Chamber and committees

The Scottish Government has placed infrastructure investment at the heart of its economic strategy, delivering jobs, increased economic activity and assets of benefit to the people of Scotland. Through our programme of revenue-financed NPD/hub projects, we have sought to maintain investment at a time when, over the 2010-11 to 2015-16 period, conventional capital budgets have been reduced by around a quarter in real terms.

The NPD programme has successfully delivered two completed projects and sixteen that are in construction, with an estimated capital value of £1.4 billion, injecting around £600 million into Scotland’s economy in the 2014-15 financial year alone, supporting or maintaining around 6,000 jobs.

Following recent updates to relevant Eurostat technical guidance on national statistical accounts (the European System of Accounts – ESA 10), applied in September 2014, I wish to advise Parliament about action the Scottish Government is taking in order to secure this continued investment. This relates to the latest interpretation of factors that influence a public or private sector classification for infrastructure projects.

Since 2010 external financial advice has been sought to ensure the correct classification is applied to NPD/hub projects on four separate occasions. Following the introduction of ESA 10, the Scottish Futures Trust (SFT) commissioned financial advice in October 2014 to confirm that the NPD programme classification remained robust. This was the fifth piece of external financial advice sought on classification since 2010 and concluded that private sector classification remained appropriate.

In November 2014, SFT became aware from Infrastructure UK officials within HM Treasury that the Office of National Statistics (ONS), who report on classification, had raised classification issues on privately financed projects under development in Whitehall in the light of the recent application of ESA 10, which appeared to these officials likely also to be relevant to the NPD programme in Scotland.

In December 2014 the ONS decided to review the classification issues surrounding the Aberdeen Western Peripheral Route (AWPR) project. I expect this process to take a number of months. For the sake of clarity, this process will have no effect on the construction of the AWPR project itself, which will continue as planned.

In light of this, I have considered it appropriate to put in place a number of steps to refine the NPD programme, whilst seeking confirmation and further advice on the appropriate classification under the most recent Eurostat approach for infrastructure projects under NPD.

Under HM Treasury budgeting rules, were an NPD project to be classified to the public sector, no additional cash would be required. However, the Treasury could require upfront budget cover (capital departmental expenditure limits (DEL)) for the project.

The Scottish Government and SFT believe that current project arrangements demonstrate consistency with the relevant guidelines. However, until the process of engagement with the ONS has concluded, I believe it is appropriate to put in place contingency measures.

Given that we are now so close to the end of the 2014-15 financial year, I have therefore agreed with HM Treasury that it would be prudent to treat as a contingency arrangement in the short term the Scottish Government’s planned carry forward from 2014-15 into 2015-16 of around £150 million of resource DEL. In turn, HM Treasury has agreed that, as a contingency, additional budget cover of £300 million will be included in the Spring Supplementary Estimate. The budget cover from HM Treasury will not be available for general spending on public services in the event it is not required for contingency purposes. The £150 million of Scottish Government resource DEL will continue to be available to the Scottish Government through the Budget Exchange Mechanism if the contingency is not required.

As all of the government’s efforts will be focused on ensuring there is no need to call on this contingency, I do not intend to make changes to the spending plans set out in the 2015-16 Budget Bill currently before Parliament.

Finally, I have considered the potential implications for projects that are due to reach financial close shortly. In relation to NPD projects – the Royal Hospital for Sick Children in Edinburgh and the Dumfries and Galloway Royal Infirmary – the government intends to take these projects to financial close as soon as possible, while making some appropriate contractual adjustments in consultation with partners.

In relation to eight hub projects that are due to close this financial year, the government will also, as a precaution, be considering some contractual changes. These will take some time to agree and implement with partners. We will take all necessary steps to ensure that these projects are ready to reach financial close as soon as practicable after our engagement with the ONS has reached a conclusion. I will keep Parliament informed of progress toward financial close on these projects.

I can assure Parliament that I am taking all appropriate action to protect vital capital investment in Scotland and to resolve these issues as promptly and effectively as possible.