Local Government 2024-25 Provisional Outturn and 2025-26 Budget Estimates
This publication summarises the 2024-25 provisional outturn and 2025-26 budget estimates for revenue and capital services provided by Scottish local authorities.
Capital Expenditure
Capital expenditure is expenditure that creates an asset, extends the life of an asset or increases the value of an asset. It creates the buildings and infrastructure necessary to provide services, such as schools, care homes, flood defences, roads, vehicles, plant and machinery. Capital expenditure also includes grants a local authority provides to third parties, to fund that party’s capital expenditure; direct expenditure on a third party’s assets; and loans to third parties to support capital investment of the third party where this is financed from capital resources. Capital POBE figures include amounts relating to a local authority’s direct provision of housing, which is recorded in the Housing Revenue Account (HRA).
It is important to note that the ‘lumpy’ nature of capital expenditure means that delays or changes to large capital projects at the end of the financial year can have a large impact on final figures compared to provisional outturn and budgets.
Capital expenditure across local authorities was £3,678 million in 2023-24, and is provisionally reported as £4,479 million in 2024-25, an increase of 22% (£801 million). It is and budgeted as £5,035 million in 2025-26.
Figure 4: Total Capital Expenditure for 2021-22 to 2025-26, £ millions
Source: POBE 2025 Return, LFR CR
As shown in Figure 4, with the exception of 2023-24, capital expenditure has continued to increase year-on-year from its low point of £2,604 million in 2020-21 caused by the impact of the COVID-19 pandemic on the building sector.
As shown in Figure 5, most services show increases in capital expenditure in 2024-25 and 2025-26, compared to 2023-24. The HRA is the service with the largest capital expenditure in each year, and this is provisionally reported to increase to £1,296 million in 2024-25, and then to £1,533 million in 2025-26. Overall, HRA capital expenditure accounts for around 29% of all capital expenditure in 2024-25 and 30% in 2025-26.
HRA capital expenditure is driven by new construction and conversion, which accounts for 45 and 42 per cent of the HRA capital expenditure in 2024-25 and 2025-26 respectively.
Education is expected to have the second highest capital expenditure in both years, accounting for £1,023 million (23% of all capital expenditure) in 2024-25 and £1,039 million (21%) in 2025-26. A number of councils are building new schools in 2025-26, and as a result, capital expenditure in Education is expected to increase by 50.8% in 2025-26, compared to 2024-25. This reflects the roll out of the Learning Estate Investment Programme.
Figure 5: Capital Expenditure for 2023-24 to 2025-26 by Service, £ millions
Please note that 'Non-HRA Housing' includes capital expenditure related to Consented and Statutory Borrowing.
Source: POBE 2024 Return, LFR CR
Local authorities can finance capital expenditure in a number of ways, including use of grants and contributions; borrowing; credit arrangements; capital receipts and reserves. Figure 6 shows how capital expenditure was financed in 2023-24 and how it is anticipated to be financed in 2024-25 and 2025-26.
Figure 6: Total Capital Financing for 2023-24 to 2025-26, £ millions
Please note that ‘Grants & contributions’ and ‘Borrowing from Loans Fund’ include amounts used to fund grants to third-party capital projects.
Source: POBE 2025 Return, LFR CR
In-year borrowing from the Loans Fund is the largest source of capital financing, at £1,705 million in 2023-24, with substantial increases to £2,395 million in 2024-25 and £3,021 million expected in 2025-26. This increase in in-year borrowing is seen across most councils, with 21 councils increasing their in-year borrowing in 2024-25 compared to the previous year, and 23 increasing their in-year borrowing in 2025-26. In-year borrowing has overtaken grants & contributions as the primary source of capital financing in 2023-24, 2024-25 and 2025-26.
In-year grants & contributions are expected to be £1,523 million in 2024-25 and £1,554 million in 2025-26. This source of capital financing includes grants and contributions received from the Scottish and UK Governments; other government agencies and Non-Departmental Public Bodies (NDPBs); other local authorities; and private developers. Capital grant from the SG includes capital allocations paid to local authorities as part of the Local Government Finance Settlement. Details of these allocations can be found in the relevant Local Government Finance Circular.
The Chartered Institute of Public Finance and Accountancy (CIPFA) Prudential Code sets out a framework for a local authority to demonstrate its capital investment plans are affordable, prudent and sustainable. The Capital Financing Requirement (CFR) is one of the prudential indicators set out in this framework. It represents the amount of capital expenditure a local authority has determined should be met from borrowing or funded from a credit arrangement, with the repayment of debt met from future budgets. That is, it represents an authority’s underlying need to borrow money. Local authorities have reported total provisional CFR of £26,247 million in 2024-25, and total budget estimate for CFR of £28,605 million for 2025-26.
Total External Debt reflects local authorities’ gross external borrowing, finance leases and other long-term liabilities. This may be less than the CFR where an authority has chosen to utilise cash reserves rather than borrow externally; or it may be more than the CFR where an authority has chosen to borrow in advance of capital expenditure being incurred. The Prudential Code limits local authorities’ borrowing in advance to the CFR amount plus up to two years’ planned capital expenditure to be funded from borrowing. Local authorities have reported provisional external debt of £22,916 million in 2024-25, and budgeted for external debt of £25,696 million in 2025-26.
Figure 7: CFR and External Debt for 2021-22 to 2025-26, £ millions
Source: POBE 2025 Return, LFR CR
As shown in Figure 7, Total External Debt continues to remain below the CFR. This means local authorities are under-borrowed and indicates their treasury policy is to utilise cash reserves to fund borrowing at this time. Should their cash requirements increase, a local authority can borrow externally to meet that need, utilising their under-borrowed position.