Scottish Local Government Financial Statistics 2014-15

3. Local Government Reserves, Fixed Assets and Debt

3.1 Reserves

Revenue reserves reflect an accumulation of surplus income. These are used to finance future spending on services. The surplus or deficit on the provision of service is laid out in Table 1.1; in order to be consistent with that table income is shown in brackets and expenditure as positive in the following tables.

On 1 April 2014 local authorities had total revenue reserves of £1.813 billion. Over the course of the year, total reserves increased by £65 million (3.6%) to £1.879 billion on 31 March 2015. Capital reserves increased by £10.3 million (1.9%), from £0.528 billion to £0.538 billion.

Table 3.1 - Movements in Reserves by Account, 2014-15

£thousands

	Revenue Reserves					Total Revenue Reserves
	General Fund	Housing Revenue Account	Renewal and Repairs	Insurance Fund	Other Statutory Funds
Level of Reserves held 1 April 2014	(1,089,257)	(116,106)	(163,783)	(82,645)	(361,521)	(1,813,312)
Surplus or Deficit on provision of services	265,119	115,052				380,171
Statutory Adjustments	(317,434)	(132,161)				(449,595)
Total Surplus or Deficit	(52,315)	(17,109)				(69,424)
Movement between Reserves	(4,147)	6,064	(6,553)	(3,091)	12,828	5,101
Capital Expenditure funded from Reserves		151	3,957			4,108
Other Movements in Reserves	8,858	(2,789)	(10,108)	(759)	(190)	(4,988)
Movement in Reserve	4,711	3,426	(12,704)	(3,850)	12,638	4,221
Level of Reserves held 31 March 2015	(1,136,861)	(129,789)	(176,487)	(86,495)	(348,883)	(1,878,515)

Source: Local Financial Returns (LFR 23)

Table 3.1 (continued) - Movements in Reserves by Account, 2014-15

£thousands

	Capital Reserves			Total Capital Reserves
	Capital Fund	Capital Receipts	Capital Grants Unapplied
Level of Reserves held 1 April 2014	(411,837)	(30,779)	(85,464)	(528,080)
Increase of Decrease in year			(13,110)	(13,110)
Movement between Reserves	(24,916)	19,815		(5,101)
Capital receipts for the year	(8,029)	(85,853)		(93,882)
Capital Expenditure funded from Reserves	30,561	41,486	26,604	98,651
Other Movements in Reserves	(392)	3,583		3,191
Movement in Reserve	(2,776)	(20,969)	13,494	(10,251)
Level of Reserves held 31 March 2015	(414,613)	(51,748)	(71,970)	(538,331)

Source: Local Financial Returns (LFR 23) and Capital Return Final

3.2 Fixed Assets

Capital Expenditure creates local authority assets. The value of Local Authority fixed assets is shown in Table 3.2 below. At 31^st March 2015, local authorities held a total of £39.4 billion of assets, an increase of 1.4% (£535 million) on 31^st March 2014.

Table 3.2 - Value of Fixed Assets, 31^st March 2011 to 31^st March 2015

£thousands

	Value of fixed assets as at 31 March 2011	Value of fixed assets as at 31 March 2012a	Value of fixed assets as at 31 March 2013	Value of fixed assets as at 31 March 2014	Value of fixed assets as at 31 March 2015
Operational Assets
Council dwellings	9,780,140	9,475,119	10,450,805	10,839,706	10,535,999
Other land and buildings	19,132,148	18,955,480	18,978,739	18,276,923	18,866,921
Vehicles, plant and machinery	928,814	937,152	1,022,046	1,003,162	1,178,814
Infrastructure assets	4,335,085	4,432,109	4,751,596	4,987,041	5,361,011
Community assets	177,755	165,502	168,819	161,728	169,971
Heritage assets2		417,174	1,804,230	1,803,074	1,840,245
Total operational assets	34,353,942	34,382,536	37,176,235	37,071,634	37,952,961
Non-operational assets
Assets under construction	1,275,873	1,456,501	1,271,111	1,200,830	845,627
Surplus assets held for disposal	492,701	397,053	377,632	365,120	336,021
Investment properties	209,196	205,613	205,220	197,445	207,027
Total non-operational assets	1,977,770	2,059,167	1,853,963	1,763,395	1,388,675
Intangible Assets	18,052	77,184	19,747	23,913	52,306
Total Assets excluding Police & Fire	35,560,848	36,299,949	38,214,124	38,858,942	39,393,942
Total Assets	36,349,764	37,168,112	39,049,945	38,858,942	39,393,942

a. Total Assets for 2011-12 includes £649,225 thousand for South Ayrshire Council that couldn't be broken down into the above categories.

2. Heritage assets was collected as a category from 2012-13 onwards.

Source: Capital Returns (CR Final)

3.3 Local Authority Debt

Local authority capital expenditure is financed from a number of sources. When this is by borrowing money or a credit arrangement (e.g. a finance lease or a Public-Private Partnership (PPP) or Private Finance Initiative (PFI)) a debt liability is created to be repaid by a local authority from future revenues.

The Local Government (Scotland) Act 1975 Act requires a local authority to maintain a loans fund. Advances are made from the loans fund to record the amount of expenditure a local authority has determined should be met from borrowing as permitted by legislation. The repayments made to the loans fund is the amount to be met in each financial year from a local authority revenue budget.

The expenditure recorded in the loans fund is expenditure which has been deferred (i.e. not met by taxpayers or housing tenants when it is incurred) and is to be charged to taxpayers or housing tenants over a number of future years. The value of a loans fund will increase whenever an advance is made for expenditure incurred, or loans made, in any financial year. The value of the loans fund will reduce when loans fund advances are repaid by making a charge to the General Fund or Housing Revenue Account. The balance on a loans fund at 31 March each year represents the amount of past expenditure a local authority has a liability to fund from its future revenue budgets.

A local authority will borrow externally to fund the expenditure that is deferred and recorded in the loans fund. The balance on the loans fund should be similar to the value of external borrowing. There may be differences between the two values. Local authorities may borrow internally, that is use cash reserves rather than borrowing externally, or may borrow in advance of incurring the actual expenditure to take advantage of favourable interest rates.

The value of Loans Fund advances outstanding is set out in Table 3.3 and the level of credit arrangements outstanding is set out in Table 3.4.

Following a review of the Capital forms in 2015, the timing of the data collection was changed to allow for final, audited capital data to be collected. Prior to this, near-final data was collected and, as such, the loans fund advances outstanding on 31st March may not match the loans fund advances outstanding on 1st April.

The all Scotland value of loans fund advances outstanding at 31st March 2015 was £13.18 billion (of which £9.96 billion was General Fund and £3.22 billion was HRA). General Fund loans fund advances outstanding increased by £26.1 million (0.3%) between 1st April 2014 and 31st March 2015. HRA loans fund advances outstanding rose by £195 million (6.5%) between 1^st April 2014 and 31^st March 2015.

At 31st March 2015, the Scottish average General Fund loans fund advances outstanding was equal to £1,862 per person (down 0.1% on 31st March 2014) and the average HRA loans fund advances outstanding was equal to £10,138 per HRA dwelling (up 6.3% on 31st March 2014).

Table 3.3 - General Fund and HRA Loans Fund Advances Outstanding, 2010-11 to 2014-15

£thousands

	2010-11	2011-12	2012-13	2013-14	2014-15
General Fund
Loans Fund advances outstanding 1 April	8,710,450	9,118,442	9,608,327	9,650,825	9,932,872
ADD New advances from the Loans Fund	808,181	918,890	852,238	788,568	518,296
LESS: Repayments in year	438,378	455,689	475,952	469,823	462,945
LESS: Additional Voluntary Repayments in Year	5,335	68,547	45,299	34,546	27,437
Transfer of assets between funds (transfers out are negative)	32,442	258	-292	-1,411	-1,773
Total Loans Fund advances outstanding (£ thousands)	9,107,360	9,513,353	9,939,022	9,933,613	9,959,013
Per Head (£)	1,744	1,810	1,870	1,865	1,862
Housing Revenue Account
Loans Fund advances outstanding 1 April	2,209,527	2,384,118	2,619,354	2,835,741	3,024,509
ADD New advances from the Loans Fund	305,748	342,578	313,149	316,958	311,404
LESS: Repayments in year	91,038	97,820	96,475	127,585	105,602
LESS: Additional Voluntary Repayments in Year	8,354	7,414	2,920	9,956	12,411
Transfer of assets between funds (transfers out are negative)	-32,442	-258	292	1,411	1,773
Total Loans Fund advances outstanding (£ thousands)	2,383,441	2,621,205	2,833,400	3,016,569	3,219,673
Per HRA dwelling (£)	7,502	8,284	8,973	9,533	10,138
Total (GF + HRA) Loans Fund advances outstanding	11,490,801	12,134,558	12,772,422	12,950,182	13,178,687

Source: Capital Returns (CR Final), Housing Revenue Account: Local authority housing income and expenditure, NRS Mid-Year Population Estimates (2013)

Table 3.4 - Credit Arrangements, 2010-11 - 2014-15

£thousands

	2010-11	2011-12	2012-13	2013-14	2014-15
General Fund
Balance brought forward 1 April	2,706,195	2,846,858	2,865,124	2,845,843	2,800,193
ADD: New credit arrangements in year	103,972	106,888	14,055	30,625	42,701
LESS: Repayments of principal in year	81,361	97,269	84,955	90,802	92,895
Credit arrangements outstanding 31 March	2,728,806	2,856,476	2,794,224	2,785,666	2,749,999
Per Head (£)	523	544	526	523	514
Housing Revenue Account
Balance brought forward 1 April	17,364	14,226	10,508	7,132	4,965
ADD: New credit arrangements in year	0	0	0	0	0
LESS: Repayments of principal in year	4,059	3,683	3,380	2,167	1,496
Credit arrangements outstanding 31 March	13,305	10,543	7,128	4,965	3,469
Per Head (£)	42	33	23	16	11
Total (GF + HRA) Credit Arrangements Outstanding	2,742,111	2,867,019	2,801,352	2,790,631	2,753,468

Source: Capital Returns (CR Final)

Table 3.5 - Total Debt, 31^st March 2011 - 31^st March 2015

£thousands

	31st March 2011	31st March 2012	31st March 2013	31st March 2014	31st March 2015
General Fund
Loans Fund Advances Outstanding	9,107,360	9,513,353	9,939,022	9,933,613	9,959,013
Credit Arrangements	2,728,806	2,856,476	2,794,224	2,785,666	2,749,999
Total General Fund Debt	11,836,166	12,369,830	12,733,246	12,719,279	12,709,012
Per Head (£)	2,267	2,354	2,396	2,387	2,377
Housing Revenue Account
Loans Fund Advances Outstanding	2,383,441	2,621,205	2,833,400	3,016,569	3,219,673
Credit Arrangements	13,305	10,543	7,128	4,965	3,469
Total HRA Debt	2,396,746	2,631,748	2,840,528	3,021,534	3,223,142
Per HRA Dwelling (£)	7,544	8,317	8,995	9,549	10,149
Total Debt	14,232,912	15,001,577	15,573,774	15,740,813	15,932,155

Source: Capital Returns (CR Final)

3.4 Prudential Indicators

The CIPFA Prudential Code sets out a framework for a local authority to demonstrate its capital investment plans are affordable, prudent and sustainable. A number of prudential indicators are set and monitored against three year capital expenditure plans.

Key prudential indicators are:

• Capital Financing Requirement;
• Total External Debt;
• Operational Boundary;
• Authorised Limit.

The Capital Financing Requirement (CFR) represents the amount of capital expenditure which a local authority has determined should be met from borrowing with the repayment of that borrowing to be met from future local authority budgets. Each year the CFR will increase by the amount of new capital expenditure which a local authority has determined should be met by borrowing (which includes both borrowing money and credit arrangements such as PPP/PFI) and decrease by the amounts repaid. The CFR only represents an authority's underlying need to borrow to finance capital expenditure. The actual Total External Debt may be less than the CFR where a local authority has chosen to utilise internal cash reserves rather than borrow externally. The Total External Debt may exceed the CFR where a local authority has chosen to borrow in advance of actual capital expenditure. The Prudential Code limits borrowing in advance to the CFR plus up to 2 years planned capital expenditure to be funded from borrowing.

Local authorities are also required to set limits on external debt. The Operational Boundary is based on the authority's capital spending plans and should reflect the most likely, i.e. prudent, but not worst case scenario for borrowing. In general, it is not significant if an authority breaches the operational boundary for a short period, however a sustained or regular trend above the operational boundary would be significant.

The authorised limit represents the maximum amount that the authority may borrow and is set at a level that reflects capital expenditure plans but includes headroom to allow for unusual cash movements i.e. treasury management.

Local Authority Total External Debt increased by £0.39 billion (2.7%), from £14.59 billion at the 1^st April 2014 to £14.98 billion at the 31^st March 2015. Local Authorities are currently under-borrowed, i.e. utilising internal cash reserves rather than external borrowing, with total external debt as a percentage of the Capital Financing Requirement falling from 98% at 31^st March 2011 to 93% at 31^st March 2015.

Table 3.6 - Prudential Information, 2010-11 to 2014-15

£thousands

	2010-11	2011-12	2012-13	2013-14	2014-15
Capital Financing Requirement at 1 April	13,094,369	13,988,396	14,674,452	14,893,146	15,863,207
Capital Expenditure to be financed by borrowing or credit arrangements	1,217,901	1,368,356	1,179,442	1,136,151	872,402
Capital Expenditure to be financed by borrowing	1,113,929	1,261,468	1,165,387	1,105,526	829,701
Capital Expenditure to be financed by credit arrangements	103,972	106,888	14,055	30,625	42,701
Loans Fund principal repayments	529,416	553,509	572,427	597,408	568,548
Credit arrangements principal repayments	85,420	100,952	88,335	92,969	94,391
Additional voluntary contributions of principal repayments	13,689	75,961	48,219	44,502	39,848
Change in Capital Financing Requirement	589,376	637,934	470,461	401,272	169,615
Capital Financing Requirement at 31 March	13,683,745	14,626,330	15,144,913	15,294,418	16,032,822
Borrowing at 1 April	9,897,347	10,800,370	11,290,176	11,558,504	11,897,475
Other long term liabilities at 1 April	2,723,559	2,920,001	2,875,632	2,852,975	2,690,905
Total External Debt at 1 April	12,620,906	13,720,371	14,165,808	14,411,479	14,588,380
Borrowing at 31 March	10,702,661	11,340,431	11,706,550	11,816,384	12,332,169
Other long term liabilities at 31 March	2,742,111	2,925,936	2,801,352	2,790,631	2,645,977
Total External Debt at 31 March	13,444,772	14,266,367	14,507,902	14,607,015	14,978,146
Operational boundary for external debt at 31 March	15,002,188	16,223,733	16,571,358	16,684,872	16,779,418
Authorised limit for external debt at 31 March	15,896,793	17,223,932	17,553,906	17,749,541	17,787,296
Total External debt as a percentage of the Capital Financing Requirement at 31 March	98%	98%	96%	96%	93%

Source: Capital Returns (CR Final)

Chart 3.1 - Prudential Indicators: 31^st March 2011 to 31^st March 2015

Source: Capital Returns (CR Final)