The Scottish Government, on the back of its December 2018 Budget, has published the latest infrastructure investment briefing. The report examines the value of current and future Scottish Government-led infrastructure projects within Scotland while also considering the possible sources of funding for future infrastructure investment.
In summary, the latest Infrastructure Investment Plan (IIP) includes 69 projects totalling £5.0 billion in capital value. Of particular note is the investment in transport infrastructure - road and rail - where 10 projects cumulatively account for more than 50% of the total value - although note that a number of the projects listed are already underway/completed.
Finance
The project pipeline shows that 43% of the value of projects currently in construction or in the development and planning stages are revenue financed, with the remaining 57% receiving capital funding or using other funding models. This is in contrast to infrastructure projects that are not yet in construction. There, only 24% of the project pipeline is to be revenue financed and the Scottish Government’s NPD model is not expected to be used.
This move away from NPD revenue financing is largely as a result of changes to European accounting rules which now require such revenue financed projects to be categorised as public sector. In summary, this means that the actual value of the project must be accounted for within the Scottish Government’s capital budget for the year that the project commences, rather than being accounted for from future revenue budgets. This means that the Scottish Government has more limited capital funds to spend on other projects.
Nonetheless, the Scottish Government has asserted its “National Infrastructure Mission” committing to increase annual infrastructure investment to £6.7bn by the end of the next parliament (2025-26), an increase of £1.5 billion per year. No details have, as yet, been given on how this significant increase will be funded although the Scottish Government has indicated that it will explore new profit-sharing finance schemes including the Welsh Government’s mutual investment model (MIM) which is not categorised as public sector under European accounting rules.
To further the aims of the “National Infrastructure Mission”, the Scottish Government’s Economic Action Plan 2018-20 announced plans to establish a new Infrastructure Commission. This independent Commission will advise on critical strategic and early foundation investments in order to deliver Scotland’s low carbon and climate change targets while also driving significant economic growth. The Commission will also act in an advisory role to the Scottish Ministers on the delivery of infrastructure in Scotland including the possible inception of a Scottish National Infrastructure Company. The role of the Scottish Futures Trust (SFT) in promoting value for money in infrastructure investment will remain unchanged.
Impact
The briefing also considers the economic, social and environmental impact of infrastructure investment within Scotland. Short-term, the Scottish Government estimates that each additional £100m of public sector capital spent in 2017-18 supported around 800 full time Scottish jobs, half of which are within the construction sector. Longer term, it is acknowledged that both the Scottish and UK Governments are under-investing in infrastructure and investment as a percentage of GDP is significantly lower than in countries such as Hungary, Slovakia, Estonia and the Czech Republic.
Environmentally, infrastructure investment is generally viewed positively, however the briefing notes that only 7% of future projects are classed as low carbon, 54% are carbon neutral and 39% are in the high carbon category.
Summary
Overall, this positive commitment by the Scottish Government to continued infrastructure investment looks set to deliver further improvements and modernisation to Scotland’s infrastructure network. However, given the continued uncertainty around availability of funding, this remains an area to watch.
Co-authored by Nicholas Carroll.
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