Scottish Government to make additional £1bn available for infrastructure through non-profit distributing

Out-Law News | 02 Apr 2014 | 4:16 pm | 2 min. read

An additional £1 billion will be made available for investment in infrastructure by the Scottish Government over the period running to 2019-20, the Scottish Finance Secretary has announced.

The additional funding has been made available by extending the non-profit distributing (NPD) funding method, a not-for-profit alternative to the private finance initiative (PFI) developed by the Scottish Future Trust (SFT). The announcement came as part of a statement to the Scottish Parliament covering the financial implications of the recent UK Budget by the Finance Secretary, John Swinney.

Although details of the additional projects that will be supported by the funding will not emerge until the draft Scottish budget is published in the autumn, infrastructure law expert Drysdale Graham of Pinsent Masons, the law firm behind Out-Law.com, said that the announcement was "very good news" for the Scottish construction industry.

"The final project in the Scottish government's current £2.5bn programme, Kirkwall Care Village, is due to come to the market by the end of Q2 2014, so this new pipeline of projects is timely," he said.

"Acute hospitals, college and transport projects are likely to feature in this new £1bn programme, with primary and secondary schools and community primary healthcare projects continuing to be procured via the Scottish Future Trust's hub initiative," he said.

The NPD model was developed as an alternative to the PFI model by SFT, the body set up to improve the value for money of Scottish public sector infrastructure projects. It has since superseded PFI in Scotland, according to the SFT's website. NPD allows investment to be made in large-scale construction projects before capital becomes available and is a 'not for profit' model, through which contractors and lenders are expected to earn a normal market rate of return. The proposed new investment falls within Scottish government affordability caps for expenditure funded through future revenue.

The SFT will now assist various public bodies to develop robust business cases for individual projects, according to Swinney. Details of the programme of investments which will be taken forward will be set out in the Scottish government's draft Budget in the Autumn, he told the Scottish parliament.

"[The] programme will build on the successes of our current investments, delivering colleges, schools, roads, hospitals and community health facilities throughout Scotland," Swinney said in his statement. "It will provide the construction sector with the long-term certainty of a future pipeline of work. It is also affordable within the headroom of the 5% limit that we chose to put in place to ensure that we can deliver now for the economy without overconstraining future budget choices."

"The current revenue-funded programme is now delivering strongly. Projects worth £650m started construction in 2013-14, and we expect all the other major NPD projects to follow suit in the coming financial year ... We are keen to maintain that positive momentum and to extend the programme further. We know that every additional £100m of construction activity is estimated to support more than 1,300 jobs. We also get the long-term benefits of using those assets," he said.

In his statement, Swinney also set out the Scottish government's spending plans for the 'consequential' funding provided from the UK Budget under the Barnett Formula. These included an extra £31m over the next two years for local government to help develop the capital infrastructure needed to increase early learning and childcare provision, funding for free school meals and measures to mitigate the effects of the UK's welfare reforms, and an additional £10m of support for the Scottish Help to Buy programme.