Scotland's Budget: Draft Budget 2017-2018

Annex A

Monitoring of Long-Term Investment Commitments

In the 'Infrastructure Investment Plan 2015', we reiterated our commitment to ensure that we use revenue funded methods of investment at a sustainable level, and do not overly constrain our choices in future years. We will therefore continue to keep our future revenue commitments within a prudent maximum of five per cent of our expected future total annual Departmental Expenditure Limit ( DEL) budget. The commitments included in the calculation are the Scottish Government's share of the ongoing costs of: previous PPP contracts that are now operational; the current Non Profit Distributing ( NPD) and hub programmes; rail investment (financed via the Regulatory Asset Base - RAB) and the repayment costs of borrowing for capital investment under Scotland Act 2012 and 2016 powers.

The following graph shows future revenue costs associated with our committed projects and our planned projects and borrowing. The annual revenue costs of committed projects are estimated to peak in 2019-20 at 3.9 per cent of total annual DEL budget. The annual revenue costs of committed projects plus planned projects and planned borrowing, peak at just under 4.5 per cent in 2020-21. There is therefore headroom within the five per cent ceiling.

Committed projects are those where a contract has been signed. The assets will therefore be under construction or the project is operational.

The following NPD and hub projects are now operational:

• Aberdeen Health Village
• Forres, Woodside and Tain Health Facilities
• Inverness College
• Alford Academy, Aberdeenshire
• Wishaw, East Kilbride, and Kilsyth Health Centres
• City of Glasgow College
• James Gillespie's High School, Edinburgh
• Ayrshire College (Kilmarnock Campus)
• Ayrshire and Arran Acute Mental Health, and North Ayrshire Community Hospital
• Maryhill Health and Eastwood Health and Care Centres
• Levenmouth High School, Fife
• Greenfaulds High School, North Lanarkshire

The following NPD and hub projects are in construction:

• Wick High School, Highland
• Forfar Community Campus, Angus
• Anderson High School, Shetland Islands
• National Centre for the Scottish National Blood Transfusion Service
• Redevelopment of Royal Edinburgh Hospital Campus - Phase 1
• Royal Hospital for Sick Children/Department of Clinical Neurosciences, Edinburgh
• Dumfries and Galloway Acute Services Redevelopment Project
• M8 M73 M74 Motorway Improvements
• Aberdeen Western Peripheral Route/Balmedie Tipperty project
• Ayr Academy, South Ayrshire
• Dalbeattie Learning Campus, Dumfries and Galloway
• Newbattle Centre, Midlothian
• Kelso High School, Scottish Borders
• Elgin High, Moray
• Inverclyde Continuing Care Beds for Mental Health
• Baldragon Academy, Dundee City
• William McIlvanney Campus, East Ayrshire
• Barrhead High School, East Renfrewshire
• Oban High School and Campbeltown Grammar, Argyll and Bute
• Our Lady and St Patrick's High School, West Dunbartonshire
• Lothian Partnership Centre Bundle
• South of the City Academy, Aberdeen City
• Largs Campus, North Ayrshire
• East Lothian Community Hospital
• Inverurie Health Care Hub and Foresterhill Health Centre

Projections for which RAB payments are made include previous investments in the existing rail network, the Edinburgh to Glasgow Improvements Programme ( EGIP), Aberdeen to Inverness enhancements, Highland Mainline, and other enhancement projects agreed for the regulatory period from 2014 to 2019 and anticipated for the next regulatory period. The Scottish Government's servicing of the RAB is reflected in the annual network grant payment to Network Rail as determined by the Office of Rail and Road.

Committed projects also include the Scottish Government's share of the revenue costs of PFI projects (which are completed and in operation) and the five NPD projects committed before the current £3.5 billion NPD pipeline.

Annex H sets out the total unitary charges for all Scottish PPP projects, prior to those announced as part of the current £3.5 billion NPD pipeline, including those elements met from other public bodies' own resources, to provide full transparency. The monitoring of long-term investment commitments described in this Annex is based on costs borne by Scottish Government budgets only.

Unitary charges usually include ongoing maintenance commitments over the project life, as well as costs associated with project construction and financing.

Costs associated with planned projects and investments include:

• hub pipeline - revenue financed community health and schools projects;
• modelling assumptions of the revenue cost of delivering an NPD/Hub programme totalling £3.5 billion while consideration is given to the impact of recent changes to Eurostat rules for stand-alone NPD projects;
• Scottish Government's forecast borrowing repayments for anticipated borrowing of £322 million in 2016-17 under the Scotland Act 2012 powers; and
• Scottish Government's repayments for the use of capital borrowing powers from 2017-18, which were increased by the Scotland Act 2016 to £3 billion in aggregate over 10 years, with an annual cap of £450 million.

In order to maximise our investment in infrastructure, we will make use of the full £450 million available in 2017-18. This is modelled here as being drawn from the National Loans Fund in 2017-18, with an assumption of repayment over 10 years, an interest rate of 2 per cent, and repayments of both principal and interest from 2017-18 onwards. Final decisions on borrowing arrangements will be taken over the course of the year reflecting an ongoing assessment of programme requirements.

In the UK Spending Review announcement of 25 November 2015, the UK Government set out spending allocations up to 2019-20 for Resource DEL and up to 2020-21 for Capital DEL and financial transactions. Beyond 2019-20 we have no detailed UK departmental spending plans, and therefore no detail of the Scottish block grant settlement. For the purposes of this modelling, we have therefore assumed that spending allocations will grow in line with projected nominal GDP. The years without firm DEL allocations are 2020 to 2022 and these are shown with the hatched pattern in Figure 1.

The Scottish Government intends to review the scope and presentation of this modelling material during 2017, to reflect the changing fiscal responsibilities devolved to Scotland, the diversity of the levers available to support growth and our commitment to transparency in financial reporting.