Investing for jobs: Capital Spending Review 2021-2022 to 2025-2026

Ministerial Foreword

I am pleased to set out the Scottish Government’s Capital Spending Review, which underpins the five-year Infrastructure Investment Plan being published alongside it.

While the global pandemic we are experiencing is first and foremost a public health emergency, it is having a devastating impact on our economy. We will continue taking decisive action to respond to the immediate challenges facing Scotland, but the hope presented by the continued roll-out of our mass vaccination programme means we have our sights set firmly on the brighter future ahead, and delivering a fairer, greener and stronger recovery.

At a time when the outlook for the economy and the public finances is uncertain, the Scottish Government wishes to provide vision and clarity for the future, through the pipeline of work set out in the Investment Plan aligned with the multi-year funding proposals developed through this spending review.

The Capital Spending Review sets out five-year budgets to underpin our common, single vision for all infrastructure investment choices: that our infrastructure supports Scotland’s resilience and enables inclusive, net‑zero and sustainable growth.

Our approach focuses on three strategic themes for guiding investment decisions in Scotland:

• Enabling the transition to net zero emissions and environmental sustainability;
• Driving inclusive economic growth; and
• Building resilient and sustainable places and communities.

To a significant degree, our ambitions are hindered by the actions of the UK Government, not least the cuts to our capital and financial transactions budget through the November 2020 Spending Review. We are clear that as we respond to the immediate impacts of the pandemic, and drive forward a sustainable recovery, capital spending will be vital and these cuts represent a threat to our recovery.

We will continue to push the UK Government to provide a fair funding settlement and necessary powers for Scotland. I welcome the fact that the UK Government has responded to our requests by agreeing to increased flexibilities to drawdown more of our own money from the Scotland Reserve in coming years, in recognition of the Scotland-specific shock the Scottish Fiscal Commission has forecast for 2021-22.  However, I will continue to press for further, necessary improvements to the Fiscal Framework.

Our Capital Spending Review ensures we fully utilise every resource and lever available to us, to deliver an ambitious programme of investment.  For example, we are already making use of the additional fiscal flexibility to increase our Scotland Reserve drawdown by £100 million next year.

We will work to ensure our own funding is shaped to leverage private investment, through realising our ambitions for Green Finance, and our work on trade and inward investment. We will shortly set out further our strategy to attract internationally mobile private capital.

This Capital Spending Review complements the Scottish Budget 2021-22, providing a longer-term vision for how we will drive forward our three strategic priorities.

It provides the investment to deliver our national mission for new, good and green jobs, with large-scale investment in new, emerging and high-value sectors – providing businesses with the confidence to grow and diversify. This delivers the twin benefit of protecting and creating jobs right across Scotland, with significant investment in rural areas, and driving progress towards net zero and environmental sustainability.

The Capital Spending Review confirms that we will deliver our National Infrastructure Mission to increase annual investment in infrastructure by 1% of 2017 Scottish GDP by 2025-26 ensuring that investment is £1.5 billion higher in 2025-26, than the £5.2 billion the Scottish Government invested in 2019-20. This will deliver total investment value of over £33 billion pounds in the next five years, and is estimated to support 45,000 jobs directly in that period, providing benefits right across Scottish supply chains.

Infrastructure investment is one of the strongest levers available to deliver economic wellbeing, good jobs and growth. Taken together, the Capital Spending Review and Infrastructure Investment Plan offer a strong contribution to the Scottish Government’s response to both the pandemic and the ongoing economic challenges we will face as a result of the UK’s departure from the European Union.

Our capital funding also supports economic growth beyond infrastructure by investing directly in businesses to boost innovation and employment, funding research and development, and capitalising the Scottish National Investment Bank.

The investment I am setting out here will ensure we stimulate the economy in the face of the crisis, renew our communities, and deliver new, green jobs and support our commitment to environmental sustainability, including ending Scotland’s contribution to climate change by 2045.

The Capital Spending Review is also consistent with our international outlook and the UN Sustainable Development Goals. Over the period 2021-22 to 2025-26, it will:

Enable the transition to net zero emissions and environmental sustainability

• Create an £180 million Emerging Energy Technologies Fund to support carbon capture and storage (CCS), negative emissions technologies (NETs) and hydrogen development.
• Invest £34 million in the Scottish Industrial Energy Transformation Fund (SIETF) for energy efficiency technologies and decarbonisation studies.
• Provide £150 million extra funding for flood risk management and £12 million for coastal change adaptation to help us adapt to the threat of sea level rises and protect our assets.
• Provide £60 million to support climate adaptation and resilience in our trunk road network.
• Commence a £50 million programme of investment supporting the reuse of vacant and derelict land as part of a fair, green recovery.
• Provides £100 million capital investment as part of our 10-year £250 million commitment to restore 250,000 hectares of peatland by 2030.
• Provide an additional £150 million to Scottish Forestry and Forestry and Land Scotland to increase new planting, expand Scotland's national forests by an additional 18,000 Ha per year and increase nursery stocks.
• Over £550 million will be invested over 5 years in active travel, including £50 million dedicated to Active freeways.
• Provide £120 million of new investment in the transition to net-zero electric buses.
• Invest £1.6 billion over the next five years to decarbonise heat in buildings, supporting our Housing to 2040 vision for Scotland’s homes alongside ambitions to decarbonise our non-domestic building stock and public sector estate.
• Invest up to £75 million (including £65 million from the Low Carbon Fund) to improve local authority recycling collection infrastructure, accelerate landfill gas capture and improve waste data through electronic waste tracking.
• Invest over £1.2 billion in major rail improvements, including £550 million for dedicated rail decarbonisation projects, as well as £3.8 billion on our rail network for passengers and freight.

Drive inclusive economic growth

• Strengthen digital connectivity through the £600 million Reaching 100% programme.
• Invest £110 million in a Digital Public Services Programme to support the transformation of key public services.
• Invest £525 million to deliver the next five years of the £5 billion City Region and Regional Growth Deals programme.
• Double investment in bridge and roads maintenance, enhancing safety with a programme of around £1.5 billion over 5 years.
• Stimulate innovation and our international attractiveness by concluding our £75 million investment in the National Manufacturing Institute Scotland.
• Provide over £10 million to support the reinstatement of the Cairngorm funicular.

Build resilient and sustainable places

• Invest £275 million to support community-led regeneration and town centre revitalisation as part of a new Place Based Investment Programme.
• Provide £3.4 billion of capital for housing over 5 years, including Financial Transactions in 2021-22. Over £3.3 billion is allocated, to deliver more affordable and social homes, helping to create great places, and ensuring the right types of homes are in the right places, supporting Local Housing Strategies and regional development priorities.
• Scottish Water is planning to invest over £4.5 billion in the next charge control period 2021-27 to maintain and improve services across Scotland, address the challenges of its aging asset base and make progress towards the achievement of its commitment to net zero emissions by 2040.
• Together with Councils, fund an ambitious £2 billion Learning Estate Investment Programme, using an outcomes based revenue finance approach to deliver 36 modern, state of the art learning facilities for 21,000 pupils.
• Invest over £200 million in the Baird and Anchor project in Aberdeen and deliver a £320 million programme of investment to expedite completion of our elective care centres.
• Double investment in health maintenance, totalling almost £1 billion.

Through all of these investments and the vision set out in the Infrastructure Investment Plan, the Scottish Government will do all that it can, working with a range of partners, to deliver a positive future for Scotland.

Kate Forbes

Cabinet Secretary for Finance