 I welcome everyone to this, which is the eighth meeting of the Public Audit Committee in 2024. The first item of business on our agenda was to consider our work programme in private, which we have now successfully done. The second item for the committee to consider is whether or not to take agenda items 4 and 5 in private this morning. Is the committee agreeable to that? We are agreed. Thank you. The principal item on our agenda this morning is to take evidence on the Auditor General's briefing paper on investing in Scotland's infrastructure. I welcome our witnesses this morning who joined us in the committee room. We are pleased to say that we are joined by the director general of the Scottish Exchequer, Alison Stafford. Alongside the director general is Morag Angus, who is the chief surveyor in the Scottish Government. Dr Alison Cumming, who is the director of budget and public spending. Alan Morrison, who is the deputy director of health infrastructure, investment and PPE in the Scottish Government. We are also joined this morning by the interim chief executive of Transport Scotland, Alison Irvine. Alison, you are welcome. Peter Rickey, who is the chief executive of the Scottish Futures Trust. In light of the timetabling this morning, we have agreed that there will not be an opening statement that will go straight into questions. If I could begin that director general by asking you straightforwardly, is there any change to the Scottish Government's capital allocation following yesterday's budget statement? The short answer is no. There was no uplift for 24-25. Obviously, there is no change to the budget position that was agreed by Parliament only a matter of days ago. The outlook in terms of future years, the key statistic on that for you to be aware of, is that when we look over the period of 23-24 to 20-27-28, what yesterday's figures are showing us is that we will in Scotland be experiencing an 8.7% real-terms reduction, which is in the order of £1.3 billion. Is that with the block grant figure, because there are changes also projected out to the financial transactions sums that you get? That is the block grant. As far as financial transactions are concerned, the figures that are set out by the UK Government show those as nothing at this stage extending beyond 24-25 for financial transactions. It will be for a spending review to be conducted by the Westminster Government at some point before we get to the new financial year of 20-25-26, or a budget plan that will then give us more information when we get to that point. It is almost a technical question, but why, in projecting forward, can you make with any certainty a sense of what the figure is for a real-terms cook? We do not know what inflation is going to be in two months' time, never mind in two years' time, do we? That is a fair question, and these are estimates, and therefore estimates can change. They are drawn from the best data that we had available to us, which would be from the Office of Budget Responsibility publications yesterday, and they are updated also to take account of what is used as the GDP deflator, again, that was updated as part of the fiscal event yesterday. So you are right. It is the information we have, but it will no doubt vary, because these things will and do, but it is the best that we have to work on. That is where it is quite interesting, where the challenge comes in, with forward-looking on major capital programmes, where commitments are made, and there is a whole series of things that my operational colleagues that lead on these things are much more aware of about all the different stages you have to go through between the concept of an idea and actual delivery for citizens in Scotland, but it is the best information that we have at the moment. My other colleagues might want to come in further on the subject of yesterday's budget statement, but can I turn now to the Auditor General's report, and I have also taken into account a letter that you sent to the committee on 29 January, in which you addressed some of the points that I think have been raised in the evidence session that we had with the Auditor General. One of the recommendations that he made was the extent to which you provide clear and regular information, and the extent to which that information bears out whether or not it supports wider governmental goals. He also makes comment, I think, about improving reporting of individual projects and programmes to better highlight cost overruns and delays. Could you update the committee on where you are in responding to those recommendations? Yes, certainly. Just overall, in terms of the Auditor General's report, maybe it is worth me initially putting on the record the position on the overall recommendation. The Scottish Government accepts the principles of the recommendations that the Auditor General has set out in the briefing paper. Some of those recommendations can only be implemented with the agreement of other parties. That is where this morning's conversation is really helpful, because one of those other parties is with yourselves. The capital project reporting that we do was formulated and agreed across three parties when it was first set out as the design of what was helpful to be seen and tracked. The three parties that were involved in that were, at that time, the Public Audit Committee. It would have had a different name, probably at that point. Audit Scotland and ourselves in the Scottish Government. So, what we present and what we set out in our reporting of the infrastructure investment pipeline has actually been a format that was agreed, as I say, with those three parties. Very open to having another way of looking at how the material is presented. What we did in the infrastructure investment plan in 2021 was actually, again, by agreement with yourselves, set out to report at a different threshold. So, there are more things that have now been brought into scope that's reported. Major projects over £5 million and major programmes over £20 million. So, in terms of what's in scope, that's where the threshold has been set. That was obviously just to make sure that it was a manageable amount of data and actually set out something that was going to capture the main things that were happening in infrastructure investment in Scotland. So, what happens with each six-monthly report is that we update on the previous position. If there is different sort of information, if you're interested in seeing how all those string together from outline business case to full business case, those areas will be set out benefits realisation. If there's something that's more about trend data around these things, then, again, I'm very happy to look at that. So, as I say, overall, I'm happy to accept that and very, very much open to working with the committee through the clerks and with Audit Scotland to formulate what may well be the next iteration of our reporting formats. Graham Simpson, do you want to come in? Yeah, just quite a question. So, you mentioned projects over £5 million and programmes over £20 million. What's the difference between a project and a programme? Okay, so programmes often are made up of subsets of projects. So, some areas might be just leading out on one thing, very sort of specifically defined, that's a project, they'll work that through. Other areas will have a collection of activities and they will manage that in a programme way and that's the distinction really between the two. We'll probably come on to asking you about the A9 later, but would you describe the A9 as a programme or a project? So, I would describe it as a programme. The A9 dualling programme is a programme for a series of projects. That's probably one of your best examples actually, Mr Simpson. Okay. Well, as we're on the subject of roads, one of the, sorry, I'm not going to ask about a local bypass in my region or anything like that, but there is a broader point here which is actually probably more profound than that, which is how do you deal with competing interests? So, there is of course pressure for road building and road enhancements and so on, but yet they may not be carbon neutral or carbon negative, they may be adding to the emission levels. So, how do you reconcile those competing demands which are placed on you? So, the reconciliation has to take place with ministers around the cabinet table, ultimately trying to get the best fit between the objectives that have been set out. So, just thinking back over what are the means to setting those overall objectives, then what we had in 2021 was the infrastructure investment plan. That had previously been subject to consultation and a framework for what we envisaged would come for a capital spending review. So, the infrastructure investment plan in 2021 set out three core strategic themes for guiding investment decisions and you're nodding. So, you may well remember them, but just for quickness. But test me, director general. Of course not. I will just inform though that enabling the transition to net zero emissions and environmental sustainability was clearly one of them, driving inclusive economic growth and building resilient and sustainable places. Those were the three themes. As you can see, there's almost a little bit of tension potentially between those three and I suppose that is the role of government and reaching a judgment about the balance overall across these things. But that set the context and it also set the context for a capital spending review that was published at that time. There has been though two major twin challenges that has impacted on the ability to fund capital projects over that time from having all of that work. The twin challenge is made up of a lower than expected amount of capital grant from the UK government. We've already talked a little on that projected forward as well. And unprecedented levels of inflation. We've had a real inflation reshock. That's been caused by Brexit, Ukraine, supply chains, labour supply have all been affected. If you look at the ONS data for construction inflation that has been on quite as a say inflation reshocks probably the right word to describe it. It hit its highest in May, June and July 2022 at 10.7%. So prices have been hyped up and therefore the extent to which the public pound can cover these things has been really stretched. So you're saying so how do you deal with that context and the conflicts. And I suppose that's come out most starkly in the budget for 2024-25 between our spending review and the UK government spending review. We saw a reduction between those two events that took place in 2021 that was going to impact on this year that we're about to start 24-25 to tune a 435 million. It was part of a three-quarter billion cut that came through through that spending review. So this year has been particularly prevalent in having to make those difficult choices. So the context has been there. I'm going to ask Alison just to step us through that. What was the methodology? What were the sorts of things that the Scottish government then had to take into account with a constrained budget when arriving at some of those choices for the budget? Okay, thanks Alison. Just to, in terms of the 24-25 budget really that the starting place for us in terms of an annual budget and capital allocations is the extent to which expenditure is already contractually committed for multi-year projects or programmes and that clearly for legal reasons has to be the first call on the budget allocation. Beyond that for this year we looked at a category of essential spend which would be spend that while contracts were not in place there were very strong reasons that ministers considered they had little choice but to invest in those elements. Maintenance would be a good example of that. There would be a number of road maintenance projects for example where there are safety reasons to proceed with that investment and also in health and other sectors where we need to keep investing in the estate to keep it operating safely. That then leaves what we might describe the headroom to consider what is available for projects and programmes that are either not in those two categories continuing programmes or new projects from the pipeline that ministers are looking to commence and also there are some areas of capital spend that have come along since the IIP pipeline and an example of that where there was investment in 24-25 would be the expansion of free school meals and provision of additional capital to local government to support the works and kitchens and dining spaces that are required to support that. When we get into that consideration of headroom we will bring forward an assessment to ministers including how these different projects would align to the IIP themes and also to the three missions that were set out in the policy prospectus for the Government. Ultimately, we get there into a prioritisation for ministers between those missions and the different projects. An area of spend that was prioritised in 24-25 was to progress the build of replacements for HMP Inverness and HMP Barlinny resulting in funding of £167 million being allocated to the justice and home affairs portfolio to take forward those projects. The other dimension that comes in in 24-25 and in years since the co-operation agreement was reached with the Scottish Green Party is around the bute house agreement commitments but we do also look at how they would contribute to the missions. Obviously, there is a strong contribution there to what in missions is opportunity and in the IIP in relation to net zero and climate. Members of the committee will probe into some of that in a bit more detail. Before I bring them in, you will have seen in the evidence session that we had with the Auditor General back in November that he welcomed the single Scottish estate approach as a useful first step, but it was pretty clear from what he told us that it fell short of what was really required. In other words, operational buildings are not part of that approach or certainly weren't at the point that he was auditing of putting together the briefing. I wonder whether you have any reflections on that because I think his view and certainly one I think we as a committee would share is that it's important that the whole of the estate is considered about how it can be properly used, maximised. We know that and we've taken evidence in recent weeks about parts of the infrastructure, whether it is the prisons or whether it's the infrastructure in the health service, is reaching the end of its life and in many cases has gone beyond the end of its expected life. How are you approaching a single Scottish estate approach that takes into account the operational buildings as well? I'll bring in the chief surveyor in a moment, but just to say, we recognise that's important. You will also no doubt be picking up about the drive for public service reform and therefore part of that will be not only about the nature of services and how people work together, but also the facilities in which those things, whether it's facilities that can be re-purposed or re-used in a different way. So, as you will identify, there is a massive footprint across all of this that needs to be worked through. I'll hand over it to the chief surveyor who can say a little bit more about what's happening and what's the sort of phasing around some of this. Thank you, director general. And good morning. Thank you, convener, for the opportunity to share with you some of the good reasons behind the way that we've designed this programme. We absolutely understand the reason why the auditor general highlighted this point as Ms Stafford has said. It's very important that every element of the estate is used efficiently and is considered in a way that moves us towards having a net zero estate in the end. The short answer to your question is that different governance applies to different elements of the estate. In general, the body occupying a property is responsible for maintaining it and managing it, along with guidance which comes from their overseeing body. And with that comes responsibility to efficiently assess and use the estate. So whilst the programme, single Scottish estate, is not currently going to address operational property directly, there remains an accountable officer role to look at that efficient use of estate at all times. The programme is going to begin where it can have the most influence and impact, which is with the bodies that come underneath the Scottish Public Finance Manual. That requires ministerial consent to major changes for administrative property. Where we are rolling out location-based reviews, if there is a sensible opportunity, which will no doubt arise from time to time to look at operational property as well, then we'll do that. We may be able to deliver some of those wider benefits that the auditor general identified through working with bodies who sometimes have both administrative estate side-by-side with their operational property. It's very important that we work with public bodies and the rest of the public sector to deliver things that both reflect the deep knowledge and understanding that they have about how to deliver their services, which we cannot replicate and shouldn't get in the way of, reflecting local choices and local needs, but taking that umbrella approach to driving efficient and collaborative approach so that we get the best use out of ministers' estate. Can I just pick you up on that point about the different governance arrangements? Are you saying that they are an impediment that prevent you from doing it, or are you saying something different to that? I would say that it is a feature rather than an impediment. The way that the Scottish Government has established itself allows bodies the responsibility because it closely relates to the delivery needs that they have. It's important to be able to design an estate relating to the service delivery. Ms Stafford referred a few minutes ago to public service reform. The opportunity to look at things in a cohesive manner about how we deliver our services in the best way to the people of Scotland will flow from that governance. The overarching programmes, I'm sorry to use that word, is one of the ways that we can start to drive that more efficient umbrella approach. I think that cohesion is what we're after here. It's cohesion looking at the operational side as well as the administrative side to make sure we do maximise the opportunities. That's just if I may come in and I'll bring Mr Peter from Peter Inn. Don't call me Allison. The coherence point, but I think that the really important thing is around this whole area of public service reform. It's really important that the hard landscape is driven by what the service needs are rather than the other way round. I think the whole area of starting and working through, and there's, you will have the stats on the number of facilities there are, and it's a big project and programme overall that we're dealing with here. The administrative one is where there's at least a commonality of the types of facilities functions that take place. There is such a variety that takes place in service delivery. But that's not to say that where there is opportunity to do that there's been some innovative ways of creating new campus new areas that actually do bring together activities that bring synergies for all of the users that are in that space that actually are then creating also a very cost-efficient model. Peter, if I could bring you in on that from the point of view of that sort of operational activity. Of course, and I think this difference in governance is kind of it's just baked in, in particular between local authorities and Scottish Government, where in any place there are different responsibilities and that's why I suppose the Scottish Government and COSLA agreed the place principle. So I know we talk a lot about place that sort of sense of identity and public services and public buildings are a massive part of that. So the place principle says that all of those responsible for providing services and looking after assets in a place need to work together to plan with local communities. So that community engagement as well as just between the individual authorities they need to work with communities as well to improve the lives of the people and support inclusive sustainable growth and create more successful places. So the work that we do is wherever an investment is happening, wherever authorities are thinking about new assets, they work together in their place to make the best they can. There's some great examples. So in Clapmaninshire 75 police officers are now working in the council building place work in that area in Perthincon Ross, the 24 hour social work team for the council has moved into the fire station. So there is a role for big programs of work but there's also a role for these principles of any authority working together with its other service providers in the place and we like to broker those arrangements on a place by place instance by instance basis to get vote working better together as you said and it's really important at that operational level as well as the big national program aspects. Okay well look we've got more questions about these states and so on shortly but I'm going to turn to Colin Beattie now who's got some points to put to you. Colin The Auditor General's briefing paper says that it's difficult to get a complete picture of how the Scottish Government's directing funding to its infrastructure priorities now. This seems to be because there's limited supporting documentation on how projects are prioritised and I don't know if limited supporting documentation is some kind of code for poor quality record keeping or what but there's no indication as to how these projects contribute to the wider policy outcomes such as gender equality and climate change and so forth would you agree with that? A social answer is no and I'm going to ask Alison to come in with some of the very specific things as to what we are able to do. The Auditor General's briefing? I agree with the spirit of the recommendations but in terms of the is there data there that can point to how our budgets are having impacts on various things so that's the bit where I'm saying yes we do have some data on that I'm not saying it's perfect but there is some data and if I could bring in Alison she will be able to go through as a director of budget of some of the things that are set out in our budget and other supporting documents. You could maybe answer the first question I'm going to ask which is related to this which is what work are you actually doing to improve major capital projects and infrastructure investment plan including providing the information for example in tabular form which would make it easier to track over a period. Thank you Mr Beattie to deal first of all with the picture on that come back to how we provide the information on the prioritisation process and that element of how projects and programmes that are funded contributes to different outcomes I would point to a couple of publications in the first instance we are developing our approach to carbon assessment of resource and capital budget decisions we've published a more developed carbon assessment alongside the 24-25 budget that covered resource and capital spend that looked at a taxonomy approach as to how different types of spend contribute to carbon emissions we also published an updated carbon assessment of the 2021 infrastructure investment plan in January this year that seeks to develop our approach and recognise that we are we're still learning how to do this approaches are still developing internationally and across governments on how we do this so we do recognise that there's still improvements that we can make and on an annual basis that sets out how ministers duties in relation to advancing equalities and the fairer Scotland duty have been considered in decision making I would absolutely take the point that there's more that we could do to provide information on what has driven some of the individual decisions and how they relate to missions and the government's priorities and that's something that we're looking to incorporate what we're doing now to refresh the IIP pipeline and revisit the multi-year capital outlook so I would envisage that we would be publishing a greater level of information alongside that then you've perhaps seen in the past although there was information set out in the capital spending review on this but I take the point that it perhaps wasn't as granular through to the level of individual decisions and outcomes in terms of the improvements to reporting we are absolutely looking to the engagement that Alison referred to earlier with the committee and with Audit Scotland to look at how we can improve the reporting I'm very sympathetic to this specific point that was made by Audit Scotland colleagues when they gave evidence to you in November about information in tabular form and I think that's something that we could look to do so that we can see from somebody who's come into this role during while the reporting has already been agreed I can see that there would be benefits from being able to see in one report how things flow through from when it was first reported through to now and I think that there are some fairly straightforward changes we could make that would significantly help support yourselves as a committee and Audit Scotland at having that line of sight I think we've put the data out there but we've not necessarily put it in a way as easy to follow through and track through as it could be so we could be doing more of that effort so that others aren't trying to track that through themselves Just to pick out another comment from the Auditor General that it was difficult to track the progress and spending of individual IIP projects and programmes would you agree with that? Again I would I think we have put the information out there I think we've not always put it in a format that shows clearly how it tracks from one period to the next and that's something that through the enhancements we're looking to make to the reporting that I would very much be looking for us to address subject to the committee being content with that approach and colleagues at Audit Scotland Just a question about emissions reductions and equality considerations to what extent were they taken into account when developing the IIP and how will you weave them into consideration of the next IIP? We undertook carbon assessments and equality impact assessments as the IIP was being produced and published those alongside and we've enhanced the carbon assessment given that our approach is now more sophisticated than it was at the time of publication so they do inform and we've used an enhanced approach with ministers this year for the 24-25 budget round on equalities where we had we are drawing in equality considerations at an earlier stage of the decision making process and bringing these to ministers very often where when you look across equalities carbon and various other factors there's no there will be trade-offs and judgments for ministers to make is to prioritisation within that but we are increasingly bringing forward that evidence in a way that allows ministers to understand those trade-offs when they're taking those decisions and then to publish the result of those deliberations alongside the budget documents, a spending review document and the infrastructure investment plan Just one last application perhaps coming back to you Alison you said the Scottish Government had accepted all the recommendations but you've indicated that perhaps there's parts of the briefing that you don't accept and you've indicated one there for example are there other areas in the briefings that you have reservations about? I think that the main one is around just that balance between reporting what has been previously seen as the right balance of what is given a granular level of detail and what is left as other areas within programmes so for example the infrastructure investment plan actually required or set aside monies for Scottish water in the order of billions and the project pipeline focused in on around 800, 850 million because of that was very specific to some major works on water treatment centres so it's just I suppose it's just working through I think this whole area of the data and tracking it's just that distinction between what is provided and what will now be helpful as I said at the start very happy to work through what will now be helpful recognising that it was previously what was felt to be helpful before so we want to continue to be helpful and we appreciate that but the auditor we're very literal with what the auditor general says and we assume that he gets absolute access to any information documents and so on that are available but if he says that it's difficult to get a complete picture of how the government's directing funding to its infrastructure priorities we tend to take that at face value and I hear what you say does that mean the auditor general didn't get full access to all the information he needed which led him to come to this conclusion by all means follow up with the auditor general that this absolutely whatever data is requested it is shared so the auditor general I believe was drawing on indications and things that are there as if there's more things that we need to set out in publications that are going to be helpful then we are happy to look at that with you and with the auditor general okay I'll leave it at that thank you okay and thanks for that undertaking director general I'm now going to bring in the deputy convener, Jamie thank you convener good morning to our panel guests and thank you for your comments that's far I just wanted to follow on the conversation that we've started really obviously the first one is topical off the back of yesterday's budget I had a perhaps a specific question and it may be a matter of correcting my knowledge or otherwise but analysis which I think is publicly and widely available states that there was an ounce 295 million pounds of Barnett consequentials but this was new as opposed to as you rightly said capital my question first of all is there any flexibility in the system that would allow the Scottish Government to convert revenue funding to capital projects if it so chose to or desired to so there is a technical ability to convert resource to capital and then it will be spent on capital that's correct okay so that 300 million in theory could be converted to capital budget which I presume would go some way to fill any shortfalls that you've already projected in your what was at one point 1.3 billion so it could be is that something that you've had a discussion ministers about it could be and I would also point to that there was a resource to capital transfer assumed in the funding position for budget 2425 so the totals there reflect 89 million pounds transfer from the resource budget to the capital budget so it is technically a flexibility that's available in our fiscal framework to Scottish ministers what will be considered in the round is the pressures on the resource budget obviously at the same time and the resource consequentials that came through yesterday were in large part around addressing 2324 pay pressures in health so obviously there's resource budget pressures that are very closely associated with the reason why those consequentials were provided but these will be matters and factors that ministers will take into consideration in reaching a view on how those consequentials are applied absolutely and that's the decision for ministers but I guess what I'm getting at is that the figures you stated were forecasted real terms cuts whereas this is potential real cash as opposed to deflationary valued money so in other words that could go some way towards any potential deficit should it chose to be spent in that way and it's also new money, it's money that didn't exist yesterday morning for example it's presumably money that you hadn't already forecasted into your budgets it's correct that it's new money, it's actually a lower value than the in-year consequentials we received in 2324 so without getting too far into the details of the budget position the extent to which it is new money available for new things would be something that I think ministers would debate because they would point to its effectively making good part of the funding that they received on a non-recurrent basis in 2324 through the final supplementary estimates process and I think we just Alison's already set out how we are all working because the UK Government hasn't published specific spending plans beyond 2425 we are working from those office for budget responsibility projections but our analysis of those projections would point to there being actually small cash reductions in the capital allocation over that five year period so as well as the real terms reduction there is likely to be some small capital cash reductions as well if the OBR projections of UK Government spending plans are then borne out by subsequent decisions where are you getting this 8.7% figure from what's it made up of the briefing we have from the other general talks about a 7% forecast we've heard individuals talk about 10% you've today mentioned 8.7% that's a new one what levels for example of inflation future inflation are you basing that on based on the latest revised inflationary rates for example so the period that it's covering is 24-2027-28 the 8.7% real terms reduction is a calculation based on the data we had yesterday to do with inflation so you've heard a number of 10% so the 10% number is across the same time period that I've given you but yesterday's inflation changes moved the 10% to become an 8.7% real terms change so it's a moving faced in other words so as inflation if and as when inflation reduces that number itself reduces and already has reduced substantially in the last couple of days so is there the possibility that 8.7 could be 5 or 4 or 3 as things so you wouldn't expect me to speculate on a number I'm able to reflect to you what the Office of Budget Responsibility has provided as a calculation at the fiscal event yesterday and it goes straight back to the very first question from the convener about how certain are these numbers and they will vary so much extent and in what direction it's not for us to speculate we work with the Office of Budget Responsibility's numbers that's the latest and thankfully this committee has it hot off the press from yesterday's analysis we do and it's certainly moving in the right direction which is positive but that raises perhaps a wider question and that's when a lot of these projects were budgeted in the first place presumably we were sitting in a different world where inflation was extremely low interest rates were almost non-existent towards 0% to what extent do you think that when the Scottish Government various directorates were forecasting the costs of large infrastructure projects they were budgeting for any potential rise in interest rates in other words the total cost of a project was that based on the interest rates that existed at the time would it have been perhaps more prudent to factor in for example any potential rise in interest rates knowing that there was a possibility where do we sit against that how realistic were those forecasts so I think there's two things I would bring out the infrastructure investment plan was set out in February 2021 but when you track then what happened with construction inflation it was peaking some time after that and obviously the programmes and projects that were being worked on and developed to such an extent that they were then named in the infrastructure investment pipeline they had been developed to a level where there was at least some fair estimates of what those costs were going to be but I think it's fair to say that that inflationary shock and it is a shock it's of an order of magnitude change where prices of reset were of an order of magnitude driven by some really exceptional things that we've all lived through on the back of the pandemic but then Brexit, Ukraine impacting on supply chains energy costs for the production of some of the raw materials and so on there's been a combination of factors that have really sent that inflation level particularly rocketing during that time and that's meant the public purse hasn't gone so far you're asking is it reasonable that the level of estimates and the building in of some degree of variability or that those are often driven by industry standards that people draw upon it's an area where it might be useful to turn to a combination of Peter from his insights in terms of the construction sector I know more will have data that's through the procurement sector as well from the point of view of some very specific things on roads so if you'd like some more specific examples I will turn first off to Peter and we don't need to necessarily go through everybody but it might be useful just to get one I think other members will have specific projects that they may want to raise which might give you an opportunity to elicit some of that but I guess when you were looking at overall budgets of something that was developed five to ten years ago looking at the conception stage that simply buffer zones introduced into potential rising costs or inflationary costs rises associated with pure inflation or other associated rises it seems to be that all of that all that headroom has just has gone completely and that's the reason why you're now making prioritisation choices as opposed to just how do we pay for things we've already committed to Peter, do you want to come in on specifically the approach to shaping projects overall? I suppose every project that will happen over a number of years has to make an assumption as you've said for what the inflationary increases will be and when you get to a point of contract that's often crystallised in a contractor's price sometimes that contractor's price is subject to variability with inflation if there's an inflation clause built into the contract often it turns into a fixed price at the point of contract award that an assumption has to be made and as Alison's said when the IIP was published in 21 the three year inflation at that point in time which was 2021 was kind of in the order of 11% the expectation over the next three years the actual inflation over that period has been at least half as much again so there has been this shock of inflation that was not built into the estimates at that time anyone could argue we could have allowed a higher estimate you could always have a different estimate but the fact is the best estimates available at the time were used at that time and it has turned out that inflation over the period has been higher than those estimates suggested they would be just as inflation overall in the economy has been higher than anyone thought it would have been in 2021 so there has been a reduction in spending power from the money that is available and the construction industry at that point of the peak that Alison talked about was probably running ahead of general inflation but overall it's kind of been around about the same and so the spending power has reduced from what was anticipated there are very few large scale infrastructure projects that come under budget, let's face it all governments suffer from this issue that things do tend to overreach massively so I presume that's a common problem but I guess what I wanted to get to was a question that works out what on earth the Scottish government does next in terms of choosing where to spend its money I mean for one it still had a £5.9 million capital budget last year arguably that's reducing over the coming years it's a substantial amount of money but that's clearly not enough money to complete the projects that have been hitherto committed to so what process and this is something that the Auditor General did pick up on was critical of it's unclear how the Government chooses to prioritise infrastructure spending moving forward what process will it now go through to decide whether for example you choose to replace a prison or build a national treatment centre so that there will be a number of existing calls for both depending on which objectives you're trying to meet so it will be for Scottish Ministers to work these things through and I think it's a matter of just briefly reprising their reference points will be still the infrastructure investment plan because that's in place until the next one that was set out with the change of Government more recently and it will also naturally have to revert to the hierarchy that Alison set out as to the nature of decision making that took place for the budget for 24-25 so working through those contractually committed areas because obviously if a contract is in place and seeing a project through to its completion and is good to make sense from a use of public money perspective it will then look at those areas that are considered essential whether that's for safety, maintenance and Alison gave some very good examples and then be able to see where there is and it seems strange using the word headroom when we're looking at a shrinking and constraining position but where there is any flexibility then choosing where it sees as the priorities that it can move forward from its objectives overall Have you been able to or had to quantify the financial effect that the bute house agreement commitments have had on previous capital commitments in other words having to meet different objectives phrases like inclusive growth for wellbeing or other net zero objectives that didn't exist when the projects were initially costed Had you been able to actually calculate what the cost of those changes in government have meant So there is quite a lot of synergy is what I would bring out if I take you back to the three core strategic themes that were guiding investment that came from the infrastructure investment plan in 2021 Theme number one was enabling the transition to net zero emissions and environmental sustainability So, I think there's been a lot of what you might call sort of going with the grain in the discussions around the bute house agreement and how that works in terms of setting out the budget choices for 24-25 As Alison said DFM, the Deputy First Minister met regularly with representatives of the Scottish Green Party such that ultimately what was published was something that was felt to be progressing what was considered to be the shared objectives Okay, thank you Thanks Jamie, I'm going to bring in Willie Coffey Thanks very much, convener and good morning to everybody on the panel Slightly different perspective perhaps on the figures from yesterday I don't think that some of us certainly wouldn't think that a billion pounds cut to Scotland's capital budget is anyway encouraging Last week it was a huge cut to the ability of the Scottish Government to carry through the programme that we've outlined today Alison Coffey, you said a moment ago that the UK Government has no spending plans published beyond 24-25 Why is that? It's linked to the spending review periods that the UK Government has set and at present there's a current spending review period ends in 24-25 The indications we have and that would be borne out by what was presented yesterday is that it will now be after the next UK election before we see the new UK Government whichever party that may be taking forward it will choose what period it covers from 25-26 onwards with the general election cycle That's the choice that's been made in this instance by the UK Government Are we getting any indication at all Alison and Stafford whether we expect these figures to change in the coming years Clearly we're facing a major event this year it's called the general election and I know and you know and I heard around the table notice that there are always discussions between Governments and potential Governments of other parties about spending intentions and commitments and so on and so forth Are we getting any indication that this picture may change? So the only data we have to work on is still what's published by the Office of Budget Responsibility They are the overseers of the economic forecasts and also they will interpret the best they can in terms of spending plans a huge amount of UK resources actually go on serving UK debt and so there are quite a lot of things that take sort of priority before you get down to departmental spend and that's obviously the key figure that impacts and informs the settlements for devolved administrations So we will have the Office of Budget Responsibility numbers as the best but not necessarily by any means the fixed position to work with You set out a moment ago as well Alison about the way you approach the changing circumstances and you laid that out quite clearly but should the position change and you mentioned the priority you mentioned contractual commitments you mentioned health safety commitments and so on Are we in a position as a Government to adapt to that kind of changing circumstance to bring more projects into line or programmes into line or not? Is that the way we work and is that how you advise ministers about what can and can't be done if this financial picture improves in the coming years? We have regular discussions with the Deputy First Minister in her role as Cabinet Secretary for Finance around where are the things that we are not able to fund at all or to the level that they would have wished in the budget because of the funding position as to where if additional funding becomes available which could be from external reasons or could be if there's for some reason an underspend comes through against the existing spending plans where that money could be directed to have greatest impact The example I would give is that the Deputy First Minister has spoken several times giving evidence to Parliament on the 24-25 budget on how affordable housing the affordable housing supply programme would be a key priority for the Scottish Government should the capital position change to be able to put additional funding there and that's an example of a programme where it is possible to scale up spend in year if the circumstances would, the funding circumstances allowed You mentioned financial transactions I think earlier as well and we're not expecting any in the coming period we will have very much kind of links so we will have financial transactions funding in 2024-25 and that's 176 million interesting enough when we were actually modelling when the First Minister set out the National Infrastructure Mission which was in programme for government 2018 we were modelling and expecting in the order of half a billion per annum of financial transactions just shows you how things do change so the financial transactions allocation in 24-25 is 176 million and that's a 62% reduction in financial transactions since 2022-23 so just pause 62% it's a reduction of 290 million if you prefer it in numbers rather than percentages so as you're right that has been because it can only be used for very specific things as I'm sure you're aware it can only be used for rather than grants to people it's actually as a loan and therefore it has been a material source for the affordable housing programme and it's also been the means for financing the Scottish National Investment Bank for obviously doing onward investments and attracting more investment into Scotland too. Just for the benefit of us and I'm sure everybody else, where does a financial transaction money come from or is the source of that? So it's part of the UK Government budget settlement so it's calculated again on consequentials but it has very specific conditions as to how it can be used and that's as I say it's not, unlike a block grant which we then can through other bodies whether it's Transport Scotland that can go and actually spend and invest directly to pay for contractors the financial transactions is actually allowing loans to be made outside the scope of the public sector so it's another way of actually interacting with private sector investment loans that might actually be partnered with other private moneys to enable things to be invested in in Scotland. In heather to how have we deployed the financial transaction money? What have we done principally with that? So a lot is affordable housing and then the other one is through the Scottish National Investment Bank they have actually been using it to invest and if you would like a few examples if you just bear with me I could give you one or two as to where that's been used. Of the Scottish National Investment Bank portfolio investments we can look those up elsewhere. Willie? It's as broad as I can make it to retain interest of the committee about where that source of funding comes from and what the impact is and the general direction spend that is aimed at and clearly the impact that it will have if we don't have it. I'll leave it at that at the moment convener and my other colleagues to ask their questions obviously. Thank you very much. Graham Simpson. Thanks very much convener. Ms Stafford you've been asked a couple of times about the capital grant just to have it clear in my own mind what was the overall block grant and was it up or down on last year? Are you going to find it? Have you found it? Is it the total figure? We've got the capital in front of us we're just getting there. Sorry I'm just making sure I've got the right sheet as well. UK grant allocation 23 24 5574 and UK grant allocation 24 25 5636 Revenue That's capital on it. Everything. What's the total block grant? Sorry you're asking for the total block grant. The total block grant. Overall or capital? Overall everything. Capital and revenue. Okay sorry. So for 24 25 59 59.7 Billion 23 24 60.3 Billion You would say that's gone down? Sorry According to your figures it's less. 24 25 is less 23 24 Okay So you know what we're referring to so that and it might be helpful then for committee clerk as well it's page 106 on the Scottish budget 24 25 publication from December 2023 Alex B Yes Right So looking at the the capital programme you Mr Stafford have been quite keen to blame everyone else by the Scottish Government for a series of delays and pauses now we as a committee we had a a list of projects from the order to general that was dated March 2023 you have since provided us with a very helpful update in your letter of January 2024 and just going through that there's still delays you know there's projects held up, costs have gone up it makes for pretty grim reading but you cannot say this is a one year problem because delays in projects have been going on for some time so to respond first of all to your question Mr Simpson about the Scottish Government laying blame elsewhere I think I've been clear in my advice and my responses to the questions so far that the capital delivery has had two particular challenges in the programme overall and it has been very much about the overall budget so we have seen reductions in the budget and we have seen construction inflation those are the things that I have particularly cited as being the challenges for managing a capital budget I do accept that capital projects and programmes do get subject to delays absolutely everyone tries really hard to minimise those some of those delays do happen because of appropriate due process whether that's with consultation with local citizens whether it's about appropriately spotting an opportunity and scope leading to change on the back of some of the things that we've talked about in terms of operational areas so first off I would just want to bring some balance into this about the different aspects as to how capital budgets can be utilised and the differentiation between that and then trying to get the most effective delivery when those capital projects are being taken forward I'm all for balance but if we look at say the A9 for example the reason that's been delayed is because of dithering in decision making and that goes back years and years you can't say you couldn't possibly argue that the reason for the A9 delay is because of a one-year budget decision elsewhere could you? so I think this is probably the most appropriate point for me to bring in the acting chief executive transport Scotland because she will have on the A9 so if I may I'll bring in okay thank you for the question in relation to the A9 so you'll be aware Mr Simpson that the A9 has been subject to quite extensive inquiry by the petitions committee and in fact I was at the petitions committee along with some other former chief executive transport Scotland a few weeks ago as is the cabinet secretary for night zero and transport Henry McAllan at the time so there's quite a lot of information out there in terms of the position that we're at with the A9 and where we're going to go to next but just to pick up on your point around dithering in relation to the A9 I would highlight that at a £3 billion project in 2008 prices the length of it, the complexity of it the etc etc that was a very complex and challenging programme to deliver there have been extended amounts of consultation with communities and landowners along the routes which has resulted probably in a slightly longer time period than we would have anticipated in 2008 that would have taken to deliver it however I would say that one of the most fundamental reasons for the position that we're now at in the A9 has been the change in the status of the NPD sort of revenue model that we had been using previously for some of our PPP schemes which came about, and Peter you can correct me if I get the date wrong but it came about in around about 2014 and therefore there has been work that's had to be done across Scotland but across Government on identifying opportunities and ways in which this could be funded that's quite complex as has been set out so the programme that the cabinet secretary announced in December last year which sets out our revised programme sets out in quite a lot of detail what our plans are in respect of that gives the revised completion date of 2035 it sets out how some of those earliest, what the intention is that some of those early next projects will be funded and it makes reference to a decision point in 2025 about a further use of the mutual investment model sorry Mr Reiki did you want to come in there you were mentioned I was just to confirm the date around the time at which the NPD ok I'm going to I'm going to ask you about this funding for the A9 but we'll come back to that if that's all right time permitting well convener actually how much time do we have left for this session? well around about 15 minutes I'll be very quick then that's not 50 minutes for you solely no I understand that we could I want to ask about what is the refresh of the rail decarbonisation plan because that's mentioned in some of the documents so you'd be aware that there was a real decarbonisation plan published in 2021 however as a result of the budget changes I think stemming from 2022 and which impacted on some of the projects within that overall programme we are taking a look at how best to deliver that decarbonisation of that part of the assets that we have is that a code for delay? so I would say that's code for funding decisions that were made in 2022 which impacted on our ability to deliver that plan and I think that's set out in the major projects reporting information that I think we should have essentially it means that things like the five project borders railway decarbonisation will take longer it means that the timescales over which those will be delivered will be different because there's no funding available to deliver them can I ask about the east cobride line because that's a pretty major project the work started could you confirm that when it's about electrifying that line and extending a loop I don't want to get into that level of detail but can you confirm that when that works complete there won't be electric trains running on it initially sorry that there won't be electric trains running on that initially I'm not sure where you've got that information from Mr Simpson not scot rail so we are electrifying the routes the barhead section opened in December this year there are electric trains running on that I'm surprised to hear that scot rail have said to you that there's not going to be electric we'll take that offline so going back to the A9 there's a serious question about how it's going to be funded so a number of sections of the A9 are going to use this funding model which is very very similar to PFI and that's something that the government says it's against how can you have any level of certainty that these sections will actually attract the funding first of all no decision has been made what the commitment made by ministers was that in 2025 we would have a decision point on the procedures for the remaining sections of the dualling programme I think that you'll have seen in various other forms of evidence that at this point in time the mutual investment model just in terms of the cost of borrowing that that is not it doesn't provide us with a value for money opportunity so the programme that's been set out by ministers in Parliament sets out that there will be a decision point at that time at this point the earliest completion date and the programme that's set out assumes that that decision will be taken then a decision on whether to proceed with that model of funding and at that point ministers will face a choice on prioritisation across not only the transport portfolio but also the wider capital programme so a huge level of uncertainty around the funding model and whether those whether those actual projects can go ahead so I would point out to some of the evidence that Alison Cumming and Alison Stafford have already given you the way in which we're operating at the moment we have a one year forward look in terms of what our future budget will be in our capital programme we provide advice to ministers on the best possible options that they can have but the fact that we're having to operate within that at this point in time with no forward spending plan limits everybody's opportunity to make those longer term financial decisions and the information that we've presented on the E9 is as credible and robust as it can be within the limitations of the information that we have at this point in time do you agree with me that there's a great deal of uncertainty around whether we can actually use this funding model or not so at this point in time I can say to you that ministers have chosen not to use it and what I can say is that there is a decision point that they will make in 2025 as to whether or not what funding model they would make we rely on to a certain extent the financial advice and the financial information that is provided to us by a vast range of different sources and I'm not in any better or different position to come up with a forecast on what might or might not happen at that point in time so you've said that ministers have chosen not to use that funding model but I've said that ministers have chosen at this point in time in terms of the next three projects not to use that funding model following that there would be a decision made in 2025 as to which is the most whether or not mutual investment model remains appropriate convener in the interests of the very short time we have I'll leave it there thank you we've just got a couple of final areas we wanted to put to you and I'll put the first of those to you and that's this whole thing about the expiry of PFI contracts and what deliberations are made looking to those what support is given to the organisation whether it's a local authority what support is given to them to make that transition and do you factor in alternatives to returning it in-house do you consider extending the role of the private contractor on the PFI contracts if it's an operational matter do you consider putting it out to tender when other private providers might come in or is the default position of the government that those contracts will return in-house so it's about the assets then moving into public ownership so that's the sort of transition and that's where we turn to the expertise in the Scottish Futures Trust to support that transition working with the local partners in that particular area so Peter you were asking particularly about what the nature of support is if you could take us through so we've got a small specialist team that works with public authorities principally on accommodation projects so our focus is the accommodation projects which would be hospitals schools operated by local authorities also a couple of colleges in the prison and we're really encouraging the authorities that hold those contracts to look at least five years in advance about their options for the end of those PFI contracts and we publish guidance in 2020 on a programme approach to that because there are a number of common characteristics that individual public authorities will face and that of course includes as I said local authorities we provide a support in the form of an expiry review and by the end of the working year that we're about to enter FY 24-25 we would expect to have done one of those reviews for all of the accommodation projects that are going to expire this decade that's I think about 20 projects in the accommodation projects in this decade out of a total set of around about 40 projects in the next 10 years so there's an awful lot of expiries coming up and we provide guidance on how to understand the asset condition better and particularly emerging information on the data that needs to come back and be handed back with the asset because it's no good just getting a building if you don't have all of the records and information associated with that also as you've said there'll be a number of staff involved in delivering those contracts that may have to transfer to different organisations or indeed self provisioned by the authority that has to be planned for and most authorities deliver their facilities management services through a combination of direct service provision themselves and some contracted out services maybe for specialist provision like Lyfts for example and every authority will have to consider when it's got a PFI project coming to an end how it fits the future maintenance of that asset into its portfolio of existing facilities management that's for the individual authority to determine our support is to help them think through the process involved so we've got a template document for roles and responsibilities for the actions that they need to take and consider in that five year period and to say our team is only three people but we try to work with all of those public authorities that have accommodation projects coming to an end them in the best position we strongly recommend around about five years out possibly more for the acute hospitals the complex projects is the time to start looking now that work will be subject to the same resource pressures as all other work is across the public sector but our guidance is really there to help them manage a smooth hand back because it is a resource intensive phase similarly to getting into the contracts to start with being a resource intensive phase Thank you and that was a very useful introduction to that whole area and actually sparks off in my thought process that we might want to have an evidence session just on that because it is quite a big area and it's going to get bigger isn't it over the course of the next few years we are short of time there is a final question or two from the deputy convener about maintenance backlog and so on state issues Just before I got into maintenance I gave Mr Morrison the chance to say something I'm sure he didn't want to get out of bed early for nothing I did have a very specific question I believe that you are in charge of health infrastructure investment can you perhaps give us some comfort that the six remaining of the 11 promised national treatment centres will go ahead because the briefing paper from Audit Scotland shed some doubt on whether that is the case All health projects in development at the moment are on pause and that includes the national treatment centre so we don't have a timeline for these projects at the moment and they would need to be once the budget position improves it would then be we would have to prioritise within our own portfolio as to where they would be in terms of our priorities against projects that have been paused at the moment so nothing's going to be built so it's ultimately for ministers to decide that but at the moment if you were to ask me when it would restart I don't have a timeline for that I'm sure we can delve into that further that's a worrying response On capital backlog the one thing that struck me is really concerning is on page 18 of the general report bygraph 26 the Scottish Government cannot provide an overall figure for the level of capital maintenance backlog across the Scottish estate is that because the information is not available or the number is available it's just too scary because we know for example the NHS backlog is over £1 billion I've heard figures around half a billion for scotch file and rescue I'm sure the prisons and police estate and courts and so on and things like uncovering rack in buildings which we're still doing almost on a weekly basis are we looking down the barrel of a complete disaster in terms of maintenance backlogs that will just never ever be able to be caught up that's perhaps some question from Ms Stafford so you will not be surprised that the infrastructure investment plan in 2021 actually set out the aim to double the spending on maintenance and part of that hierarchy that my colleague stepped us through a moment ago about how the choices of how the 24-25 budget allocation was actually applied did include maintenance so it is still seen as a priority for sure and it is a combination of where that can be made good but also it will be part of estate replacement strategies as well for some areas and that is worked through each individual programme of activity based on what we've just heard there is no estate replacement strategies at all on pause so you've got an accumulation of a backlog which is immense and you've gone at great lengths this morning to talk about the 24-25 budget which absolutely is right to look at what we have in the purse at the moment but backlogs by their very nature are an accumulation of under-investment over a substantial period of time in some cases, some of these so is it the case that we just simply didn't fix the roof while the sun was shining and that's left as in this precarious position of having billions of pounds or for backlogs that we'll perhaps never recover from? Again I think I will go back to the phrase that I used with Mr Simpson around balance so ministers are alive to the issues and they are trying very much to strike the right balance between maintaining existing estate and where it's needed to replace it and take forward the advancement I think we all agree though that money that's not there cannot be spent But it was there, that's the point It may not be there now but it was there for many years So actually our capital budgets when you look back were much much different to what they are now and so and there were other areas that were taking absolute priorities that were around safety Queensferry crossing is one example that was a priority project that needed to be taken forward and also it was one of those budgets and one of those projects that was brought in in time and on budget just to keep some balance again in our conversation today So I think it's just relatively recognising that the judgments that ministers have taken over the years has been seeking to try and get the best use of the public pound between things that you know, like the Queensferry crossing which had to be replaced from safety perspective that took a significant proportion over a number of years of the budget at that particular time and so those judgments have had to be weighed up I think ministers are very much remain committed to the sorts of things that you've heard them commit to but at the same time they're also needing to be realistic about what can still be done with the monies that are available and so we are right out of time and I apologise that you might be exhausted we haven't exhausted our questions and we might wish to put some of those down in writing to you as a follow-up but thank you very much to Alison Stafford Alison Cumming, Peter Reakey, Alan Morrison Alison, Irvine and Morag Angus for your contributions to the committee this morning it's been very helpful and it's part of a continuing dialogue that we have around many of these areas which are very much in the areas of interest of this public audit committee so I will now draw the public part of this morning's session to a close and the committee will go into private session thank you very much