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What next for Scottish infrastructure investment?

Mark Johnston

For those in the Scottish infrastructure sector, is the referendum decision good for business?

The votes are in, the Union remains intact. For those involved in the development and infrastructure sector in Scotland, the debate has now moved on – is the referendum”‘no” decision good for business?

It is still too early to conduct meaningful statistical analysis of post referendum construction sector activity. We are instead reliant on the coffee-shop barometer of professional gossip.  What was clear for some time, though, is that the Scottish development sector had stalled, relative to its close cousins in other parts of the UK. The uncertainty of the vote and its implications discouraged people from making investment commitments. Before 18 September, contracts were being exchanged, subject to the outcome of the referendum.

Now there is a flurry of activity. Architects, engineers, planners and agents are reporting instructions to proceed with previously mothballed projects.  This certainly suggests that a decision has been good for business. But it is only when wider stock is taken of public announcements recently made by the likes of BAE Systems that it becomes apparent that the decision may also be good for business.

For Glasgow, the outcome secures the delivery of a “City Deal” infrastructure investment package totalling more than £1.1bn. The funding comes from three main sources  – the Westminster and Holyrood governments, which will contribute around £500M each over a 20 year period, and the participating local authorities in the Clyde Valley area which will contribute a further £130M. Glasgow is the first Scottish city to receive City Deal infrastructure funding and the money is to be used to improve the transport network across the region, to unlock key development and regeneration sites, and to improve public transport.

But the funding is not a £1bn bonanza to be spent on vanity projects. It comes with an obligation to demonstrate the positive impact of funding against an agreed set of performance measures. To be released in 5 year instalments, it will depend on a series of ‘Gateway Reviews’ which must demonstrate that the most recent round can be positively measured against the performance indicators. 

The City Deal Infrastructure Fund is a project-based initiative and is set to overcome a series of obstacles that, until the announcement of the City Deal, were considered to restrict the potential of the region. The most tangible of these is the much vaunted, and previously shelved, rail link to Glasgow Airport, but the funding will also remediate and unlock around 800ha of new employment sites on the Clyde waterfront and the West End. These strategically important sites will be brought back into active use for the first time since the dock closures of the 1970s. The land is earmarked to support growth in the life sciences, media and creative industries.

The second strand of the City Deal tackles unemployment and delivers job training schemes for the Clyde Valley region. The government and the local authority partners will be funding investment to the tune of around £24M in these initiatives. The catalytic effects of this investment will be felt well beyond the confines of the Clyde Valley.

Discussions with our clients investing in Scotland mirror the confidence generated from the city deal and the general return of positivity to the development sector. Clients can now make commitments secure in the knowledge of which regulatory and financial systems will be in place.

The uncertainty of the referendum may have suppressed demand, but it was clear that, whatever the outcome, growth would return. Had a “yes” vote prevailed, confidence would probably have swiftly returned to the public sector development market as the government sought to implement new initiatives and make good the promises of the independence campaign. As it is, the private sector looks likely to lead the charge, aided by public sector investment in infrastructure. The questions on devolution will need to be resolved in this context. It is incumbent on the Westminster parties to provide for continuing certainty by making good on the promise of increased devolution and fiscal autonomy.

For Scotland the outlook for growth is positive.

  • Mark Johnston is a senior associate in the Glasgow office of Peter Brett Associates

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