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Publication - Statistics Publication

Scottish local government finance statistics 2015-2016

Published: 28 Feb 2017
Part of:
Public sector, Statistics
ISBN:
9781786528261

Annual publication providing a comprehensive overview of Scottish local authority financial activity.

80 page PDF

2.7MB

80 page PDF

2.7MB

Contents
Scottish local government finance statistics 2015-2016
2. Capital Expenditure and Financing

80 page PDF

2.7MB

2. Capital Expenditure and Financing

Spend which creates an asset that the authority will use over several years, such as building schools or buying vehicles, is known as Capital Expenditure.

Whilst a local authority cannot borrow to finance day-to-day expenditure, capital expenditure may be funded from borrowing. The costs of repaying the debt, including the interest costs, is met from the revenue account.

2015-16 Capital Financing: £2.5bn

2015-16 Capital Expenditure: £2.5bn

  • Total Capital Expenditure: £2.5 billion - an increase of 5.6% on 2014-15;
  • Education has the largest share ( 26%) of capital expenditure with £0.7bn - an increase of 17% on 2014-15;
  • The Housing Revenue Account ( HRA) is the second largest service area with 25% ( £0.6bn) of capital expenditure - a fall of 3% from 2014-15;
  • 83% of capital expenditure is on constructing or enhancing buildings;
  • 33% ( £0.8bn) of expenditure is financed through borrowing;

2.1 Total Capital Expenditure and Financing

Capital expenditure by local authorities is mainly for purchasing, constructing or enhancing physical assets, such as buildings (e.g. care homes or schools), land (e.g. playing fields), infrastructure (e.g. roads and flood defences), and vehicles, plant and machinery. Capital expenditure also includes expenditure that the Scottish Ministers have permitted the local authorities to treat as capital expenditure and meet from capital resources.

Capital expenditure is financed by one or more of the following:

  • Capital grants and contributions;
  • Borrowing or Credit Arrangements;
  • Contributions from capital or revenue reserve funds;
  • Capital receipts from asset sales.

The Local Government (Scotland) Act 1973, provides councils with a general power to borrow. Other local authorities' powers are set out in legislation specific to that authority. The Local Government (Scotland) Act 1975 sets out the purpose for which a local authority may borrow. This includes borrowing to finance capital expenditure of the authority. The Local Government in Scotland Act 2003 places a local authority under a statutory duty to set their own maximum capital expenditure limits. These limits must be set with regard to the Chartered Institute of Public Finance & Accountancy ( CIPFA) Prudential Code, which requires that capital expenditure plans by local authorities must be affordable, prudent and sustainable. Detailed breakdowns of Capital Expenditure can be found in Annexes G and H.

Table 2.1: Total Capital Expenditure and Financing, 2015-16

£thousands

General Fund Services Housing Revenue Account Total
Acquisition of land, leases, existing buildings or works 46,810 11,390 58,200
New construction, conversions & enhancement to existing buildings 1,476,364 620,178 2,096,542
Vehicles, machinery & equipment 175,704 6,797 182,501
Intangible assets 5,998 157 6,155
Total Gross Capital Expenditure 1,704,876 638,522 2,343,398
Revenue Expenditure funded from Capital Resources 187,686 4,132 191,818
Total Expenditure to be met from Capital Resources 1,892,562 642,654 2,535,216
Scottish Government General Capital Grant 691,659 2,687 694,346
Scottish Government Specific Capital Grants 148,933 52,981 201,914
Grants from Scottish Government Agencies and NDPBs 92,268 19,749 112,017
Other Grants and Contributions 121,705 21,713 143,418
Borrowing from Loans Fund 558,669 272,658 831,327
Capital receipts used from asset sales/disposals 95,355 78,037 173,392
Capital Reserves (Capital Fund) 60,374 0 60,374
Capital funded from revenue reserves 101,873 194,829 296,702
Assets acquired under credit arrangements (e.g. finance leases, PPP/ PFI) 21,726 0 21,726
Total Financing 1,892,562 642,654 2,535,216

Source: Capital Returns ( CR Final)

In 2015-16 total gross capital expenditure was £2.34 billion. In addition to this, local authorities funded £0.19 billion of revenue expenditure from capital resources - this was mostly funding third party capital housing projects. The total expenditure funded from capital resources was £2.54 billion in 2015-16, with £0.64 billion in the housing revenue account and £1.89 billion in the General Fund. The majority (83%) of capital expenditure went on new construction, conversions and enhancements to existing buildings.

Local authorities received a total of £1.15 billion (45% of total financing) in grants and contributions to fund capital expenditure (£1.05 billion in the General Fund and £0.10 billion for the HRA). The second most significant source of financing was borrowing (advances from the Loans Fund). This funded £0.83 billion (33% of total financing, £0.56 billion in the General Fund and £0.27 billion in the HRA) of capital expenditure, an increase of 0.2% on 2014-15.

Table 2.2: Total Capital Expenditure and Financing, 2011-12 to 2015-16

£thousands

2011-12 2012-13 2013-14 a 2014-15 2015-16
Acquisition of land, leases, existing buildings or works 137,332 146,930 90,335 63,604 58,200
New construction, conversions & enhancement to existing buildings 2,142,293 2,037,385 1,967,310 1,948,992 2,096,542
Vehicles, machinery & equipment 194,836 197,022 189,509 174,443 182,501
Intangible assets 6,052 6,638 13,119 14,061 6,155
Total Gross Capital Expenditure 2,480,513 2,387,975 2,260,273 2,201,100 2,343,398
Revenue Expenditure funded from Capital Resources 181,021 161,349 199,728 199,002 191,818
Total Expenditure to be met from Capital Resources 2,661,534 2,549,324 2,460,001 2,400,102 2,535,216
Scottish Government General Capital Grant 565,541 450,088 438,163 680,491 694,346
Scottish Government Specific Capital Grants 234,365 217,281 180,549 203,444 201,914
Grants from Scottish Government Agencies and NDPBs 82,764 141,311 150,761 108,610 112,017
Other Grants and Contributions 85,714 124,311 142,077 107,731 143,418
Borrowing from Loans fund 1,261,468 1,165,387 1,105,526 829,701 831,327
Capital receipts used from asset sales/disposals 94,020 105,937 92,167 107,919 173,392
Capital Fund applied 21,653 36,867 24,798 34,595 60,374
Capital funded from current revenue 209,122 294,087 295,335 284,911 296,702
Assets acquired under credit arrangements (e.g. finance leases, PPP/ PFI) 106,888 14,055 30,625 42,701 21,726
Total Financing 2,661,534 2,549,324 2,460,001 2,400,102 2,535,216

a. Following the Police and Fire Reform (Scotland) Act 2012 figures from 2013-14 onwards may not be comparable with previous years. See section 5.2 for details.
Source: Capital Returns ( CR Final)

Because of the changes in accounting practice noted above and Police and Fire Reform, it is difficult to draw conclusions about changes in capital expenditure and financing over the time period presented in Table 2.2 and Chart 2.1. Figures from 2013-14 onwards do not include Police or Fire Boards, which were replaced by new national bodies that are not classified as local government.

Between 2014-15 and 2015-16, total capital expenditure to be met from capital resources increased by 5.6% (£0.14 billion). The amount of capital expenditure that is financed by grants from the Scottish Government, including Scottish Government Agencies and Non-Departmental Public Bodies has increased by 4.7% (£0.05 bn) between 2014-15 and 2015-16.

The amount of capital expenditure financed through Borrowing from the Loans Fund has increased by 0.2% between 2014-15 and 2015-16.

Over the spending review period, the grant allocations for individual years were adjusted as follows: -£120m in 2012-13, -£100m in 2013-14 and +£120m in 2014-15 with the remaining £94.2m allocated in 2015-16. Although the sum to be added back was originally £100 million this was reduced proportionately to £94.2 million following the transfer of the police and fire functions to the Scottish Government.

The profile of the capital grant allocations largely explain the increase in grant funding and corresponding fall in borrowing, shown in Chart 2.1 below.

Chart 2.1: Capital Expenditure Financing

£thousands

Chart 2.1: Capital Expenditure Financing

a. Following the Police and Fire Reform (Scotland) Act 2012 figures for 2013-14 onwards may not be comparable with previous years. See Background to Local Government section for details.
Source: Capital Returns ( CR Final)

Table 2.3: Capital Expenditure by Service, 2011-12 to 2015-16

£thousands

2011-12 2012-13 2013-14 2014-15 2015-16
Education 691,878 517,158 523,776 559,309 652,552
Cultural & Related Services 245,371 257,040 148,933 121,778 160,315
Social Work 46,487 73,812 80,849 73,690 62,553
Roads & Transport 482,554 503,480 458,876 430,265 429,569
Environmental Services 105,036 126,631 188,525 138,267 128,063
Planning & Development Services 113,476 118,282 94,415 66,488 90,416
Central Services 143,678 123,740 175,153 174,094 195,922
Non- HRA Housing 149,002 136,363 156,699 165,543 166,452
Trading Services 10,390 18,419 14,059 5,171 6,720
Total General Fund Capital Expenditure (excl. Police & Fire) 1,987,872 1,874,925 1,841,285 1,734,605 1,892,562
Housing Revenue Account 599,618 607,279 618,716 665,497 642,654
Total Capital Expenditure (excl. Police & Fire) 2,587,490 2,482,204 2,460,001 2,400,102 2,535,216
Police 30,188 45,365
Fire 43,856 21,755
Total Capital Expenditure 2,661,534 2,549,324 2,460,001 2,400,102 2,535,216

Source: Capital Returns ( CR Final)

Chart 2.2: Capital Expenditure by Service, 2011-12 to 2015-16

£thousands

Chart 2.2: Capital Expenditure by Service, 2011-12 to 2015-16

In any given year capital expenditure per capita varies substantially between local authority areas. This will in part reflect the different priorities of local authorities however it also reflects differences in the timing of capital projects. Expenditure on capital projects can be 'lumpy' and expenditure per head in local authority areas will move (possibly substantially) from year to year as projects begin or wind down.

Chart 2.3: Capital Expenditure per Head by Local Authority Area, 2015-16

Chart 2.3: Capital Expenditure per Head by Local Authority Area, 2015-16

Source: Capital Returns ( CR Final) & National Records of Scotland Mid-Year Population Estimates (2015)

2.2 Capital Financing

Capital Grants

Capital grants are grants provided to local authorities to fund capital investment. The Scottish Government provides two types of grant funding to local authorities - a General Capital Grant and a number of specific or ring-fenced grants. Scottish Government Agencies, such as Transport Scotland, and Non-Departmental Bodies such as sportscotland may also award grants for projects. Other grants and contributions include grants from other local authorities, European Structural Funds, contributions from private developers or persons, and the use of council tax discounts from second homes or long term empty properties. Table 2.1 (above) provides time series of grant income from 2011-12 to 2015-16.

Capital Receipts

'Capital receipts' is the term used to recognise income from the sale or disposal of a fixed asset, such as land or council housing. Under statute capital receipts may only be used to fund capital expenditure or for the repayment of debt.

Table 2.4 details capital receipts categorised by service from 2011-12 to 2015-16. In order to reflect the corporate nature of assets and to promote good asset management practices local authorities commonly move assets to "Central Services" (which includes "Other Services" categorisation in this table) when they become identified as surplus for disposal. This can be seen from the table where in recent years for General Fund services, the greatest value of capital receipts has generally been reported against "Central Services". A detailed breakdown of Capital Receipts by Service for 2015-16 can be found in Annex J.

Total Capital Receipts raised increased by 51%, from £165 million in 2014-15 to £250 million in 2015-16. This increase is largely due to one council which sold a high value asset. Had this sale not taken place, capital receipts would have fallen by 12%. The Housing (Scotland) Act 2014 repeals the Right-to-Buy provisions, and this came into force from the 1 st August 2016. This will affect the value of Housing Revenue Account capital receipts from 2016-17.

Table 2.4: Capital Receipts Raised by Service, 2011-12 to 2015-16

£thousands

2011-12 2012-13 2013-14 2014-15 2015-16
Education 20,177 5,623 13,798 15,498 16,324
Culture & Related Services 746 3,574 3,574 1,526 2,696
Social Work 3,477 3,155 2,632 5,574 1,306
Roads & Transport 6,087 2,778 1,742 21,398 2,086
Environmental Services 611 507 1,378 1,538 1,669
Planning & Development Services 13,962 15,011 58,276 22,163 117,742
Central Services 15,663 23,925 28,128 25,930 18,781
Non- HRA Housing 344 81 198 666 138
Trading Services 1 35 6 8 7,552
Total GF Capital Receipts 61,068 54,689 109,732 94,302 168,294
Housing Revenue Account 46,326 42,369 53,529 70,594 81,385
Total Capital Receipts 107,394 97,058 163,261 164,896 249,679
Police & Fire 1 4,926 7,206
Total Capital Receipts 112,320 104,264 163,261 164,896 249,679

1. In 2012-13 fire boards had £41k in education capital receipts raised.
Source: Capital Returns ( CR Final)

Capital receipts can be used to finance capital expenditure and repay debt (principal but not interest). These receipts are generated through the sale or disposal of assets, such as a council house or other local authority land/building. Authorities are able to transfer capital receipts to a Capital Fund for future use. As such, capital receipts received and capital receipts used are not necessarily equal.

Table 2.5: Capital receipts summary, 2015-16

£thousands

General Fund Housing Revenue Account Total
Capital Receipts brought forward at 1 April 2015 69,952 5,656 75,608
Capital receipts from the sale/ disposal of fixed assets 168,294 81,385 249,679
Total capital receipts available for use 238,246 87,041 325,287
Capital receipts used from asset sales/disposals 95,355 78,037 173,392
Capital receipts used to repay debt 5,694 5,054 10,748
Capital receipts transferred to Capital Fund 56,539 0 56,539
Capital receipts held 31 March 2016 80,658 3,950 84,608

Source: Capital Returns ( CR Final)

Table 2.5 shows that authorities had a total of £325 million of capital receipts available for use during 2015-16, of which £76 million was the balance brought forward at 1 st April 2015 and £250 million was raised during the year from the sale/disposal of fixed assets.

The main use of capital receipts in 2015-16 was to finance capital expenditure (£173 million), with a further £11 million used to repay debt and £57 million transferred to the Capital Fund. This resulted in a Capital receipts balance of £85 million at the 31 st March 2016.

2.3 Borrowing and Credit Arrangements

Local authorities may borrow for the purposes of:

  • Acquiring land;
  • Construction of buildings;
  • Undertaking permanent work or provision of plant and machinery;
  • Lending to relevant authorities or Community Councils;
  • Any other purpose for which the authority is authorised under any enactment to borrow;

Local authorities are required by legislation to maintain a Loans Fund. All money borrowed by local authorities must be paid into this Loans Fund, which then makes advances to service accounts to fund capital expenditure. The Scottish Government monitors the value of debt recorded in the Loans Fund (rather than the level of external debt) because it is this amount of debt that is charged to services over a period of time. The value of external debt is monitored as part of the prudential indicators of the local authority. See section 3.4 for more details.

The total amount of Loans Fund borrowing in 2015-16 was £831 million. This is an increase of 0.2% on 2014-15. When interpreting the pattern of borrowing over the period from 2011-12 to 2015-16, the reprofiling of the capital grant allocations over the spending review period should be kept in mind (-£120m in 2012-13, -£100m in 2013-14 and +£120m in 2014-15 with the remaining £94.2m allocated in 2015-16). Of the total Loans Fund borrowing, £559 million (up 8%) was in the General Fund and £273 million (down 12%) was in the HRA.

Table 2.6: Loans Fund Borrowing to Finance Capital Expenditure - 2011-12 to 2015-16

£thousands

2011-12 2012-13 2013-14 2014-15 2015-16
General Fund 918,890 852,238 788,568 518,296 558,669
Advances for Capital Expenditure 915,766 846,269 751,634 489,774 536,044
Advances for Consented Borrowing 3,124 5,969 36,934 28,522 22,625
Housing Revenue Account 342,578 313,149 316,958 311,404 272,658
Advances for Capital Expenditure 342,578 313,053 316,815 311,404 272,658
Advances for Consented Borrowing 0 96 143 0 0
Total Loans Fund Borrowing 1,261,468 1,165,387 1,105,526 829,701 831,327
Credit Arrangements 106,888 14,055 30,625 42,701 21,726
Total Borrowing and Credit Arrangements 1,368,356 1,179,442 1,136,151 872,402 853,053

Source: Capital Returns ( CR Final)

The costs of servicing debt is mostly met from taxation and non-specific grant income, while the costs of servicing Housing Revenue Account ( HRA) debt are met principally through income from rents. The costs of servicing debt are detailed in Table 1.1 which shows interest payable and the cost of repayments (Statutory Repayment of Debt).


Contact

Email: Euan Smith