SNP urge Labour to boost capital spend as ministers brace for cuts

The Scottish Government’s five-year capital infrastructure investment plan was published in 2021, which included £26 billion of major projects and national programmes, but key parts are now at risk of being axed or delayed due to a 10% cut to grant funding from Westminster.

Deputy First Minister Shona Robison told The Herald on Sunday: “The UK Government’s failure to inflation-proof capital investment means we are faced with a forecast real terms reduction of around 10% over the next five years that will impact our ability to invest in our schools, hospitals and affordable homes.

“The real terms cuts to our budget also risk undermining our ability to invest in the energy transition that will secure good, green jobs for people across the country."

Other projects that could face cuts or delays include decarbonisation of rail and buses, active travel, heat in buildings investment, investment to improve local authority recycling infrastructure, affordable housing supply and investment in emerging energy technologies such as hydrogen and carbon capture and storage.

SNP ministers have provided no capital funding for the crucial Acorn carbon capture and storage project in the north east next year due to “uncertainty from the UK Government on the timescales” for funding the project, but the Scottish Government has pledged up to £80 million for the project “at the earliest opportunity”.

Mr Yousaf and Ms Robison, have been left frustrated by cuts to capital budgets by the UK Government amid fears Holyrood could lose up to one fifth of its real-terms capital spending budget by Westminster by 2029.

Ms Robison has accused UK ministers of having “persistently chosen to underinvest in infrastructure”.

The independent Scottish Fiscal Commission has warned that the Scottish Government’s total capital funding is forecast to fall by 20% in real terms from 2028-29 from 2023-24, while the UK capital grant will be cut by 10% over the next five years.

Read more: Yousaf open to 'reverse Tory austerity' in government with Starmer

In its latest forecasts, published last month, the Scottish Fiscal Commission warned that “capital budgets are under significant pressure”.

It added: “The UK Government capital spending plans involve keeping capital spending fixed in nominal terms, leading to real terms reductions in the capital budgets.

“This is likely to result in the Scottish Government cancelling or postponing some capital projects.”

Ms Robison has pledged to “undertake a prioritisation exercise” to ensure capital funds are used to “support employment and the economy”, as well as “support the achievement of net zero emissions targets and underpin the provision of high-quality public infrastructure and services across Scotland”.

Deputy First Minister Shona Robison (Image: PA)
She has promised to publish a “reset” of the Scottish Government’s infrastructure investment plan project pipeline, first published in 2014 to “help address the difference between the capital funding and spending outlook” and to set out “which projects may now be delivered over a longer timescale”.

In 2018, the Scottish Government drew up a “national infrastructure mission” to increase annual investment by 1% of 2017 Scottish GDP by the end or the next parliament – a pledge that was renewed in 2023.

Read more: Analysis: Scottish Budget: Shona Robison and the 'tax and axe' budget

But documents published by the Scottish Government point to “economic challenges” facing the capital spending strategy, including “construction supply chain issues, sustained high inflation levels and labour shortages”.

Officials have pointed to the depleted capital funding from the UK Government that is “significantly eroding the Scottish Government’s spending power”.

They added: “In combination, these issues mean that it is likely to take longer than expected to achieve the national infrastructure mission target.”

Government officials have also warned that “we cannot deliver all of the Scottish Government’s capital commitments within the funding available and to the original timescales”.

Officials added: "This will allow us to reflect the new economic reality, while prioritising capital spend to support employment and the provision of high-quality public infrastructure as we move towards achieving net zero.”

Ministers were due to publish a “refreshed” spending plan for capital projects alongside the Budget in December, but it is yet to materialise.

The Scottish Government will publish an update on its major capital projects by the end of January which will set out progress in delivering pipeline projects that already have an outline business case agreed.

By the end of the year, SNP ministers will publish an updated infrastructure investment plan pipeline to ensure that stretched capital budgets are used effectively.

Ms Robison has cut millions from capital budgets for 2023-24, including net zero and transport, social justice, rural affairs and the wellbeing economy, fair work and energy.

Under the spending plans, the Scottish Government will cut the social justice capital budget by more than a quarter from £672 million to £495 million.

Capital funding for local government will be cut by 20% from £746.6 million this year to £598 million in 2023-24, while investment in housing faces a £75 million reduction.

Rural affairs will suffer a 30% cut from £216 million to £150 million and the Scottish Government’s wellbeing economy, fair work and energy directorate will be cut from £841 million to £786 million.

Despite the Scottish Government placing climate change and net zero as a key priority, capital investment in the brief which includes transport will be cut by £87 million from its budget this financial year.

Energy efficiency and decarbonisation will be boosted by £30 million next year, but active travel such as cycling infrastructure is set for a £67 million cut.

Last month, Transport Secretary Mairi McAllan announced that completing the dualling of the A9 between Inverness and Perth was being delayed by 10 years until 2035.

The total cost of the project at April 2024 prices is now estimated at £3.7 billion, a £700 million increase from the original estimate of £3 billion forecast back in 2008.

The dualling of the A9 (Image: PA)
To complete the project, a new hybrid way of funding the road-building project will be used, with some of the construction work involving private investment using a mutual investment model developed by the Welsh government.

Under a review of the funding arrangement between the UK and Scottish governments, Holyrood’s borrowing limits will now rise in line with inflation each year – with SNP ministers planning to borrow the new maximum of £458 million for capital projects in 2024-25.

Scottish ministers are also pondering issuing capital bonds in the 2025-26 financial year to boost spending for infrastructure projects.

Labour has tabled plans to boost planned £8 billion green investment plans by the UK Government by £20 billion to £28 billion by the end of the next parliament, but fears have been raised the blueprint will be watered down.

Labour leader Sir Keir Starmer (Image: PA)
Mr Yousaf, in a chance meeting with Sir Keir at COP28, pleaded with the Labour leader to keep his pledge, despite fears about the investment breaking the party’s own fiscal rules.

Ms Robison told The Herald on Sunday: "With Labour so far ahead in the polls, Keir Starmer should be bold and ambitious and promise a real terms increase to the Scottish Government’s capital budget.

"Instead they are watering down their own green investment plans as they stick desperately to Tory spending policies that have starved the country of much needed investment."

Despite the fears, the £28 billion of capital spending would not be enough to halt overall public investment from falling in the upcoming years, but it would slow the decline.

Read more: Analysis: Will Labour keep promise of 50k Scottish clean energy jobs?

Labour's shadow Scottish secretary, Ian Murray, said: “Under the SNP and the Tories, infrastructure in Scotland has been left to crumble. 

“Both governments have wasted eye-watering sums on botched capital projects, from the Fergusons ferries to HS2.

Labour shadow Scottish secretary Ian Murray (Image: PA)

“Labour will end the decline and deliver transformative investment in green infrastructure with our clean energy mission.”

A UK Government spokesperson said: “The Scottish Government is currently receiving a record £41 billion per year funding settlement from the UK Government – the largest in the history of devolution and one that was further topped up by decisions taken at Autumn Statement.

“It can also borrow up to £450 million for capital investment on top of this record funding, and the UK Government has agreed to inflation-proof that limit going forward.”