Infrastructure Investment Plan 2021-22 to 2025-26 Major capital projects progress update (August 2024)

Major capital projects progress update

The following information relates to projects with a capital value of £5 million or more which are at the Outline Business Case (or equivalent) approved stage or beyond.

The information mainly comprises projects included at Annex D of the Scottish Government’s Infrastructure Investment Plan published in February 2021 and other infrastructure projects which have been commissioned since then. The majority of information reports the position as at August 2024. All projects are capital grant funded unless otherwise stated.

In the reports relating to activity in the financial years 2021-22 and 2022-23, cost increases have been driven by higher than expected levels of inflation (construction prices are 23% higher in June 2024 than pre-COVID levels), and delays in projects have been down to supply-chain issues and labour shortages. All of which have been principally driven by a combination of the recovery from COVID-19, Brexit and the war in Ukraine. In this latest report, although inflation is still one of the main factors for cost increases, other causes include rework, additional contractor costs and market testing outcome. In relation to time delays, we are now seeing a range of other reasons which include design reviews and rework, unforeseen construction site difficulties, funding solutions, and issues relating to fuel systems, technical commissioning, health and safety, and installations. All planned dates and costs in this update are best estimates and may subsequently be subject to further adjustment.

The UK Government did not inflation-proof their Capital Budget and between 2022-23 and 2024-25, we saw a 2.5% real-terms reduction in the Scottish Government’s capital grant, equivalent to a cumulative reduction of around £140 million. The allocation of financial transactions (FTs) has been cut by over 60% from £466 million to £176 million over the same period. Our latest forecasts show an 8.7% real-terms cut in our capital funding between 2023-24 and 2027-28 (a cumulative reduction of £1.3 billion over the period) significantly impacting our ability to afford our capital commitments. This outcome, alongside the construction supply chain issues, labour shortages and high inflation, means that we cannot progress all of our previously planned capital projects within the funding available at the rate planned when fiscal and industry conditions were quite different to how they are today.

We remain firmly committed to infrastructure investment as a key factor in securing economic growth and high-quality public infrastructure across Scotland. Unless, and until we receive a higher level of funding from the UK Government, the Scottish Government will have to continue making tough decisions to reprioritise our infrastructure projects pipeline to ensure we spend within our means. These decisions are, in part, reflected in our reporting given that in the previous December 2023 update, we highlighted that a number of planned projects in the NHS Recovery, Health and Social Care portfolio will be re-assessed as part of a strategic review and the timing of capital investment rephased in line with future funding availability.

Given the worsening outlook for capital which was set out in the UK Government’s Spring Statement on 6 March 2024 and associated Office for Budget Responsibility’s forecasts, future prospects are unclear, and it is more challenging to plan too far ahead across the board. More information will be needed, both from the next UK Government Autumn Budget on 30 October 2024 and their Spending Review expected in 2025. Scotland’s Budget and infrastructure plans are largely funded by Barnet consequentials in the Block Grant and so the lack of a forward trajectory from the UK Government directly impacts on the Scottish Government’s ability to prepare meaningful multi-year capital allocations and to refresh the infrastructure investment pipeline. We had intended to revisit the multi-year capital outlook as part of the next Medium Term Financial Strategy (MTFS) during spring/summer 2024 and to provide information on how investments support wider government goals in an updated infrastructure investment pipeline. However, due to the UK general election and the need to respect the pre-election period, these plans had to be delayed. The Scottish Government welcomes the commitment from the incoming UK Government to a Spending Review in 2025 which we expect to provide a forward indication of capital funding for Scotland. The Scottish Government is now planning to publish a revised infrastructure investment pipeline after the UK Government’s multi-year spending review has concluded next Spring.