Scottish Government

CHAPTER 4: SUPPORTING JOBS AND COMMUNITIES

Public sector capital investment

The Scottish Government has accelerated public capital expenditure in order to maximise our support for employment. This has provided much needed support, particularly for the construction industry. That sector has witnessed a strong recovery during 2010.

Public sector cuts The public sector has played a key role in supporting demand during the downturn but that role is threatened by the spending cuts imposed by the UK Government. While a credible budget strategy is vital in returning the public finances to a sustainable position, there is considerable debate and concern over whether the scale and timing of the planned cutbacks pose a risk to the recovery.

The Scottish Government Budget alone is forecast to be cut by £1.3bn in 2011-12, which coupled with the wider impact of the UK Government's consolidation plans, implies a significant reduction in aggregate demand.

European funds Much of the activity towards the Economic Recovery Plan has benefited through support from European Structural Funds. Scotland was allocated €820m from the European Regional Development Fund ( ERDF) and European Social Fund ( ESF) for the programme period 2007-2013. Additionally €98m has been made available to support activity though the European Fisheries Fund ( EFF) over the same period.

In response to the downturn the Scottish Government committed to front-loading spending to alleviate the impact of recession while improving the long term competitiveness of the economy. Most of the funds available have now been allocated - to over 600 projects across Scotland. Officials are working with stakeholders to ensure that where there is any underspend it can be recycled to ensure that Scotland optimises the use of the funds available.

The ESF is used to support people who are unemployed or economically inactive to prepare for a move into work, and people who are already in work to upgrade their skills. By the end of 2010 the projects had supported over 100,000 individuals. Among the initiatives supported in response to the recession was the extra support for Modern Apprenticeships though ScotAction.

The ERDF has supported measures to promote research and innovation, to support urban regeneration and rural development (for instance through physical infrastructure) and to improve business access to finance. £67m ERDF funding supports the loan and equity funds managed by the new Scottish Investment Bank. The past year has also seen the creation of the JESSICA holding fund to support urban regeneration. The projects supported by the ERDF are forecast to create around 20,000 jobs.

The EFF is used to support the fishery catch sector, aquaculture and fish processors. To date we have awarded grant funding of over £48m which has generated £104m investment, supported up to 5,700 jobs, and created an additional 360 positions in the fishing industry. This has underpinned Sustainable Economic Growth in rural and coastal communities through;

• delivery of the Fleet Resilience grant scheme with £8.2m assistance;
• provision of £13m support to the Processing sector in line with the National Food & Drink Strategy; and,
• supporting Scotland to become the third largest producer of farmed Atlantic Salmon.

The European Agricultural Fund for Rural Development ( EAFRD) will contribute €679m to the Scottish economy over the 2007-13 period.

EAFRD funding is delivered together with SG match funding through the SRDP (Scotland Rural Development Programme). This Programme helps deliver improved business viability, environmental benefits and thriving rural communities throughout rural Scotland. Funds are distributed through a number of schemes including Rural Priorities, which since 2007 has committed £400m worth of support to projects. Over the last 2 years some £25m worth of support for rural businesses was brought forward to help stimulate economic recovery.

The Scottish Government also administers the EU funded General Fund for Agriculture which contributes around £470m each year to the rural economy.

Schools for the future The £1.25bn school building programme will see around 55 schools rebuilt or refurbished between 2010 and 2018. Thirty-seven school projects across Scotland, which will be delivered via a mixture of capital and revenue financing, have already been announced. The programme, which is being co-ordinated, facilitated and managed by the Scottish Futures Trust ( SFT), will boost economic activity by continuing to support thousands of construction jobs, and help families, young people and communities who will benefit from new, good quality, sustainable schools.

Supporting regeneration and growth

TIF Tax Increment Financing ( TIF) is a means of funding public sector infrastructure judged to be necessary to unlock regeneration in an area, and which may otherwise be unaffordable to local authorities.

The overarching goal of TIF is to support and guide the increasingly limited public finances available for assisting regeneration by helping to lever in additional private sector capital. The TIF model allows for initial borrowing through the Public Works Loan Board to fund the infrastructure to be repaid through predicted future non-domestic rate revenues resulting from the local authority's investment.

In September 2010 the Scottish Government gave provisional approval for the UK's first TIF scheme at Leith Harbour in Edinburgh. The scheme will take forward four enabling infrastructure projects which the City of Edinburgh Council believes will unlock 500 acres of waterfront land. These enabling projects are:

• a new road link between Seafield Road and Constitution Street to improve access to the development area;
• a public esplanade outside the Ocean Terminal shopping centre to bring new commercial outlets to the waterfront;
• a new pier for the Royal Yacht Britannia and visiting cruise liners; and
• new lock gates at Leith docks to facilitate cross-Forth ferry traffic.

The total cost of the four infrastructure projects is estimated to be £84m. They have the potential to unlock an additional £660m of private investment, creating up to 4,900 full-time equivalent jobs. The scheme is expected to commence in 2011-12 with a significant investment being made before the end of the year.

Urban Regeneration Companies Scottish Government remains committed to supporting the regeneration and development of our most deprived areas. A funding package of over £31m has been secured for Urban Regeneration Companies in 2011/12, with priority being given to Clyde Gateway URC to maintain the delivery of its regeneration strategy for the East End of Glasgow, and secure an economic legacy for the 2014 Commonwealth Games. The funding will support the delivery of a number of priority projects that maximise economic return and job outcomes.

JESSICA Ministers signed a funding agreement with the European Investment Bank ( EIB) in June 2010 to establish a £50m JESSICA Holding Fund in Scotland. This has been jointly financed by the Scottish Government (£26m) and European Commission (£24m). The Holding Fund will invest in one or more Urban Development Funds, run by specialist fund managers, which will offer debt or equity investment to projects capable of generating sufficient revenues.

The EIB is currently running a procurement exercise to identify the first Scottish Urban Development Fund. This will be complete by mid-2011, allowing investment to be channelled to projects later in the year.

The JESSICA model will be a major tool to help deliver regeneration through times of economic uncertainty.

Maximising the community and economic impact of housing

Supporting housing supply will be crucial to Scotland's economic recovery. Scottish Government analysis estimates that every £100m additional investment in the construction of dwellings in 2011/12 would support around 1,600 full time equivalent jobs within the Scottish economy. In addition, research ¹⁸ indicates, for example, that investment and activity in the owner-occupied sector generates positive employment and consumption impacts and that the private rented sector makes an important contribution to labour mobility, thereby helping to remove constraints to economic growth. Investment in the maintenance and energy efficiency of housing could also unlock significant financial investment and promote economic growth, whilst helping to achieve our ambitions on climate change.

Affordable housing In total, a record £1.7bn will be invested in affordable housing over the 3 years 2008/9 to 2010/11. Next financial year, we will spend an estimated £224m on housing projects approved in the current Affordable Housing Investment Programme but not yet completed. All of this investment will continue to support the construction industry.

£80m has been allocated to local government to kick-start a new generation of council house building: the first such government funding in 30 years. Across three rounds we have allocated funding to support nearly 3,300 new homes across 23 local authorities while supporting around 2,000 construction jobs. This will help to reverse decades of decline in council house building.

The squeeze on public finances imposed by the UK Government is however such that dramatic change is required in the way in which we support and finance new affordable housing development. Traditional approaches and models will no longer be appropriate. The Scottish Government is therefore leading the way in the drive for radical and innovative housing supply models which can lever in significant levels of private finance and unlock new sources of funding. Our housing strategy and action plan, published on 4 February 2011, sets out our ambitious agenda for the next decade and the action we will take to increase the effective supply of housing across all tenures, promote flexibility and choice within the system ¹⁹ and improve our homes and neighbourhoods.

National housing trust The National Housing Trust ( NHT) represents a key example of our approach and is expected to lever in around £130m in housing investment for every 1,000 homes procured. The initiative will not only support the provision of much needed affordable homes, but will also kick-start construction on mothballed housing sites and support jobs in both the construction sector and the wider economy. Approximately 1,600 jobs in the construction sector and the wider economy will be secured for every 1000 new homes built through the NHT.

The Scottish Futures Trust, in partnership with a number of local authorities, is currently procuring homes in a first phase of the initiative. Taking account of the response to this, the Minister for Housing and Communities has given local authorities across Scotland the opportunity to participate in a second phase. We aim to provide around an additional 1,000 much-needed homes for affordable rent through the NHT.

Innovation and investment fund Next financial year we will guide our investment in new affordable housing through a new £50m Innovation and Investment Fund ²⁰. The fund will consist of 3 streams: one open to councils; one open to housing associations; and a third for innovative schemes, open to all sectors, including the private sector, for all types and tenures of affordable housing.

The fund will therefore create opportunities for all housing suppliers and support new models which maximise value for money, innovation and collaborative working. In 2011-12, we expect to award at least £20m to councils, at least £20m to housing associations, and up to £10m to innovative projects by all sectors.

Successful bids will meet priority needs, secure quality and achieve an optimal return for the Government's investment. The fund will leverage the Scottish Government's resources significantly to secure a higher level of additional funding per unit than ever before, delivering more affordable homes from Scottish Government investment on a pound for pound basis.

Shared equity Throughout 2010/11, the Scottish Government has been trialling a new £2.5m initiative. The New Supply Shared Equity ( NSSE) with Developers scheme will help over 100 first time buyers on low to moderate incomes purchase a home that is affordable to them. Participating developers take equity stakes jointly with the Scottish Government in unsold or partially built private stock. In 2011/12, the Scottish Government plans to build on the success of the trial scheme and has allocated £8m for a further funding round to increase choice and opportunities for those looking for a home and to support Scotland's house-building industry. We will also engage with lenders to encourage more to support shared equity products and explore alternative funding sources for equity loans.

In addition, recognising that the recent LIFT Evaluation concluded that the Open Market Shared Equity scheme has been successful in targeting first time buyers, the Scottish Government has allocated around £5 million to the scheme in 2011/12 to assist these buyers access home ownership. A portion of the allocated £5m budget will specifically be allocated to assist first-time buyers in rural areas.

Private finance In order to accelerate the supply of private finance into housing, we are also acting to facilitate or encourage the removal of barriers to investment.

We have therefore amended the 20 year lease and standard security rules in order to enable social landlords, rural housing bodies, investors and the construction sector to develop innovative approaches for new housing supply based around longer-term leasing arrangements. Those changes will also provide pension funds and other institutional investors with the opportunity to make secure, long-term investments into Scottish affordable housing. The sector's low risk, reliable income stream and strong regulation makes it attractive for fixed income investment and it can offer competitive returns as an alternative to conventional loan finance.

We will also continue to exert pressure on the UK Government to take action on Stamp Duty Land Tax and REITS needed to unlock more significant investment in Scotland's Private Rented Sector ( PRS). We are committed to enabling the introduction of new measures to re-invigorate investment in the sector and want to work with pension funds and other investors to attract new investment. Where funding is required to stimulate growth in innovative approaches, such as expansion in leasing arrangements between PRS landlords and social landlords, we will explore the potential to make new catalyst investment available from government.

The Scottish Government has also called on the Financial Services Authority ( FSA) to ensure that its forthcoming proposals on responsible lending strike the right balance - preventing irresponsible practice, but without preventing credit-worthy buyers from getting a mortgage or trapping existing homeowners into unsustainable and unsuitable products.

Taxation of long-termempty properties We have also provided councils with new powers to charge higher rates of council tax on long-term empty properties. This will incentivise owners to bring these properties back in to use by either selling or renting them. In doing this they will be adding to local housing stock and contributing to community regeneration and town centre renewal. In addition, the excess charge has the potential to raise around £130m over 4 years for investment in affordable housing. Along with the additional resources these funds could lever in, we estimate this could support the provision of around 800 housing units every year and support around 1,500 jobs in the construction sector and wider economy. This powerful new tool will be of particular help to councils with pressurised housing markets and in sustaining rural communities.

Housing Infrastructure Loan Fund We will bring forward a £10m Housebuilding Infrastructure Loan Fund ( HILF) with the purpose of accelerating housebuilding activity in Scotland. This fund, which will be available to developers and housebuilders who meet certain criteria, will help to unlock housing construction projects which would not otherwise be able to proceed. Housebuilders will repay government as they receive income from the sale of houses.

Help for households

Household budgets Household finances continue to face a number of ongoing pressures, which will impact on levels of consumption in the economy. These pressures stem from a number of different sources, which when combined have the potential to have a significant impact on demand.

Both the increase in the VAT rate and rising commodity prices are expected to feed through into higher inflation in the UK economy in 2011. The latest forecasts from the Monetary Policy Committee ( MPC), published in the Bank of England's February 2011 Inflation Report, predict that over the course of 2011 CPI inflation in the UK could rise to close to between 4% and 5%.

As a result of continuing labour market pressures, which have resulted in an increase in the level of spare capacity in the economy, wages have not kept pace with general inflation, resulting in real declines in household incomes over the past two years.

The range of financial pressures on household incomes now threatens the buoyancy of the Scottish economy in the short-term. The tax rises announced by the Chancellor will impose costs on every household in Scotland, with the increase in the standard rate of VAT to 20% from 4th January 2011 alone forecast to cost an average household £380 per annum. Relative to their net income, the impact of this rise will be the greatest for low income households.

Home owners support fund Through the Home Owners Support Fund, the Scottish Government is continuing to help home owners who find themselves in financial difficulty and are in danger of losing their homes. In 2009-10, the Fund helped over 300 households to avoid repossession. In addition, the Scottish Government enacted the Home Owner and Debtor Protection (Scotland) Act 2010, providing the strongest legislative protection anywhere in the UK for homeowners at risk of repossession. The Act and subsequent regulations were fast tracked to take effect from 30 September - just over a year after the Bill was introduced.

Protecting household incomes The Economic Recovery Plan is consistent with our Economic Strategy and builds on the actions set out in the Budget focussed on protecting household incomes, reducing labour market pressures, and ensuring the Scottish economy is resilient to the UK's cuts in the short term. These actions include:

• Continuation of the council tax freeze. Since 2007, the Scottish Government has already provided £420m to support the Scottish council tax freeze. Working together with local Government, this Budget extends the freeze in council tax rates in each local authority at 2007-08 levels for a fourth consecutive year. This provides protection to households across Scotland, many of whom have been hit hard by the economic downturn and UK welfare reform.
• From 1 April 2011, prescription charges will be abolished ensuring that cost is not a barrier to healthy working.
• Existing eligibility criteria for free personal care and concessionary travel will be maintained.

Improving housing quality and energy efficiency

Action to improve the quality of existing housing stock will be necessary to tackle fuel poverty, meet the requirements of the Scottish Housing Quality Standard by 2015 and ensure that housing plays its full part in achieving the targets set under the Climate Change Act. Billions of pounds of investment will be required in the coming years, delivering significant opportunities throughout Scotland for companies in the maintenance and construction industries.

Energy assistance The Scottish Government introduced its Energy Assistance Package ( EAP) in April 2009. The EAP has created and sustained employment in surveying properties, installation of measures and the management of the programme. Installing energy efficiency measures, including central heating, will lead to lower fuel bills for households and contribute towards our climate change targets. In addition, benefits advice and reducing fuel bills, through ensuring eligible applicants are placed on social tariffs will increase the income available to households.

Since its inception, over 140,000 households have taken up offers of help, and over 23,000 homes have been improved, including over 17,000 heating system measures installed as at 30 December 2010. These improvements should lead to annual savings on fuel bills of over £9.5m. We have also seen a potential increase in income for households helped of over £3.3m per year.

Home insulation Since 2009 we have developed two area-based schemes to help householders reduce their fuel bills and cut carbon emissions. Between them, these schemes (the Home Insulation Scheme, and the Universal Home Insulation Scheme) are offering a package of energy efficiency measures to over half a million Scottish householders, in local authority areas across Scotland.

The Home Insulation Scheme ( HIS) has already seen the completion of 102,736 Home Energy Checks, and the installation of 15,290 insulation measures (such as loft and cavity wall insulation). These measures will produce total fuel bill savings of around £32m, and cut carbon emissions by 170,000 tonnes.

The EAP and area based HIS will continue into 2011/12, with a more integrated approach to addressing energy efficiency and fuel poverty. HIS will offer energy advice and free or low cost insulation measures to a further 200,000 homes over and above the half a million households already covered.

JESSICA Urban Development Fund In addition, as part of our commitment to supporting social landlords, we will undertake feasibility work to determine whether it would be desirable to develop a second JESSICA Urban Development Fund, focused on delivering energy efficiency measures in social housing. Detail on the JESSICA fund is set out earlier in this report.

Enabling Home Owners and Landlords We also want to enable home owners and landlords to invest in their properties. This will deliver benefits in terms of enhanced sustainability and provide a stimulus for economic growth as a result of an increased volume of business for property maintenance companies. This will include encouraging local authorities to use their powers through schemes of assistance to encourage fresh investment in our existing private housing stock. In particular, we recognise the potential role for care and repair activity in supporting vulnerable and elderly people.

Rural communities

There are important sources of employment in rural areas which, while not identified as a GES key sectors, have great significance to rural communities. A good example of this is aquaculture.

Aquaculture Scotland is one of the three largest producers of farmed Atlantic salmon in the world with Norway and Chile.

Salmon aquaculture is a success story for Scotland and continues to play a key role in our economic recovery - providing high quality and secure jobs in many rural and coastal communities in Scotland's highlands and islands. Farmed salmon exports continue to expand. New figures to October 2010 show that exports of Scottish farmed salmon have increased by almost 10 per cent when compared with the same period the previous year.

The farmed salmon industry in Scotland was estimated to have a farm gate value of £412m in 2009 - a 23% increase on the previous year. It also produced about 144,000 tonnes of salmon - up 12% on the previous year.

Some 6,200 jobs are reliant on aquaculture in Scotland. Last year alone, 234 new jobs were created in the salmon industry and £29.5m of capital was invested in 2009.

The Scottish Government recognises aquaculture products, including salmon, trout and farmed shellfish, as a vital component of Scottish food and drink exports, a key sector for economic recovery. The recent agreement between the Scottish and Chinese governments that will allow Scottish salmon exports into China for the first time provides a very significant boost for this important rural sector.

We are also undertaking significant action to streamline the planning system to assist the aquaculture industry realise potential growth over the next 5 years.

Moray Task Force Community leaders from the public, private and third sector moved quickly to establish a Task Force to campaign against withdrawal of the RAF from Kinloss and Lossiemouth.

The Moray Task Force succeeded in raising the profile of the threat quickly and organised a rally and march in Lossiemouth opposing closure of the base. Over 6000 people attended the rally and the event attracted widespread national news coverage.

The Scottish Government was quick to acknowledge this was a national issue and respond to the threat posed by the SDSR decisions. After the initial activity following the announcement the Scottish Government has provided a senior official to support the work of the Task Force and delivery team in considering and responding to the economic threat.

Ministers have brought together the Chief Executives of national and local agencies to consider how they can respond to the threat to Moray. Participants included Skills Development Scotland, Transport Scotland, SEPA, Visit Scotland, Scottish Natural Heritage and Highlands & Islands Enterprise. The agencies, working with Moray Council, are now collaborating to consider what initiatives or investments they can accelerate to assist Moray. An early outcome from these discussions has been VisitScotland collaborating with the local authority to develop a promotion around Moray in its winter marketing campaign.

The Task Force has also been concerned to address the immediate and longer term economic and social impact of the decisions and the Scottish Government is working closely with the Task Force to develop an economic response plan for the period up to the Base Review decisions and immediately thereafter. This plan will allow Ministers, the Task Force, local authority and local agencies to set out their plans immediately after the decisions to reassure the community and bolster the local business community.

The Scottish Government has already taken action to support the businesses and individuals in Moray. On 6 December 2010 the Scottish Government announced a £6.35m project by Springfield Properties for 53 homes for affordable rent. And on 22 December the First Minister announced a £300,000 support package that provides additional resources for training and development for individuals facing redundancy in the Moray area, including a work and skills centre established by SDS on behalf of the taskforce, that aims to provide a support hub for those facing redundancy.

Officials and Ministers are also supporting the Task Force in maintaining and developing a dialogue about the Bases Review and its implications with UK Government officials and Ministers in MoD, Treasury and the Scotland Office.