Jenny Stewart: Investing in Scotland's future is the key

Every pound of capital investment will need to count in the next four years as the Scottish Government's capital budget will fall by 36 per cent in real terms from £3.4 billion in 2009-10 to £2.3bn by 2014-15.

Traditional capital expenditure needs to cover not just the big projects but smaller refurbishment projects necessary to keep services going.

And it is also needed for essential IT to allow public sector workers to deliver services more effectively. Improving public sector productivity is a key element of unlocking growth in the Scottish economy. Will the new borrowing powers and the prospect of bond finance help?

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First, the new borrowing powers will take some pressure off, providing finance for the Forth replacement crossing. Bond finance could deliver value for money in certain circumstances. However, if the rules are that traditional capital is cut by a corresponding amount, it won't deliver additional economic growth.

The new non-profit distributing schemes will also gradually introduce additional capital investment since they are funded from revenue budgets over time – roughly 500 million a year over the next four years. But those schemes need to progress quickly now.

So, three more things the Scottish Government could do now to make those pounds count:

First, prioritise projects which deliver more jobs.

Second, ensure that individual public sector bodies have the capital investment they need.

Third, relieve the pressure by looking at different models of public ownership. Bonds would be a well-tested route for re-financing much of Scottish Water's debt, which is over 3bn and rising, but chances are that capital elsewhere would be cut.

An alternative form of public ownership – a public interest company – would allow bond finance, without cuts elsewhere; allow Scottish Water to meet the challenges in the Hydro Nation consultation paper and release significant additional funding.

• Jenny Stewart is head of public sector at KPMG in Scotland.