UK: Scottish Budget And Spending Review - Focus On Capital Investments

Last Updated: 28 September 2011
Article by Duncan Osler and Andrew Orr

Scotland's Budget - on 21 September John Swinney introduced the Scottish Government's keenly awaited Budget to the Scottish Parliament against the backdrop of a 36% real terms cut to Scotland's capital budget.  The Review acknowledges the need for capital investment as a catalyst of economic growth and seeks to prioritise funding in health, transport and education projects, even as it continues with an ongoing public sector pay freeze.

The Review is part of wider plans for the Scottish Public Sector, including some challenging reforms, ongoing efficiency savings and a stated aim to focus on 'preventative spend', to reduce (rising) demand for public services.  

The Scottish Futures Trust (SFT) is expected to work with the Scottish Government towards the injection of private sector and European funding to support public finance, including the exercise of existing borrowing powers.  Possible financing solutions include:

  • Tax Incremental Financing through which private sector capital would support public finances, as proposed for Leith Harbour, Ravenscraig, and the Buchanan Quarter in Glasgow.
  • JESSICA funding (Joint European Support for Sustainable Investment in City Areas) targeting sustainable investment in disadvantaged urban areas, with gains being recycled back into the fund for future projects. The £50m fund managed by the European Investment Bank is comprised of £26m of Scottish Government funding and £24m of European Structural funds.
  • The National Housing Trust for affordable housing, in its second phase, involving private sector funding and Council borrowing.
  • A pipeline of NPD projects worth £2.5bn to be delivered by the SFT, in partnership with the Scottish Government, local government, NHS Boards and other public bodies.

Priority investment Projects identified in the Review include:

Transport:

  • Progressing construction of the Forth Replacement Crossing is a key economic priority.
  • Using Network Rail's Regulatory Asset Base (RAB) generally to fund rail improvements, and there is to be funding for the Edinburgh Glasgow Improvements Programme (EGIP) and the Borders Railway project.
  • Road projects - the M8 Baillieston to Newhouse motorway upgrade, M74 Raith Junction and M8, M73 and M74 network improvements (M8 bundle), the Aberdeen Western Peripheral Route, and A90 Balmedie will be delivered through the NPD model.

Education:

  • Scotland's Schools for the Future programme contains NPD projects to be taken forward with local authorities, by means of capital grant and revenue support.
  • Further Education - NPDs for Kilmarnock and Inverness Colleges and modernisation of the Glasgow college estate.

Health:

  • The Royal Sick Children's Hospital and Department of Clinical Neurosciences in Edinburgh (NPD).
  • The construction of the new Southern General Hospital in Glasgow, estimated to contribute around £30m per year to the local economy once complete.
  • The Hub Initiative, with revenue support for development of community based facilities for NHS Scotland and other public sector partners.
  • Individual hospital projects, health centres and mental health facilities across Scotland.

What this Means for Infrastructure Projects

The Spending Review and Scottish Budget are going to be hotly debated, but investment in capital projects is set to remain a priority. More detail should emerge in a revised Infrastructure Investment Plan, due out later this Autumn (as announced this week).  But navigating Projects to delivery on time will need discipline and focus, to ensure factors such as wider reforms and ongoing efficiency measures do not push Projects off-course.

© MacRoberts 2011

Disclaimer

The material contained in this article is of the nature of general comment only and does not give advice on any particular matter. Recipients should not act on the basis of the information in this e-update without taking appropriate professional advice upon their own particular circumstances.

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