Scottish Budget 2020-2021

Chapter 3: Infrastructure Investment

Introduction

Infrastructure investment is vital to deliver the Scottish Government's long‑term ambitions for inclusive economic growth, responding to the climate emergency and building sustainable places. The value of investing in infrastructure goes beyond the physical homes, schools and hospitals delivered. It has the capacity to unlock economic potential, support jobs, and enable our businesses and communities to grow.

The importance of infrastructure drove the 2018 decision to launch the National Infrastructure Mission which will increase annual investment by one per cent of then GDP between 2019‑20 and the end of the next parliament in 2025‑26. This will consequently boost annual infrastructure investment by £1.56 billion by 2025‑26 and will see around £7 billion of additional infrastructure investment delivered over the course of the Mission.

The Scottish Government set up the Infrastructure Commission for Scotland in 2019, which has already published its first phase report 'A Blueprint for Scotland', covering the right priorities for the years ahead. The coming year will see us build on these findings in developing the Infrastructure Investment Plan for publication later in the summer. Scottish Budget 2020‑21 provides a strong investment foundation for this work.

Alongside Capital Grant and Financial Transactions investment during the course of our National Infrastructure Mission, we will deliver a billion pounds of investment through our Learning Estate Investment Programme and drive forward a package of around £200 million of low carbon investments through new Green Growth Accelerator deals. The investment unlocked through these mechanisms will be reported under 'innovative finance' in future years.

Table 3.01 sets out our total infrastructure investment for 2020‑21 and compares it to the 2019‑20 National Infrastructure Mission baseline. Overall, we have already boosted capital spending by nearly £1 billion in the first year of the Mission. Descriptions of the investment sources can be found on pages 38‑39 of the Scottish Government's 2019 Medium‑Term Financial Strategy.^[1]

Table 3.01: Comparison of 2019-20 and 2020-21 Infrastructure Investment

*Figures for Capital Grant and Financial Transactions are gross, inclusive of receipts or other income. Further detail on gross and net position of Financial Transactions can be found in Table 3.02. Capital Grant receipts and other income are £84.5 million for 2019-20 and £100.7 million for 2020-21 respectively.

Our Priorities

In addition to delivering a significant increase in overall investment, Scottish Budget 2020‑21 ensures delivery of our key commitments during this parliamentary term, and very substantially boosts our investment in responding to the climate emergency, as below:

• Inclusive Growth: The Scottish Government is committed to boosting Scotland's competitiveness whilst tackling inequality. In 2020‑21 we will provide substantially increased funding for innovative low carbon technologies, support the delivery of our R100 broadband programme, launch a new Credit Union Investment Fund, continue investment in the National Manufacturing Institute for Scotland, continue progress towards our £2 billion capitalisation of the Scottish National Investment Bank with £220 million of new seed funding, and provide £201 million funding for City Region and Growth Deals, including provision for new deals in Stirling and Clackmannanshire, Tay Cities, Ayrshire and the Borderlands.
• Climate Change: Recognising that an immediate response is required to tackle climate change, in 2019 the Scottish Government announced a Climate Emergency. In 2020‑21 we have increased our investment in low carbon infrastructure to help us deliver our stretching statutory targets for reducing emissions. This includes substantial additional funding for agricultural transformation, active travel, energy efficiency, public transport and the Low Carbon Infrastructure Transition Programme. Our spending plans also deliver our commitment to increase the proportion of overall investment directed to low carbon measures, with total investment of around £1.8 billion in 2020‑21.
  The Scottish Government has further earmarked £2 billion new additional funding for low carbon investments over the next parliamentary term, based on current assessments of the total level of funding available for infrastructure over this period. These assessments are informed by the updated capital spending plans set out as part of the UK Government's Spending Round 2019 and in the 2019 Conservative general election manifesto. The upcoming Infrastructure Investment Plan and Capital Spending Review will set out the details around deployment of this funding. These will build on the work of the Infrastructure Commission for Scotland's Phase 1: Key Findings report and the Climate Change Plan, which will be updated in spring 2020. In addition to this £2 billion of capital grant, we will also take forward around £200 million of additional low carbon investments through new Green Growth Accelerator deals.

• Sustainable Places: In 2019, the Scottish Government adopted the Place Principle, to support local communities and create more successful places. Budget 2020‑21 completes our expansion of places for Early Learning and Childcare with £121 million to complete our four‑year £476 million commitment. This budget also provides the funding required to meet our commitment to deliver 50,000 new affordable homes and supports progress on our elective care health centres. Additionally, over the course of the National Infrastructure Mission our new £1 billion Learning Estate Investment Programme, designed in collaboration with our partners in local government, will deliver high quality, fit-for-purpose educational facilities and benefit around 50,000 pupils across Scotland.

Financial Transactions

Financial Transactions are a type of funding allocated to the Scottish Government by HM Treasury. They can only be used to make loans to or equity investments in private sector entities. The funds must ultimately be repaid by the Scottish Government to the UK Government. Portfolios receive a budget allocation for Financial Transactions investment and can be permitted to retain a proportion of receipts due in‑year. This produces a net investment figure. As time passes, and more loans have been made, the scale of receipts increases. Table 3.02 shows the gross budget receipts and net Financial Transactions budget by portfolio. The total budget investment figures in Table 3.01 use the gross figure to reflect the total amount of new financial transactions investment by the Scottish Government in the Scottish economy in 2020-21.

Table 3.02: Gross and Net Financial Transactions Portfolio Allocations

*The negative net position is due to an overall repayment of Financial Transactions within these portfolios.
For Environment, Climate Change and Land Reform, this arises from repayment of loans made to Zero Waste Scotland.
For Rural Economy this is from the repayment of farmers loans.
Figures may not sum due to rounding.

Monitoring of Long-Term Investments

The Scottish Government is able to unlock additional investment through the use of revenue finance investment models. Current models deployed through this Scottish Budget are the Growth Accelerator developments in Edinburgh and Dundee, and the commencement of the next stage of schools developed through the £1 billion Learning Estate Investment Programme.

Through the Fiscal Framework, the Scottish Government also has the power to borrow up to £450 million of capital annually, up to a maximum of £3 billion in aggregate over time, to fund additional capital investment. In recognition of the positive economic impact of infrastructure investment, Budget 2020‑21 includes plans to use the £450 million borrowing facility in full.

The Scottish Government is committed to sustainable deployment of revenue financed investment and capital borrowing to ensure we do not place an undue financial burden on future policy choices. This is why the Scottish Government has a self‑imposed revenue finance investment limit of five per cent of the Scottish Government resource budget excluding social security. The impact of Budget 2020‑21 on the overall affordability assessment is shown in Figure 3.01.

Figure 3.01 shows annual revenue funded investment costs as a percentage of the Scottish Government's resource budget excluding social security. It shows that the peak occurred in 2017‑18 at 4.45 per cent, including Regulated Asset Base (RAB) payments for rail investment. In 2020‑21, planned and committed projects and borrowing costs are estimated to be 3.11 per cent of the resource budget. The corresponding figures are expected to be to 3.05 per cent in 2021‑22 and 2.99 per cent in 2022‑23.

Figure 3.01: Long-Term Investment Commitments - Affordability Limit Monitoring*

*Data in this figure uses OBR forecasts and the Conservative Party manifesto Policy Costing document. Although the UK Government has provided a resource budget allocation for 2020-21, these are liable to change following the UK Budget on 11 March.

Footnotes

1. https://www.gov.scot/publications/scotlands‑fiscal‑outlook‑scottish‑governments‑medium‑term‑financial‑strategy‑2019/