Local government finance: glossary of terms

Explanations of common financial terms used in local government.

Term Explanation or description
Aggregate External Finance (AEF) now known as Total Revenue Funding (TRF) AEF or Total Revenue Funding is the total amount of money paid by the Scottish Government to local government through the core local government finance settlement in support of their non housing net revenue expenditure. AEF or TRF is made up of three elements: Specific Revenue Grants, Non Domestic Rate Income (NDRI),and Revenue Support Grant (RSG) now known as General Revenue Grant (GRG)
Asset Management Plan (AMP) Plans produced by local authorities which set out: • the value and condition of their assets • proposals to safeguard the value and condition of these assets • capital implications of community plans, corporate needs and service priorities • the revenue implications of capital investment decisions.
Audit Scotland Audit Scotland's role is to provide the Auditor General and the Accounts Commission with the services they need to carry out their duties. The duty of the Auditor General and the Accounts Commission is to check that public money is spent properly, efficiently and effectively.
Best Value Accounting Code of Practice (BVACOP) now renamed as "Service Reporting Code of Practice for Local Authorities (SeRCOP) A Code of Practice produced by CIPFA to provide a consistent approach to reporting the total cost of services.
Business Rates Incentivisation Scheme (BRIS) BRIS was introduced with effect from 1 April 2012. It encourages all local authorities to maximise their existing business rates income and also to encourage new businesses to start up. Each local authority is able to retain 50 per cent of any additional income over and above an agreed target.
Budget Estimate (BE) Local authorities' estimates of their budgeted expenditure for the forthcoming year. This is part of the POBE (Provisional Outturn & Budget Estimate) forms that local authorities complete and return to the Scottish Government.
Business Improvement Districts (BIDs) A Business Improvement District (BID) is a precisely defined geographical area of a town, city, or commercial district, where businesses vote to invest collectively in local improvements resulting in improved economic performance. BIDs are developed, managed and paid for by the business sector by means of a compulsory BID levy on each business's non-domestic rates bill.
Capital Expenditure Capital Expenditure is expenditure incurred on the purchase or improvement of assets including land, buildings and equipment, which will be of use or benefit in providing services for more than one financial year. Capital expenditure, therefore, relates to the provision and improvement of assets such as schools, new houses and machinery which continue to be of value long after their acquisition. These assets are known as non-current assets. Such expenditure may be financed by capital receipts, capital grant, direct revenue financing or by borrowing.
Capital Financing Requirement A prudential indicator defined in the CIPFA Prudential Code. This indicator can be derived by aggregating information in local authorities' balance sheets. The indicator represents the underlying need to borrow for capital expenditure.
Capital Grant Grant provided to finance capital expenditure projects.
Capital Receipts Receipts from the disposal of a non-current asset.
CIPFA Chartered Institute of Public Finance and Accountancy.
Cities Growth Fund (CGF) no longer exists the funding was rolled-up in the general capital funding allocations from 2008‑09. The Cities Growth Fund provided around £173.1 million to Scotland's six cities over five years (1 April 2003-31 March 2008). The broad aim of the Fund was to support the development of a ten year Vision for each city from 2003 to 2013. Funding was allocated through the Local Government Finance settlement, with each city's allocation being proportional to its population. CGF monies are being spent on projects that enable the Vision to be attained.
Client Group Approach An objective method of estimating the relative need of local authorities to incur expenditure on a particular service or sub service, taking into account variations in the demand for services and the costs of providing them to a similar standard and with a similar degree of efficiency.
Code of Audit Practice The Code explains how auditors should carry out their functions under the Public Finance and Accountability (Scotland) Act 2000 or the Local Government (Scotland) Act 1973. The audit of financial statements is covered by engagement standards issued by the UK Auditing Practices Board (APB), so the Code focuses more on the wider functions of public sector auditors. It includes the expectations of the Auditor General and the Accounts Commission in areas such as Best Value and statements of corporate governance, internal control or internal financial control. The current edition of the Code came into effect on 28 March 2007.
Council Tax assumption In reaching an agreed level of support through TRF, the Scottish Government makes an assumption about how much a local authority can expect to raise through the local council tax. The calculation is made at an all Scotland level then allocated between each authority on the basis of the number of Band D properties in each local authority area. This calculation would ensure that if each local authority spent at the level of its TEE then the Band D council tax would be the same across Scotland.
Depreciation An accounting charge that reflects the wearing out, or consumption, of non-current assets over their useful lives. The accounting definition of depreciation is provided in the Code of Practice on Local Authority Accounting in the United Kingdom.
Estimated Service Expenditure (ESE) ESE is a combination of Grant Aided Expenditure (GAE) and Special Islands Needs Allowance (SINA) and is included within Updated Service Provision in the LGF Circulars.
Floors The floor is part of the overall calculation of each local authority's share of TRF. It is an adjustment made after the shares of TRF have been calculated to ensure that all councils receive a minimum guaranteed increase or maximum guaranteed decrease in funding from one year to the next. This is because some local authorities with falling population or high levels of deprivation would be faced with a cut in funding if only the needs based formula was used. By the introduction of the floor this gives these councils time to adjust their overall spending levels. With effect from 1 April 2012 a second floor was introduced which ensures that all local authorities receive at least 85% of the Scottish average revenue funding per head
General Revenue Grant (GRG) A grant paid by the Scottish Government to support local authority services in general. This is a block grant paid by the Scottish Government to local government in support of their non housing net revenue expenditure and is the balancing factor between an authority's assessed spending need and their income raised locally through the council tax and NDRI. The total of NDRI plus GRG is guaranteed by the Government so a loss of NDRI is supplemented by additional GRG and vice versa. GRG is paid out to councils on a weekly basis.
General Capital Grant (GCG) The GCG was introduced from 1 April 2008. It is the result of aggregating the funding from a number of former Specific Capital Grants to provide a single grant. The Government does not direct how the grant must be spent, with councils determining how these resources are used to meet both local and national priorities. The terms and conditions relating to this grant are set out in the General Capital Grant offer letter issued to individual councils each year. Revised offers may be made during the year.
Grant Aided Expenditure (GAE) GAE is not money nor is it a spending target or budget. It is used to distribute the funding through TRF using a needs based methodology (the Client Group Approach). GAE represents the Scottish Government's view of what requires to be spent by local government on services in order to provide a standard level of service across Scotland based on need. To encourage local authorities to move away from thinking of GAEs as what they should be spending on services we have added GAE plus Special Islands Needs Allowance (SINA) to give Estimated Service Expenditure (ESE) to highlight that the figures are only an estimate of what Scottish Ministers think authorities need to spend.
Grants outwith TRF Up until 2008-09 there were over £1 billion worth of grants, both revenue and capital, being paid to local government outwith TRF. Each of these grants had individual grant conditions and was administered by the relevant portfolio area. All of these grants were for a specific, usually short term or time limited period. From 1 April 2008 all of these grants were rolled-up and included in the local government finance settlements.
Housing Revenue Account (HRA) Local authorities are required to maintain a separate account, the Housing Revenue Account, defined by Section 74 and Schedule 4 of the Local Government and Housing Act 1989. This account sets out the expenditure and income arising from council housing provision.
Housing Support Grant Housing Support Grant (HSG) is a housing subsidy paid by the Scottish Government. It is payable when a local authority cannot balance its HRA by either putting rents up or by cutting management and maintenance expenditure on its housing stock or both.
Hypothecated Support Specific government support for expenditure on particular services, or service initiatives.
Invest to Save Schemes Capital projects or schemes which allow the cost of investment in new and more efficient infrastructure or capital build to be met wholly or in part from reductions in maintenance costs and energy bills.
Local Financial Return (LFR) Final outturn and expenditure statistics relating to each Local authority (and Joint Board) are collected on an annual basis in this series of detailed returns. The LFR information is used to monitor local authority expenditure for policy purposes and it is used for some GAE assessments (with secondary indicators or based directly on expenditure).
Non-Domestic (Business) Rates (NDR) Occupiers of non domestic property in Scotland pay non domestic rates. Non domestic rates are levied on the basis of a uniform poundage rate multiplied by the rateable value of each non domestic subject on the valuation roll. Adjustments are made for any rate relief entitlement before arriving at the rates liability for the year ahead.
Non Domestic Rate Income (NDRI) NDRI (or business rates) is the amount paid by businesses to the local authority in which the business is situated. The amount of NDRI is set nationally, collected locally then pooled by the Scottish Government and redistributed to local authorities based on the ability to collect as part of TRF. This transaction is a notional one in that no money actually changes hands. The Government assumes a certain level of NDRI income in calculating the amount of GRG a council is paid.
Option Appraisal The process of defining objectives, examining options and weighing up the costs benefits, risks and uncertainties before a decision is made. Under the prudential system option appraisal should consider different capital schemes or revenue and capital schemes.
Poundage Rate Non-Domestic rates are levied on the basis of a national poundage rate multiplied by the Rateable Value of the property you occupy. If you occupy a property with a rateable value in excess of £35,000 then you will be required to pay a supplement on the poundage rate. The national poundage rate is set annually by the Scottish Ministers and covers the period 1 April to 31 March.
Provisional Outturn (PO) Local authorities' provisional figure for their expenditure in the current year.
Prudential Code (CIPFA's) The CIPFA Prudential Code for Capital Finance in Local Authorities sets out the procedures and indicators (see below) which will assist local authorities in meeting their requirements under Part 7 of the 2003 Act. The 2004 Regulations provide statutory backing to the Code.
Prudential Indicators/Limits Indicators set out in the Prudential Code which will help authorities meet the statutory requirements in relation to borrowing limits or which will help authorities demonstrate affordability and prudence with regard to their prudential capital investment.
Rate Relief (Schemes) There are a number of rate relief schemes which businesses can apply for in order to ease the impact of their Non-Domestic (Business) Rates bill.
Rateable Value Apart from properties which are exempt from valuation, each non-domestic property has a rateable value. The Scottish Assessors set the rateable values. The rateable value broadly represents the yearly rent the property could have been let for on the open market on a particular date.
Redetermination This is a redetermination of General Revenue Grant (GRG) and is the amount of funding that becomes payable to local authorities after the annual GRG figures have been approved (or 'determined') by Parliament. Each annual Local Government Finance Order seeks approval for the payment of GRG for the financial year about to begin and also approves grant for the current and any previous financial years. This additional funding must be notified to Local Government Finance Division (by November) and approved by Parliament (normally February) before it can be paid in the last two weeks of March.
Scottish Assessors Association The Scottish Assessors are responsible for the valuation of both domestic and non domestic properties within one or more Council Areas. A valuation of non domestic properties is undertaken at regular intervals and is referred to as the Revaluation.
Scottish Executive Accounting System (SEAS) Scottish Government on line payment system.
SORP The Code of Practice on Local Authority Accounting in the United Kingdom, A Statement of Recommended Practice (the SORP). This code is produced by the CIPFA/LASAAC Joint Committee and sets out the requirements for the annual statement of accounts. Section 12 of the 2003 Act states that proper accounting practice is that regarded as generally recognised as proper accounting practice. Therefore, the SORP is accepted as proper accounting practice.
Special Islands Needs Allowance (SINA) SINA is a supplement added to a local authorities GAE allocation to reflect the additional costs of a local authority servicing its island communities.
Specific Grants As the name suggests funding through a specific grant is provided for a specific purpose and cannot be spent on anything else.
Supported Borrowing Assumed level of borrowing that the Scottish Government will support through unhypothecated General Revenue Grant towards principle repayments and interest. This type of support is no longer provided. General Capital Grant is now provided.
Three year settlements A three year settlement usually confirms the local government finance settlement for the coming year (the last year of the previous spending review) and produces provisional figures for the 2 following years. Spending Review 2011 set the local government finance settlements for the years 2012-2015.
Total Estimated Expenditure (TEE) TEE is the Government's view of what Scottish local authorities notionally need to spend on servicing debt and delivering services to enable TRF to be calculated (Central Government Grant).
Transitional Arrangements The rateable values of all the non domestic property in Scotland is re-valued by the Scottish Assessors on a regular basis. Rateable values can increase or decrease fairly significantly between revaluations. This does not necessarily mean that there will be a significant change in the rates bill as the poundage rate is adjusted downwards following a revaluation to offset the overall rise in values. Some ratepayers however, may see significant changes in their rates bills and for those rate payers, transitional arrangements may come into play. Transitional arrangements if put in place soften the impact of the revaluation by phasing in changes to the rates bill over a period of time.
Treasury Management Code (CIPFA's) The CIPFA's Treasury Management in the Public Services: Code of Practice and Cross Sectoral Guidance. This sets out practices, procedures and reporting requirements which underpin the prudential system.
Total Revenue Funding (TRF) See AEF
Unhypothecated Support Government support for expenditure or services not linked to any specific scheme or initiative.
Self-financed Borrowing Borrowing by local authorities which is not supported by Scottish Government grants) which local authorities have assessed to be affordable, sustainable and prudent as required by the Prudential Code.
Whole of Life Costing Costing information analysed for an asset over the whole period that it will be useful for an authority, including purchase price, repairs and maintenance costs, energy bills, asset utilisation charges, income generated from the asset, and any residual value. Provides full information on the revenue implications of ownership of the asset.
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