Infrastructure Investment Plan 2021-22 to 2025-26 Progress Report for 2023-2024

Overview of Progress

Fiscal and Macroeconomic Context

The environment for public infrastructure projects in Scotland is challenging. Global instability, Brexit and recovery from the pandemic led to supply chain disruption which translated into high inflation in the recent past. This inflation permanently raised the costs of delivering infrastructure projects and programmes. Construction material prices today are over 23% higher than in January 2020^[1].

The UK Government has tightened capital spending, and the Scottish capital block grant has reduced by 2.5% in real terms between 2022-23 and 2024-25 (the allocation of financial transactions (FTs) has been cut by over 60% from £466 million to £176 million over the same period). Forecasts (based on Office of Budget Responsibility projections) show an 8.7% real terms reduction in the capital block grant between 2023-24 and 2027-28. The last year of the most recent UK Spending review is 2024-25, which means that there is no planning certainty beyond the current fiscal year and the FT allocation to Scotland may be cut to zero from 2025-26^[2].

High inflation has led to a reaction by central banks across the world and increased interest rates significantly. This has raised the cost of public borrowing and financing costs for prospective public-private partnerships have gone up so that they offer less value for money than previously. Furthermore, tight resource budgets limit the affordability of unitary payments that fund public-private partnerships over the course of the contract.

In this fiscal context, Scottish Ministers cannot responsibly commit to additional major infrastructure projects or public-private partnerships in the near term. In line with the investment hierarchy of the Infrastructure Investment Plan the Scottish Government is focussing capital resources on the maintenance of existing assets to safeguard service delivery.

Scotland’s fiscal powers remain limited. Our borrowing powers have been extended moderately in the recent review of the Fiscal Framework, but we continue to rely heavily on the UK capital block grant. Therefore, we are looking at ways in which our resource budget can be appropriately re-prioritised towards capital, and we are strengthening our efforts to identify ways in which private capital can be mobilised to achieve our infrastructure aims.

Progress in 2023-24

The Scottish Government’s Infrastructure Investment Plan for Scotland 2021-22 to 2025-26 was published on 4 February 2021. The Plan covers the five financial years from April 2021 and includes details of around £26 billion of major projects and national programmes.

The Infrastructure Investment Plan (hereafter IIP) sets a long-term vision of infrastructure supporting an inclusive, net zero carbon economy in Scotland. This is the third annual progress report of the IIP and highlights within the last year are as follows.

Tackling climate change

Scotland's Public Sector Heat Decarbonisation Fund was launched and this welcomed applications from local authorities, universities and arm’s-length external organisations to decarbonise their heating systems. Several innovative projects are being supported including the University of Edinburgh’s Kings Buildings Heat Network and a full building fabric retrofit and heat decarbonisation at the Dumfries Ice Bowl.

A record level of funding was provided for Active Travel infrastructure and Behavioural change programmes and over the course of the last year, the ChargePlace Scotland network has grown to over 2,800 public charging assets. The second and final phase of the Scottish Zero Emission Bus Challenge Fund (ScotZEB) was launched to drive a significant and rapid change in Scotland’s bus sector towards zero-emission vehicles.

We provided £172 million funding for rail enhancement projects in 2023-24, many of which are multi-year large scale projects to deliver new infrastructure capabilities and form part of our plans to decarbonise the railway. We progressed our decarbonisation plan for Scotland’s passenger rail services and the opening of the Barrhead Rail Enhancement project in December 2023 saw electric services operating on the Glasgow to Barrhead line route. In addition, we provided £780 million of funding for operations, maintenance and renewals of Network Rail infrastructure in 2023-24 which include adaptations to the network to reflect climate change.

We fully utilised our 2023-24 commitment of £42 million spend through the Home Energy Scotland (HES) Grant and Loan Scheme, which offers applicants a grant, interest free loan or combination of both to support the installation of energy efficiency measures and zero emissions heating.

Other decarbonisation activity included the completion, through support from our Energy Transition Fund, of the Offshore Floating Wind Centre of Excellence at the Energy Transition Zone in Aberdeen. The Centre is providing space and testing capability for technology that will support the roll out of floating wind generation. In addition, a number of flood protection schemes to improving resilience are under construction around Scotland and three were completed at Caol and Lochyside near Fort William, and in Stonehaven and Arbroath.

Driving economic growth

We are strengthening digital connectivity and the three digital infrastructure contracts for North, South and Central Scotland which form part of our Reaching 100% (R100) Programme, have at end of January 2024, delivered over 36,000 contracted premises as well as an additional 10,200 non-contracted “overspill” premises at no additional cost to Scottish Government. In addition, we are strengthening digital public services and the use of common platforms and the Scottish Government Cloud Platform Service (CPS) is now available to Scottish Government and public sector organisations.

The Stornoway Port Deepwater Terminal opened for operation in April 2024 with the arrival of the first cruise ship. This significant infrastructure project will help unlock Stornoway and the wider region’s full economic potential as a green energy gateway and will boost the islands’ economy as part of our efforts to deliver economic growth in every part of Scotland.

Over £525 million was invested in safely operating and maintaining the trunk road network in 2023-24. A delivery plan for the completion of the A9 Dualling to enhance connectivity was announced in December and we will award the Tomatin to Moy project construction contract during 2024-25 as well as launching the procurement for the Tay Crossing to Ballinluig project.

The opening of the new East Linton rail station in December marked the completion of the Reston and East Linton Rail Stations project and strengthened transport connectivity in the area. The new station reconnected East Linton in East Lothian to the national rail network for the first time in almost six decades and will open up education, leisure, and business opportunities for East Linton’s growing community, while also offering greener ways to travel as we work towards our ambitious Net Zero goals.

The City Region and Growth Deals are tools for the Scottish Government in driving inclusive growth throughout Scotland. Projects which competed within the last year included the Motherwell Railway Station Project which reopened to the public in June after significant redevelopment works, along with a renovation of the public space outside the station building. The Greenock Ocean Terminal opened in August and this now provides a new Cruise Line Terminal including a berthing facility, state-of-the-art visitor centre, gallery and restaurant. The new ONE BioHub building in Aberdeen officially opened in May and this will provide support and physical infrastructure to help life sciences businesses to grow and the Aberdeen South Harbour project, which will enable the accommodation of larger sea vessels, providing growth and diversification opportunities for the regional economy, officially opened in September.

Supporting public services

Within the Learning Estate Investment Programme which seeks to build resilient, sustainable, and high-quality facilities, eleven school projects started construction and five completed construction. In addition, the projects to be included within Phase 3 of the programme were announced.

In addition to the three National Treatment Centres (NTC) which were highlighted as being operational in previous progress reports, the Phase 2 Hospital Expansion Programme of the NHS Golden Jubilee and the NHS Forth Valley NTC project, will both open during 2024-25.

NHSScotland Boards have continually provided routine and backlog maintenance, essential equipment replacement and reactive maintenance to their Estate through their capital allocations. Capital projects contributed to reducing the burden of maintenance programmes either replacing life expired facilities or upgrading them in a strategic manner to eliminate significant backlog maintenance issues. The Ninewells Hospital Electrical Infrastructure phases 1 & 2 (part of a 9 phase programme) have upgraded a significant portion of life expired electrical installation making the hospital significantly more resilient. Edinburgh’s Western General Hospital Oncology Enabling Projects have refurbished several buildings across the site to provide up to date facilities for patients and an extended lifetime for several buildings. The North East Hub project (Parkhead Health Centre) in Glasgow will replace several existing ageing facilities in the east end of Glasgow eliminating a significant backlog maintenance list.

Construction of the Fife College element of the Dunfermline Learning Campus has progressed and is expected to be fully operational during academic year 2025-26. The new college campus will provide a modern learning facility that is located in the centre of an area that is the fastest population growth in Scotland.

The new National Facility for Women Offenders opened in June 2023 in Stirling and is Scotland’s national facility for women in custody. Completion represents an unprecedented period of Scottish Government investment in how women are managed and supported while in custody.

The pre-construction services contract for the new HMP Glasgow requires the implementation and delivery of a Community Benefits Plan. The Scottish Prison Service Project Delivery Team is working with the contractor to develop this plan and a number of the proposals identified in the contractor’s tender submission have already been implemented. These include supporting employment workshops and programmes in HMP Barlinnie, engagement with a number of local community groups to identify specific needs and means of support and the setting up of processes to implement a Social Value Community Fund which will provide direct financial assistance to appropriate community groups. The design of the new HMP Glasgow will incorporate a Community Café which will facilitate accessible drop-in supportive services and activities for the local community, support social enterprise and incorporate social spaces and resources which can be accessed by local community individuals and groups.

In the third year of the charge control period 2021-27, Scottish Water had invested around £947 million by the end of December 2023 to maintain and improve services across Scotland. Scottish Water’s capital programme continues to support housing and business growth across the country and its largest investment commenced in Perth this year, where a series of wastewater projects totalling £108 million will provide new sewer networks and treatment capacity for an additional 40,000 people as the city expands. Scottish Water continues to work with developers and Local Authorities to ensure any upgrades to its water and wastewater network infrastructure are delivered to support development and in 2023-24 it has invested £45 million in treatment capacity for water and wastewater services.

Tackling child poverty

In 2023-24, we invested over £35 million on behaviour change and access to bikes initiatives in our schools, workplaces and communities to support people to make a modal shift towards safer walking, wheeling and cycling for short everyday journeys.

With the Community Bus Fund, £5 million in capital funding was allocated to local authorities to improve local bus services, with the distribution of funds based on levels of transport poverty. A greater level of support was provided for rural areas facing different challenges to those in cities.

To end March 2024, we have delivered 21,092 homes towards our 110,000 affordable homes target, of which 15,964 (76%) are homes for social rent. We continue to deliver our Place Based Investment Programme and within the last year, we provided £62.5 million capital funding to support place-based community-led regeneration in our most disadvantaged communities.

Major project activity

Over the course of 2023-24, the following major infrastructure projects completed construction and opened to the public as reported within our six-monthly major capital project updates:

• Reston and East Linton Rail Stations (£37.8 million)
• Barrhead Rail Enhancement (£63 million)
• NHS Tayside - Electrical Infrastructure Zone 2 - Radiotherapy, Maternity and West Ward Block (£12.4 million)
• National Facility for Women Offenders (£85.8 million)

Major infrastructure projects planned to complete construction during 2024-25 include:

• Levenmouth Rail Project
• National Waiting Times Centre Board - Hospital Expansion Programme - Phase 2
• NHS Lothian - Oncology Enabling Projects, Edinburgh Cancer Centre
• NHS Ayrshire & Arran - Foxgrove (National Secure Adolescent Inpatient Service)
• NHS Greater Glasgow and Clyde - North East Hub
• NHS Forth Valley - National Treatment Centre

Major projects which commenced construction in 2023-24 included the East Kilbride Rail Enhancement scheme which will support the decarbonising of transport and enhance a key transport corridor to provide a more reliable, more inclusive and greener railway for customers, and the Markle Level Crossing Bridge Replacement project in East Lothian, which will greatly improve both access and road safety.

Major infrastructure projects which will commence construction during 2024-25 include the A9 Dualling Tomatin to Moy and HMP Highland.

Reporting

The 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.

As well as annual IIP Progress Reports, we also normally report on the programmes and projects within the IIP on a six-monthly basis by way of an IIP Major Capital Projects Progress Update, IIP Project Pipeline Update, and IIP Programme Pipeline Update. However, our December 2023 and August 2024 reporting reflect the funding decisions set out in the Scottish Budget 2024-25 and only an IIP Major Capital Projects Progress Update report was published due to the deteriorating fiscal outlook over the medium term. We plan however, to resume the programme and project updates in 2025 following a refresh of our infrastructure pipeline.

The latest IIP Major Capital Projects Progress Update as well as previous programme and project reports relating to the IIP can be found on the Scottish Government website at Infrastructure Investment Plan.

The latest information relating to projects within the IIP Major Capital Projects Progress Updates and their accompanying climate change targets, strategic outcomes and their contribution made to local economic development, can be found at Annex B.

Infrastructure Commission for Scotland

In 2020, the short-life Infrastructure Commission for Scotland (ICfS) identified key strategic priorities in Scotland to be made to boost economic growth and support public services. Annex A includes an update on the progress against the broad themes of the Commission’s recommendations.

Future Infrastructure Investment Plans

The Medium-Term Financial Strategy (MTFS) published on 23 May 2023 announced our intention to extend the Infrastructure Investment Plan (IIP) period by one year. This means the current IIP will now run to 2026-27 and the next IIP will cover the period from 2027-28.

Development of the next IIP is currently underway and this will be informed by our work with the Scottish Futures Trust to deliver an infrastructure improvement programme that is guided by the recommendations of the Infrastructure Commission for Scotland.

The Infrastructure Pipeline

The Infrastructure Investment Plan 2021-22 to 2025-26 established a pipeline of projects and programmes with an expected total capital value of around £26 billion. The share of direct Scottish Government investment in these projects over that five-year period was expected to be circa £15 billion.

While we report regularly against this pipeline, our reporting includes a subset of projects and programmes that meet certain thresholds and is not the entirety of our capital budget. The capital budget for the same period was expected to be £33.5 billion at the time of publication.

We are now three years into this Infrastructure Investment Plan and, as set out above, there has been sustained pressure on our spending power caused by a combination of challenges – a real terms cut to capital funding, higher than anticipated interest rates, sustained construction inflation and labour market constraints caused by EU (European Union) Exit, the war in Ukraine and the pandemic. We have been open with the public and parliament that we can no longer afford all of our original pipeline.

The Mutual Investment Model (MIM)

This is a modern version of a Public: Private Partnership (PPP) and is in operation in Wales. It was developed by the Welsh Government working closely with the Scottish Futures Trust (SFT) to evolve the predecessor Non-Profit Distributing (NPD) model and works in situations where there isn’t a viable public sector body who can sustainably borrow to deliver the asset. It is not always our preferred method of delivering infrastructure, but given the challenging fiscal position imposed on us by UK Government choices, we must keep all options on the table to ensure we can deliver the infrastructure Scotland needs.

Under this model, a private sector entity and a public sector investing partner set up a project company. That company funds (often from borrowing), delivers and maintains a new asset, for example a road. Once the asset has been built, the Scottish Government commits to paying that company a pre-agreed annual payment for a set number of years (usually 25-30 years). The company uses that annual payment to repay any borrowing, and to maintain the asset to pre-agreed levels. The public sector investor will take their share of any profit the company makes and reinvest it in the public sector. SFT advice is that this model is best used on reasonably non-complex, new build developments and not for maintenance or refurbishment project. Any project (or programme of projects) would need to be over £100 million in total cost, SFT estimate, for there to be market interest.

In December 2023, the Scottish Government announced that we are considering using this model to fund further dualling of the A9, with a decision on that due in 2025. Further capital departmental spending (CDEL) funded work on the A9 continues. It is possible, if affordable, for us to use this model to fund other road projects such as the A96 or improvements at the Rest and Be Thankful. This would ensure they could proceed in spite of the challenging CDEL position. This will only happen if we are assured that that resource departmental spending (RDEL) budget can absorb the additional annual costs once the asset is in use.

Next steps on revenue funded infrastructure investment

The previous UK Government’s choice to underfund infrastructure spend and the real-terms cut to Scotland’s CDEL budget has had a devastating impact on our ability to deliver our infrastructure priorities. However, there are a range of options to help us mitigate this as best we can.

We commit to working with key stakeholders to further explore the options set out here, and any others, to ensure we provide a package at the next and future budgets that maximises our ability to deliver capital investment in an affordable way. Specifically, we will:

• Review all policy areas where regulation or other interventions could be used to lever in private investment, e.g. in the decarbonisation of heat sector
• Work with stakeholders to deliver on the Investor Panel’s recommendation around guarantees, and expand the work to consider the full range of Scottish Government guarantee options
• Continue to encourage the UK Government to reverse the real terms cuts to CDEL and FTs, and to use the coming years to provide real growth in capital budgets
• Review all options to shift certain programmes from CDEL to future RDEL funding, including:
  • future trunk road projects that could be included in a programme of MIM investments
  • Extension of the LEIP (Learning Estate Investment Programme) programme to include provision for free school meals and free childcare expansions
  • Expansion of our Growth Accelerator programme to capture Local Authority borrowing powers to fund contributions to City and Regional Deals where feasible
• Any other available options, including philanthropy
• Implement our new Capital Borrowing policy, as set out in the MTFS and continue to work with the Scottish National Investment Bank and the UK Infrastructure Bank (UKIB) to explore options

All of these next steps will be developed in conjunction with stakeholders like SFT, Scottish National Investment Bank and UKIB and will only progress with agreement from delivery bodies such as Transport Scotland and COSLA (Convention of Scottish Local Authorities). The first step is to determine affordability and we won’t, as a responsible government, put the overall fiscal position in doubt through any unsustainable use of these options. Scotland is open for business, for investment and for investing now in the future assets we want to see. This section shows how we are committed to delivering that.

Improving infrastructure delivery

The Scottish Government with the support of SFT have established a Planning, Infrastructure and Place Advisory Group (PIPAG). The group will help drive forward joined up, place-based delivery of development and infrastructure in Scotland. The core group met for the first time on 14 June 2023 and further details on their work can be found at Planning, Infrastructure and Place Advisory Group

The Construction Leadership Forum, supported by the Scottish Government’s Construction Accord Team, launched the Transformation Action Plan (TAP), which was codesigned with industry and aligns with the National Strategy for Economic Transformation (NSET), in January 2024. In line with the New Deal for Business it is now working closely with industry and agencies on delivery of the Plan through 11 collaborative Construction Leadership Forum working groups with co-chairs and members drawn from across the industry and public sector. Recently these groups have been:

• Highlighting investment opportunities – Pipeline working group has published the updated Forecast Tool with a value of works of £15.5 billion listed by 33 different organisations, enabling investment by giving industry long sight lines on the pipeline of work and contributing to improvement of sustainable procurement pricing with the Scottish Government launch of the Graduated pricing mechanism guidance: CPN 3/2024
• Improving Quality – Quality charter recently surpassed 100 commitments from the sector
• Utilising Data – Data working group is progressing a major update to the Construction Data Dashboard
• Increasing Productivity – Modern Methods of Construction working group is focussed on increasing awareness of the range of offsite manufacturing options that can help improve the speed and quality of delivery