Submitted by Bill Fernie
2nd September 2026
Highland Council has an ambitious plan in fact it's very ambitious.
Over the next 20 years it wants to invest around £2.1 billion in schools, roads, transport, community facilities, offices, depots and other infrastructure across the Highlands.
The Council describes it as a transformational investment programme.
And there is plenty to like about the idea.
After years of complaints about deteriorating roads, ageing schools and public buildings, there is a strong argument for investing rather than simply patching things up year after year.
But there is a new question which perhaps deserves rather more attention.
What happens if the cost of borrowing stays higher than expected?
Because the financial world in which the Highland Investment Plan was developed has changed considerably.
The era of ultra-cheap money has gone.
UK government bond yields have recently risen to their highest levels in many years, with the 10-year gilt yield reaching around 5.25% on Tuesday. The increase is part of a wider global bond-market sell-off driven by concerns about inflation, energy prices, government debt and the future direction of interest rates.
Highland Council does not borrow money at exactly the same rate as the UK Government.
But government bond yields matter because they influence the wider cost of borrowing.
And when the cost of money rises, councils, businesses and households all have to think harder about what they can afford.
This is not a story about the £2.1 billion suddenly becoming unaffordable
That distinction is important.
It would be wrong to suggest that Highland Council has suddenly discovered that its investment plan is going to cost billions more.
Nor does a rise in gilt yields automatically increase the interest on every pound the Council has already borrowed.
Existing borrowing can be fixed for long periods.
The problem comes with new borrowing and refinancing.
The Highland Investment Plan is spread over two decades.
That means the Council does not need to borrow the whole £2.1 billion tomorrow.
Instead, projects are delivered over time and the financing requirements change as the programme develops.
That creates both an opportunity and a risk.
If interest rates eventually fall, future borrowing could become cheaper.
If they remain high, or rise further, future projects become more expensive to finance.
And over a 20-year programme, even relatively small changes in borrowing costs can become significant.
What exactly is the Highland Investment Plan?
The plan was approved as a long-term programme to tackle some of Highland's biggest infrastructure problems.
It includes investment in roads and transport, schools, community facilities, depots and offices.
The Council estimates the programme could deliver around £2.1 billion of capital investment over 20 years.
It is not simply a wish list.
The Council has established a funding mechanism based partly on ring-fencing 2% of council-tax revenue each year to support the investment programme.
That is significant because council taxpayers are effectively being asked to contribute towards the cost of the investment for many years.
The Council's 2026/27 budget included a 7% council-tax increase, with 2% specifically earmarked for the Highland Investment Plan.
So there is already a connection between the investment programme, council tax and borrowing costs.
And this isn't some distant future project
The money is beginning to flow.
The Council says around £750 million of investment is planned during the first five years of the programme. Preferred contractors have already been appointed for seven initial projects stretching from Thurso to Inverness.
For Caithness, that makes this particularly relevant.
Thurso is included in the programme.
The Council is considering a new education campus in Thurso, with an investment commitment of up to £100 million.
The proposal would bring together a new primary school and a new Thurso High School on a single education campus, while also incorporating community facilities and other services.
So this isn't simply about some future accounting problem at Inverness headquarters.
The decisions about borrowing costs could eventually affect projects people can actually see on the ground.
What happens if borrowing stays expensive?
This is where things become interesting.
Imagine the Council has a project which it expects to cost £50 million.
If it can finance that project at a relatively low rate, the annual cost of the borrowing may be manageable within the long-term plan.
But if borrowing costs are substantially higher, the annual financing cost rises.
The Council then has choices.
It could proceed anyway.
It could find additional funding.
It could reduce the scope of the project.
It could move the project further into the future.
Or it could decide that another project has a higher priority.
That last possibility is particularly important.
A 20-year investment programme does not necessarily mean that every project will happen exactly when originally envisaged.
The programme has to remain affordable.
And the Council itself has previously emphasised that the investment plan must operate within the available funding and affordability.
The danger of trying to do too much too quickly
There is another issue.
Construction costs have already risen significantly over recent years.
Materials, labour, energy and financing are all more expensive than they were during the period when interest rates were close to zero.
If the Council tries to accelerate a large number of projects at the same time, it could find itself competing for contractors and construction resources.
That can push costs higher.
There is therefore a perfectly rational argument for spreading the programme over a longer period if financial conditions remain difficult.
It might be better to build fewer projects at a time and make sure they can be properly financed than to commit to too much borrowing and then find that revenue budgets are squeezed later.
But delaying projects has a cost too
This is where the argument isn't straightforward.
If a school is old, delaying its replacement doesn't make the problem disappear.
The Council may have to spend more money maintaining the old building.
The same applies to roads, bridges, depots and other infrastructure.
A project delayed for five years might cost more when it eventually starts because construction costs have risen.
So the Council faces a balancing act.
Borrow too quickly and the interest bill becomes a problem.
Delay too long and construction costs and maintenance costs may rise.
That is why the interest-rate question matters.
It isn't simply about whether a particular project can be afforded.
It is about finding the most economical time to spend the money.
There is already pressure on the Council's finances
This is perhaps the most important background to the story.
Highland Council isn't entering this investment programme with unlimited financial resources.
Its 2026 budget included a £61 million package of savings, income generation and financial measures to close a £46.7 million budget gap over the next three years.
That is the revenue budget.
The investment plan is capital spending.
They are not the same thing.
But they are not completely independent either.
The Council has to find the money to operate its services while also financing the long-term investment programme.
And debt repayments and interest ultimately have to be accommodated within the Council's overall financial position.
That makes the cost of borrowing particularly important.
The bond market doesn't decide Highland's interest rate
It is worth avoiding another possible misunderstanding.
Highland Council doesn't walk into the gilt market and borrow at the same rate as the UK Government.
Local authorities have different borrowing arrangements and can access the Public Works Loan Board and other sources of finance.
But the wider financial market still matters.
Government bond yields are an important reference point for the cost of money.
When investors demand higher returns on government debt, it is generally an indication that the financial environment has become more expensive.
That feeds through into other forms of borrowing.
And the current environment is particularly interesting because long-term bond yields have been rising even while markets have been debating whether central banks should cut short-term interest rates.
The Bank of England's Bank Rate and long-term borrowing costs are not the same thing.
Could the Highland Investment Plan simply be stretched?
Yes.
And that may actually be the sensible response if higher borrowing costs persist.
The Council has a 20-year horizon.
That gives it something most businesses and households don't have: time.
If a particular phase of investment is too expensive in 2028, it might be possible to move it to 2030 or 2031.
If borrowing costs fall again, the project can move forward.
That is one of the advantages of a long-term investment programme.
It provides flexibility.
But there is also a political question.
If projects are repeatedly pushed back, residents may start asking whether the £2.1 billion programme is really a 20-year programme or whether it is becoming a rolling list of ambitions that will only happen if the finances permit.
And what council tax?
This is another part of the equation which deserves attention.
The 2% council-tax allocation for the Investment Plan provides a dedicated revenue stream.
That is important because it gives lenders some confidence that the Council has a continuing source of income to support the programme.
But it also means that taxpayers are committing money today to support investment which may not be completed for many years.
If borrowing costs rise substantially, will that 2% still be enough?
If it isn't, does the Council increase the contribution?
Or does it slow the programme?
Those are questions which may not need answering today.
But over a 20-year programme, they are almost certain to arise.
There is an even bigger question about inflation
Interest rates aren't the only problem.
Construction inflation matters too.
Suppose the Council has planned £2.1 billion of investment over 20 years.
If the cost of building schools, roads and community facilities rises substantially during those two decades, £2.1 billion will not buy what it would buy today.
That means the Council has to manage two risks simultaneously:
the cost of borrowing money and the cost of building what the money is intended to buy.
If both rise together, the pressure becomes considerably greater.
Could the plan actually become more expensive than £2.1 billion?
Potentially, yes.
But we should be careful with that statement.
The £2.1 billion is a long-term programme and not a fixed-price contract for every project.
Some projects will cost more.
Others may cost less.
Some may change.
Some may never proceed in their current form.
The Council will have to continually review the programme against available funding.
Indeed, when the Council considered its updated investment programme in 2025, it stressed that the programme would continue within agreed funding and affordability.
That is exactly what we should expect from responsible financial management.
So is Highland Council taking a gamble?
The word "gamble" in the headline is deliberately provocative.
Investment itself isn't a gamble.
Failing to invest in ageing infrastructure can be an even bigger gamble.
The real gamble would be assuming that the financial environment of the next 20 years will look anything like the financial environment of the previous 20.
It probably won't.
Interest rates can rise.
They can fall.
Inflation can return.
Construction costs can jump.
Government grants can change.
Council-tax income can change.
The Highland economy can grow faster or slower than expected.
And the cost of borrowing can move in directions that nobody can predict with certainty.
A 20-year plan therefore needs to be capable of changing.
For Caithness, the question is particularly important
There is a danger in a huge Highland-wide programme that the headline figure sounds impressive while local communities concentrate on what actually happens in their own area.
In Caithness, people will quite reasonably ask:
When will the Thurso investment actually happen?
What happens to roads?
What happens to other ageing public buildings?
Will promised investment arrive on schedule?
And if borrowing becomes more expensive, which projects get protected and which get delayed?
Those are legitimate questions.
The Council's investment programme already includes a major proposed investment in Thurso, so Caithness has a direct interest in how the programme is financed and managed.
The bond market may therefore become an unexpected Highland story
It is easy to think of rising gilt yields as something happening in London.
They aren't.
They are part of a wider change in the price of money.
And that eventually reaches down through government, councils, businesses and households.
For Highland Council, the immediate effect is unlikely to be dramatic.
Existing borrowing doesn't suddenly become more expensive simply because gilt yields have risen this week.
But if higher interest rates become the new normal, every future borrowing decision becomes more important.
The Council may have to ask whether a project should start now, later, or be redesigned.
It may have to prioritise essential infrastructure over desirable additions.
And it may discover that a 20-year timetable is not simply about building everything on a list.
It is about deciding when the Highlands can afford to build it.
The £2.1 billion headline may therefore need a footnote
The Highland Investment Plan is an important opportunity.
Modern schools, better roads, improved community facilities and more efficient public buildings are things Highland communities need.
But the headline figure should not be mistaken for a cheque already sitting in the bank.
It is a long-term investment ambition supported by a financing strategy.
And financing strategies depend on the cost of money.
Right now, the cost of money is moving in the wrong direction.
The bond market is warning governments that cheap borrowing can no longer be taken for granted.
Highland Council cannot control that market.
It can, however, control how quickly it spends, what it prioritises and how much financial risk it is prepared to take.
That may become increasingly important over the next few years.
Because perhaps the biggest question isn't whether Highland Council can deliver a £2.1 billion investment programme.
It is whether it can deliver that programme without allowing the cost of financing it to squeeze the very services the investment is supposed to improve.
And if interest rates remain high, the answer may be simple.
The £2.1 billion programme may still happen. It may just take longer.