic investment priorities there are a number of other reasons why collaboration between different public sector bodies is being pursued for infrastructure projects. These are mainly to have more effective outcomes, savings, sharing risks, removing barriers to development and therefore delivering more infrastructure from the limited capital and revenue budgets available. These include opportunities to:

• make savings - larger projects or a structured programme of projects attracts greater private sector interest and as a result leads to more competitive pricing. Similar savings can also be made by bringing together smaller projects;
• share expertise - the procurement of infrastructure projects requires key organisational and commercial skills. These skills are not always available to individual public sector bodies and therefore a collaborative approach to procurement can make these skills available more widely;
• optimise the scope of projects - having a short term strategic approach to infrastructure projects on an individual authority basis may be sub scale and inefficient and can be made more efficient by through grouping together and having a long term strategic approach;
• risk share - undertaking a low risk approach to supplementing capital funding is a barrier to infrastructure. Incorporating options for sharing risk collaboratively into long term strategic infrastructure projects provides a financial upside to any investment in infrastructure projects which can be factored into any risk assessment;
• reduce procurement costs - grouping together smaller projects facilitating the potential for fixed costs that are associated with project procurement be shared. As well as this, by working together, public sector bodies, including local government can make better use of existing buildings and in so doing release space in other buildings for sale, or lease.

2.4.6 UK GOVERNMENT

To ensure that infrastructure delivers maximum benefits, it is important to ensure that there is close coordination with what is happening in the rest of the United Kingdom. The Scottish Government is working closely with the UK Government and regulators in sectors of infrastructure where there is a shared responsibility between the Scottish and UK Governments. Areas in particular where there is a shared interest are in electricity and gas transmissions, and electricity generation including renewable and fixed line telecommunications.

The UK Government has published its investment plans for economic infrastructure in its National Infrastructure Plan 2014. It has set out its intention to publish a National Infrastructure Delivery Plan in Spring 2016. We will continue to work with the UK Government to maximise the synergy of investment plans, particularly in terms of cross border investments, such as High Speed Rail, and reserved areas, such as investment in energy and digital infrastructure, where we seek to ensure Scotland receives a fair share of any UK or GB-wide investment. We will also engage with the newly established National Infrastructure Commission.

2.5 PLANNING AND PLACE

2.5.1 PLANNING

Reforms to our planning system have ensured that it is equipped to support inclusive and sustainable growth. Reform continues with an independent panel currently reviewing the operation of the system from which recommendations are anticipated in early 2016. Scottish Ministers have statutory responsibility for publishing the National Planning Framework, which is the strategy for the long-term development of Scotland's towns, cities and rural areas.

The third National Planning Framework ( NPF3), published in June 2014, provides a spatial expression of the Scottish Government's economic strategy and this continues to inform our infrastructure investment plans. NPF3 sets clear priorities for the improvement of strategic infrastructure as well as identifying other areas of pressure or opportunity for example it identifies locational priorities for regeneration activity. It also recognises the importance of our cities as key drivers of the economy as well as the need to support sustainable growth in the rural economy.

The Scottish Planning Policy ( SPP), also published in June 2014, sets out national planning policies which reflect Scottish Ministers' priorities for operation of the planning system and for the development and use of land. It shares a Planning vision with NPF3 and takes forward in a thematic way the priorities NPF3 identifies. SPP is based on two principal policies the first on sustainability and the second on placemaking. The effect of these policies influences all development plan and application decision making. SPP is also clear that the planning service should be outcomes focused and facilitate sustainable economic growth, amongst other factors.

This plan is underpinned by NPF3 and SPP and similarly seeks opportunities for infrastructure investment to add value through stronger spatial co-ordination and through the identification of potential synergistic opportunities and the creation of multiple benefits as described in section 2.3.

Strategic Development Plans give direction on development priorities for the city regions of Edinburgh, Glasgow, Aberdeen and Dundee. They provide the framework for Local Development Plans ( LDPs) within those four regions. LDPs contain a spatial strategy for where development should occur in the planning authority area, which cover all councils in Scotland and the two national park authorities.

Residential and commercial development requires supporting infrastructure to: service the development; ensure quality of place; and to provide transport connectivity which can secure economic opportunities for residents and attract inward commercial investment. The Scottish Government commissioned research on infrastructure provision, with recommendations reported in 2015. We are responding to those recommendations to ensure that development opportunities can be realised.

2.5.2 CITIES AND THEIR REGIONS

The Scottish Government takes a strategic approach to cities and their regions and recognises these are the engines of our economy. Scotland's cities are diverse and full of potential. They are central to Scotland's economic strategy and, as most of our people live in our cities and surrounding areas, they are the target of much of our social infrastructure investment.

We re-affirm our commitment to supporting our cities and their regions, whether through national infrastructure investment priorities or the work we are doing in partnership with cities to support growth. We are committed to working with all our cities to unlock investment, whether that is individually or collectively and whether that is through a City Deal, one of the Scottish Government's devolved initiatives to stimulate growth and deliver infrastructure investment, or a combination of measures.

2.5.3 REGENERATION

The regeneration strategy Achieving a Sustainable Future sets out our continuing vision for Scotland - where our most disadvantaged communities are supported and where all places are sustainable and promote well-being. Our commitment to ensuring equality of opportunity and support for the places and people that need it underpins our approach to regeneration.

Regeneration is about developing interventions which respond to local circumstances, involving local people in identifying the issues and co-creating solutions. Regeneration activity contributes to the PfG and SES by supporting activity which promotes sustainable economic growth, by tackling area inequality, addressing market failure, and increasing opportunities for disadvantaged areas to attract investment and jobs.

Regeneration of Scotland's most disadvantaged areas and strengthening of local communities are key priorities. We are acting to catalyse local level investment including regeneration in our most disadvantaged communities, bringing empty town centre properties back into use, with investments in housing and communities to improve local amenities and build strong and sustainable communities.

Since 2011 we have supported a wide range of regeneration projects through SPRUCE, the Regeneration Capital Grant Fund and the Vacant and Derelict Land Fund.

SPRUCE, Scotland's JESSICA investment loan fund

Part-funded by the European Union, the SPRUCE Fund is operating in the 13 local authority areas across the Lowlands and Uplands Scotland Programme area. SPRUCE is managed by specialist fund manager, Amber, in-line with the area-based investment strategy.

There have now been six investments by the SPRUCE fund taking the total invested so far to over £43 million. Once the loans are repaid, we are able to recycle the monies into further regeneration projects. Recent forecasts suggest that SPRUCE investments will lever in an additional £158 million in private funding, creating over 4,000 jobs.

Regeneration Capital Grant Fund

The Regeneration Capital Grant Fund ( RCGF) jointly developed and delivered in partnership with COSLA and local government, supports transformational regeneration projects in disadvantaged areas, focussing on projects that engage and involve local communities and demonstrate the ability to deliver sustainable regeneration outcomes.

Launched in 2013, RCGF is providing over £41 million in 2014-16 to 40 projects across Scotland aiming to support or create over 2000 jobs and 600 training places as well as continuing to support the Urban Regeneration Companies. The fund is supporting a wide range of projects including commercial and industrial developments, town centre regeneration, community-led facilities, and culture and tourism initiatives.

Vacant and Derelict Land Fund

The criteria of the fund is to tackle long term vacant or derelict land; stimulate economic growth or job creation; and promote environmental justice and improved quality of life - with a focus on projects which promote innovation in temporary and longer term greening techniques for vacant and derelict land sites. Five local authorities receive funding, reflecting the extent of vacant and derelict land in these areas and levels of disadvantage. Dundee, a previous recipient of the fund, have constructed the Seabraes Bridge, a new landmark pedestrian/cycle bridge over the railway line linking Dundee's Waterfront, through Seabraes with the residential and university areas to the north. The bridge is part of an ongoing programme of regeneration work on Dundee's Waterfront improving connectivity with the surrounding city. Glasgow City Council has transformed derelict land along the Govan Old Water Row Pathway into a leisure amenity and greenspace.

Town Centre Action Plans

Town centres are an important element of the economic and social fabric of Scotland. Support for town centres forms a key part of the regeneration vision and supporting outcomes. We launched The Town Centre Action Plan in November 2013. This is a cross-government response to the recommendations of the national review of town centres and includes actions designed to support their revitalisation and to assist local action towards achieving this.

In 2014 we developed and adopted the town centre first principle in partnership with COSLA and local government. The principle is about open, measured and transparent decision making that takes account of medium to longer term impacts on town centres. The principle recognises that town centre locations are not always suitable, but requests that the rationale for locating elsewhere is evidenced and transparent.

A key focus of the Town Centre Action Plan is to encourage more people to live in town centres and to support this we launched the £4 million Town Centre Empty Homes Fund in June 2015. The fund aims to create additional residential accommodation in Scotland's urban and rural towns by funding projects to convert disused commercial premises into residential and to target problematic empty homes that require extensive refurbishment to make them habitable again.

Ministers have made clear their determination to empower communities, "to give community groups the investment that they need to drive local change". Local regeneration priorities emerge in consultation between local authorities, community planning partnerships and communities, who are best placed to assess projects based on local need.

Partners

By its very nature, community led regeneration activity is collaborative. We have been successful in encouraging the private sector to deliver community benefits as part of contracts secured through the SPRUCE fund. Appropriate clauses are now included in all investment agreements which ensure that local communities benefit not only by seeing new infrastructure being delivered in their area, but also by employment and training opportunities.