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Publication - Statistics publication

Scottish local government financial statistics 2016-2017

Published: 27 Feb 2018
Part of:
Communities and third sector, Public sector, Statistics
ISBN:
9781788516464

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

80 page PDF

1.6MB

80 page PDF

1.6MB

Contents
Scottish local government financial statistics 2016-2017
2. Capital Expenditure and Financing

80 page PDF

1.6MB

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, are met from the revenue account.

2016-2017 Capital Financing: £2.96bn
2016-2017 Capital Financing £2.96bn

2016-2017 Capital Expenditure: £2.96bn
2016-2017 Capital Expenditure: £2.96bn

  • Total Capital Expenditure: £2.96 billion - an increase of 17% on 2015-16;
  • Education has the largest share ( 29%) of capital expenditure with £0.9bn - an increase of 31% on 2015-16;
  • The Housing Revenue Account ( HRA) is the second largest service area with 23% ( £0.7bn) of capital expenditure – an increase of 5% from 2015-16;
  • 80% of capital expenditure is on constructing or enhancing buildings;
  • 40% ( £1.2bn) 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. Generally, capital expenditure is expenditure that creates an asset, extends the life of an asset or increases the value of an asset. Capital expenditure also includes expenditure that legislation permits local authorities to treat as capital expenditure and meet from capital resources, such as capital grants to third parties, where the asset it creates or improves is not owned by the local authority.

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.

Unlike revenue expenditure, local authorities can borrow to fund capital expenditure. 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 Authority (Capital Finance and Accounting) (Scotland) Regulations 2016 sets out the purposes for which a local authority may borrow. 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.

In 2016-17 total gross capital expenditure was £2.79 billion. In addition to this, local authorities funded £0.17 billion of revenue expenditure from capital resources. This was mostly funding third party capital projects. The total expenditure funded from capital resources was £2.96 billion in 2016-17, with £0.68 billion in the housing revenue account and £2.29 billion in the General Fund.

Table 2.1 – Total Capital Expenditure and Financing, 2016-17 ( £thousands)

General Fund Services Housing Revenue Account Total
Acquisition of land, leases, existing buildings or works 209,472 23,868 233,340
New construction, conversions & enhancement to existing buildings 1,709,872 648,081 2,357,953
Vehicles, machinery & equipment 191,038 2,157 193,195
Intangible assets 9,767 31 9,798
Total Gross Capital Expenditure 2,120,149 674,137 2,794,286
Revenue Expenditure funded from Capital Resources 164,938 2,667 167,605
Total Expenditure to be met from Capital Resources 2,285,087 676,804 2,961,891
Scottish Government General Capital Grant 504,460 4 504,464
Scottish Government Specific Capital Grants 143,419 81,506 224,925
Grants from Scottish Government Agencies and NDPBs 98,363 19,473 117,836
Other Grants and Contributions 170,893 13,868 184,761
Borrowing from Loans Fund 954,113 224,697 1,178,810
Capital receipts used from asset sales/disposals 58,706 128,453 187,159
Capital Reserves (Capital Fund) 65,282 0 65,282
Capital funded from revenue reserves 82,833 208,803 291,636
Assets acquired under credit arrangements ( e.g. finance leases, PPP/ PFI) 207,018 0 207,018
Total Financing 2,285,087 676,804 2,961,891

Source: Capital Returns ( CRFinal)

The majority (80%) of capital expenditure went on new construction, conversions and enhancements to existing buildings.

Local authorities received a total of £1.03 billion (35% of total financing) in grants and contributions to fund capital expenditure (£0.92 billion in the General Fund and £0.11 billion for the HRA). The most significant source of financing was borrowing (advances from the Loans Fund). This funded £1.18 billion (40% of total financing, £0.95 billion in the General Fund and £0.22 billion in the HRA) of capital expenditure, an increase of 42% on 2015-16.

Table 2.2 – Total Capital Expenditure and Financing, 2012-13 to 2016-17 ( £thousands)

  2012-13 2013-14 a 2014-15 2015-16 2016-17
Acquisition of land, leases, existing buildings or works 146,930 90,335 63,604 58,200 233,340
New construction, conversions & enhancement to existing buildings 2,037,385 1,967,310 1,948,992 2,096,542 2,357,953
Vehicles, machinery & equipment 197,022 189,509 174,443 182,501 193,195
Intangible assets 6,638 13,119 14,061 6,155 9,798
Total Gross Capital Expenditure 2,387,975 2,260,273 2,201,100 2,343,398 2,794,286
Revenue Expenditure funded from Capital Resources 161,349 199,728 199,002 191,818 167,605
Total Expenditure to be met from Capital Resources 2,549,324 2,460,001 2,400,102 2,535,216 2,961,891
Scottish Government General Capital Grant 450,088 438,163 680,491 694,346 504,464
Scottish Government Specific Capital Grants 217,281 180,549 203,444 201,914 224,925
Grants from Scottish Government Agencies and NDPBs 141,311 150,761 108,610 112,017 117,836
Other Grants and Contributions 124,311 142,077 107,731 143,418 184,761
Borrowing from Loans fund 1,165,387 1,105,526 829,701 831,327 1,178,810
Capital receipts used from asset sales/disposals 105,937 92,167 107,919 173,392 187,159
Capital Fund applied 36,867 24,798 34,595 60,374 65,282
Capital funded from current revenue 294,087 295,335 284,911 296,702 291,636
Assets acquired under credit arrangements ( e.g. finance leases, PPP/ PFI) 14,055 30,625 42,701 21,726 207,018
Total Financing 2,549,324 2,460,001 2,400,102 2,535,216 2,961,891

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 ( CRFinal)

In 2013-14 Police or Fire Boards were replaced by new national bodies that are not classified as local government. It is therefore difficult to draw conclusions about changes in capital expenditure and financing between 2012-13 and subsequent years.

Between 2015-16 and 2016-17, total capital expenditure to be met from capital resources increased by 16.8% (£0.43 billion). The amount of capital expenditure that is financed by grants from the Scottish Government, including Scottish Government Agencies and Non-Departmental Public Bodies decreased by 10.4% (£0.12 bn) between 2015-16 and 2016-17.

The amount of capital expenditure financed through Borrowing from the Loans Fund has increased by 42% between 2015-16 and 2016-17.

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 decrease in grant funding and corresponding increase in borrowing, shown in Chart 2.1 below. The 2016-17 grant level is now closer to the level of capital grant that we would expect had the capital grant not been reprofiled.

Chart 2.1 – Capital Expenditure Financing ( £thousands)
Chart 2.1 – Capital Expenditure Financing (£thousands)
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 ( CRFinal)

In 2016-17, Education capital expenditure increased by 31% to £854 million, which represents 29% of total capital expenditure. The HRA is the service with the second highest expenditure at £677 million, an increase of 5% on 2015-16 and representing 23% of total capital expenditure. Planning and Development Services saw the largest percentage increase (122%) to £201 million in 2016-17.

Table 2.3 – Capital Expenditure by Service, 2012-13 to 2016-17 ( £thousands)

  2012-13 2013-14 2014-15 2015-16 2016-17
Education 517,158 523,776 559,309 652,552 854,325
Cultural & Related Services 257,040 148,933 121,778 160,315 219,850
Social Work 73,812 80,849 73,690 62,553 64,701
Roads & Transport 503,480 458,876 430,265 429,569 471,361
Environmental Services 126,631 188,525 138,267 128,063 129,604
Planning & Development Services 118,282 94,415 66,488 90,416 200,832
Central Services 123,740 175,153 174,094 195,922 178,082
Non- HRA Housing 136,363 156,699 165,543 166,452 162,689
Trading Services 18,419 14,059 5,171 6,720 3,643
Total General Fund Capital Expenditure 1,874,925 1,841,285 1,734,605 1,892,562 2,285,087
Housing Revenue Account 607,279 618,716 665,497 642,654 676,804
Total Capital Expenditure 2,482,204 2,460,001 2,400,102 2,535,216 2,961,891
Police 1 45,365        
Fire 1 21,755        
Total Capital Expenditure incl. Police and Fire 2,549,324 2,460,001 2,400,102 2,535,216 2,961,891

Source: Capital Returns ( CRFinal)

Chart 2.2 – Capital Expenditure by Service, 2012-13 to 2016-17 ( £thousands)
Chart 2.2 – Capital Expenditure by Service, 2012-13 to 2016-17 (£thousands)
Source: Capital Returns ( CRFinal)

In any given year capital expenditure per head 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 Council, 2016-17
Chart 2.3 – Capital Expenditure per Head by Council, 2016-17

Source: Capital Returns ( CRFinal) & National Records of Scotland Mid-Year Population Estimates (2016)

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. Chart 2.1 (above) provides a time series of grant income from 2012-13 to 2016-17.

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 2012-13 to 2016-17. 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 2016-17 can be found in Annex J.

Total Capital Receipts raised decreased by 17%, from £250 million in 2015-16 to £208m in 2016-17. 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, which increased by 70% in 2016-17 on the previous year due to a sharp spike in Right to Buy applications shorlty before the Act came into force. Planning and Economic Development capital receipts fell by 89% in 2016-17. In 2015-16 capital receipts for Planning and Economic Development was unusually high due to the inclusion of a single high-value capital receipt due to the sale of an office block.

Table 2.4 – Capital Receipts Raised by Service, 2012-13 to 2016-17 ( £thousands)

2012-13 2013-14 2014-15 2015-16 2016-17
Education 5,623 13,798 15,498 16,324 12,572
Culture & Related Services 3,574 3,574 1,526 2,696 13,464
Social Work 3,155 2,632 5,574 1,306 4,311
Roads & Transport 2,778 1,742 21,398 2,086 2,968
Environmental Services 507 1,378 1,538 1,669 1,744
Planning & Development Services 15,011 58,276 22,163 117,742 12,989
Central Services 23,925 28,128 25,930 18,781 21,128
Non- HRA Housing 81 198 666 138 59
Trading Services 35 6 8 7,552 10
Total General Fund Capital Receipts 54,689 109,732 94,302 168,294 69,245
Housing Revenue Account 42,369 53,529 70,594 81,385 138,414
Total Capital Receipts 97,058 163,261 164,896 249,679 207,659
Police & Fire 1 7,206 -      
Total Capital Receipts 104,264 163,261 164,896 249,679 207,659

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

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 can hold Capital Receipts for future use. As such, capital receipts received and capital receipts used are not necessarily equal.

Table 2.5 – Capital receipts summary, 2016-17

£thousands

  General Fund Housing Revenue Account Total
Capital receipts brought forward at 1 April 2016 79,266 7,619 86,885
Capital receipts from the sale/ disposal of fixed assets 69,245 138,414 207,659
Total Capital Receipts Available for Use 148,511 146,033 294,544
Capital receipts used from asset sales/disposals 58,706 128,453 187,159
Capital receipts used to repay debt 5,817 11,313 17,130
Capital receipts transferred to the equal pay or severance statutory adjustment account 148 0 148
Capital receipts transferred to/(from) Capital Fund (2,452) 0 (2,452)
Capital Receipts Held 31 March 2017 86,292 6,267 92,559

Source: Capital Returns ( CRFinal)

Table 2.5 shows that authorities had a total of £295 million of capital receipts available for use during 2016-17, of which £87 million was the balance brought forward at 1 st April 2016 and £208 million were raised during the year from the sale/disposal of fixed assets.

The main use of capital receipts in 2016-17 was to finance capital expenditure (£187 million), with a further £17 million used to repay debt. Around £2.5 million was transferred from the Capital Fund to the Capital Receipts reserve. This resulted in a Capital receipts balance of £93 million at the 31 st March 2017.

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 2016-17 was £1.2 billion. This is an increase of 42% on 2015-16 and an increase of 1% on 2012-13. When interpreting the pattern of borrowing over the period from 2012-13 to 2016-17, 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, +£120m in 2014-15 and +£94.2m allocated in 2015-16, with the remaining £5.8m allocated to Police and Fire). Of the total Loans Fund borrowing, £954 million (up 71%) was in the General Fund and £225 million (down 18%) was in the HRA.

Table 2.6 – Loans Fund Borrowing to Finance Capital Expenditure – 2012-13 to 2016-17 ( £thousands)

2012-13 2013-14 2014-15 2015-16 2016-17
General Fund 852,238 788,568 518,296 558,669 954,113
Advances for Capital Expenditure 846,269 751,634 489,774 536,044 941,400
Advances for Consented Borrowing 5,969 36,934 28,522 22,625 12,713
Housing Revenue Account 313,149 316,958 311,404 272,658 224,697
Advances for Capital Expenditure 313,053 316,815 311,404 272,658 224,697
Advances for Consented Borrowing 96 143 0 0 0
Total Loans Fund Borrowing 1,165,387 1,105,526 829,701 831,327 1,178,810
           
Credit Arrangements 14,055 30,625 42,701 21,726 207,018
           
Total Borrowing and Credit Arrangements 1,179,442 1,136,151 872,402 853,053 1,385,828

Source: Capital Returns ( CRFinal)

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).


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