Scottish Local Government Finance Statistics (SLGFS) 2018-19

5. Debt

When a local authority borrows money or uses a credit arrangement to finance capital expenditure a debt liability is created that the local authority has to repay from future revenues.

Total debt across local authorities at 31 March 2019 was £18,214 million, an increase of 3.8 per cent from £17,551 million at 1 April 2018. Table 5.1 provides a summary of debt in 2018-19.

Table 5.1: Total Debt at 31 March 2019, £ millions

	General Fund	Housing Revenue Account	Total
Loans Fund Advances Outstanding	11,295	3,754	15,049
Credit Arrangements	3,163	2	3,165
Total Debt	14,458	3,757	18,214

Source: CR Final

Total General Fund debt was £14,458 million on 31 March 2019, an increase of 3.5 per cent from £13,974 million at 1 April 2018. This equates to £2,659 per person, an increase of £83 from £2,576 per person on 1 April 2018.

Total HRA debt was £3,757 million on 31 March 2019, an increase of 5.0 per cent from £3,577 million at 1 April 2018. This equates to £12,070 per HRA dwelling, an increase of £537 from £11,533 per HRA dwelling on 1 April 2018.

Chart 5.1 shows total debt at 31 March from 2014-15 to 2018-19 by type of debt and split by General Fund and HRA. Total debt has increased by 14.3 per cent over this time period, from £15,932 million in 2014-15 to £18,214 million in 2018-19. 

This increase has been reflected proportionately across the types of debt and between the General Fund and HRA, with the split of these four categories consistent across the five year period. The General Fund Loans Fund advances outstanding is the largest component and has accounted for just over three-fifths of total debt in each year between 2014-15 and 2018-19. 

More information on the types of debt shown in Table 5.1 and Chart 5.1 is provided in Chapters 5.1.1 and 5.1.2.

Chart 5.1: Total Debt at 31 March from 2014-15 to 2018-19, £ millions

Source: CR Final

5.1 Loans Fund

The Local Authority (Capital Finance and Accounting) (Scotland) Regulations 2016 require 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 are the amount to be met in each financial year from a local authorities’ revenue accounts.

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 a Loans Fund will decrease when Loans Fund Advances are repaid by making a charge to the General Fund or HRA. The balance on a Loans Fund at 31 March each year represents the amount of past expenditure a local authority has liability to fund from its future revenue budgets.

A local authority will borrow externally to fund the advances made from the Loans Fund. The balance on the Loans Fund should be similar to the value of external borrowing but there may be legitimate 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.

Table 5.2 provides a summary of local authorities’ Loans Funds in 2018-19. The overall value of the Loans Fund across all local authorities at 31 March 2019 was £15,049 million, an increase of 4.1 per cent from £14,457 million at 1 April 2018.

Table 5.2: Loans Funds Advances Outstanding in 2018-19, £ millions ¹

	General Fund	Housing Revenue Account	Total
Loans Fund Advances Outstanding at 1 April	10,887	3,574	14,462
Add: New advances from the Loans Fund	814	314	1,128
Less: Repayments in year	392	128	520
Less: Additional Voluntary Repayments in Year 2	15	6	21
Transfer in (+) or out (-) of assets between funds	0	0	0
Loans Fund Advances Outstanding at 31 March	11,295	3,754	15,049

Source: CR Final

Notes

¹ A detailed breakdown of Loans Fund advances outstanding between 2014-15 and 2018-19 is provided in Table 5.2a in the associated Excel file.

² This includes Capital Receipts applied to reduce Loans Fund borrowing.

General Fund Loans Fund advances outstanding were £11,295 million on 31 March 2019, an increase of 3.8 per cent from £10,883 million at 1 April 2018. This equates to £2,077 per person, an increase of £71 from £2,006 per person on 1 April 2018.

HRA Loans Fund advances outstanding were £3,754 million on 31 March 2019, an increase of 5.0 per cent from £3,574 million at 1 April 2018. This equates to £12,063 per HRA dwelling, an increase of £538 from £11,525 per HRA dwelling on 1 April 2018.

5.2 Credit Arrangements

Credit arrangements, such as finance leases, Private Finance Initiatives (PFI) and Public Private Partnerships (PPP)^[12] are not charged to the Loans Fund, but are a form of borrowing and so are included in the total debt figures.

Table 5.3 provides a summary of local authorities’ credit arrangements in 2018-19. The overall value of credit arrangements outstanding across all local authorities at 31 March 2019 was £3,165 million, an increase of 2.3 per cent from £3,093 million at 1 April 2018.

Credit arrangements within the General Fund were £3,163 million on 31 March 2019, an increase of 2.3 per cent from £3,091 million at 1 April 2018. This equates to £582 per person, an increase of £12 from £570 per person on 1 April 2018.

Credit arrangements within the HRA were £2.2 million on 31 March 2019, a decrease of 6.4 per cent from £2.4 million at 1 April 2018. This equates to £7 per HRA dwelling, a decrease of £1 from £8 per HRA dwelling on 1 April 2018.

Table 5.3: Credit Arrangements in 2018-19, £ millions ¹

	General Fund	Housing Revenue Account	Total
Credit Arrangement brought forward at 1 April	3,089	2	3,092
Add: New Credit Arrangements in year	204	0	204
Less: Repayments of Principal in year	130	0	131
Credit Arrangements Outstanding at 31 March	3,163	2	3,165

Source: CR Final

Notes

¹ A detailed breakdown of credit arrangements between 2014-15 and 2018-19 is provided in Table 5.3a in the associated Excel file.

5.3 Prudential Indicators

The Chartered Institute of Public Finance & Accountancy (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. Further, the Local Government in Scotland Act 2003 places a local authority under a statutory duty to set their own maximum capital expenditure limits and they must be set with regard to the Prudential Code. The key prudential indicators are:

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

Chart 5.2 shows the change in prudential indicators between 2014-15 and 2018-19. All four indicators have increased at similar rates over this period. More information on the individual indicators is provided in the remainder of this chapter.

Chart 5.2: Prudential Indicators at 31 March from 2014-15 to 2018-19, £ millions

Source: CR Final

5.3.1 Capital Financing Requirement (CFR)

The Capital Financing Requirement (CFR) 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 the debt met from future local authority budgets. 

The CFR will increase each year by the amount of new capital expenditure to be financed by borrowing or credit arrangements, and will decrease by the amounts repaid. The CFR represents an authorities underlying need to borrow money.

Table 5.4 shows the CFR calculation for 2018-19. The CFR increased from £17,649 million at 1 April 2018 to £18,303 million at 31 March 2019. This means that local authorities had a higher amount of new capital expenditure to be financed by borrowing than amounts repaid in 2018-19. This increase in CFR was reflected across both the General Fund and HRA in 2018-19.

Table 5.4: Capital Financing Requirement in 2018-19, £ millions ^{1, 2}

	General Fund	Housing Revenue Account	Total
Capital Financing Requirement at 1 April	14,029	3,619	17,649
Add: Capital Exp. to be financed by Borrowing	814	314	1,128
Add: Capital Exp. to be financed by Credit Arrangements	204	0	204
Less: Loans Fund Principal Repayments	398	128	526
Less: Credit Arrangements Principal Repayments	130	0	131
Less: Additional Voluntary Contributions of Repayments	15	6	21
Change in Capital Financing Requirement	475	180	654
Capital Financing Requirement at 31 March 2019	14,504	3,799	18,303

Source: CR Final

Notes

¹ This calculation includes repayments relating to historic police and fire debt.

² The total CFR calculation between 2014-15 and 2018-19 is provided in Table 5.4a in the associated Excel file.

Chart 5.2 shows that local authorities’ CFR has increased over the last five years which reflects the increase in local authority borrowing over this period.

5.3.2 Total External Debt

Total External Debt reflects local authorities’ gross external borrowing 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. Total External Debt may be more than the CFR where a local authority has chosen to borrow in advance of actual capital expenditure; however the Prudential Code limits borrowing in advance to the CFR amount plus up to two years planned capital expenditure to be funded from borrowing.

Table 5.5 shows the total external debt for 2018-19. Total External Debt was £17,079 million at 31 March 2019, an increase of 4.1 per cent from £16,413 million at 1 April 2018. 

Table 5.5: Total External Debt in 2018-19, £ millions

	At 1 April	At 31 March
Borrowing	13,333	13,903
Other Long Term Liabilities	3,080	3,175
Total External Debt	16,413	17,079

Source: CR Final

Notes

¹ A detailed breakdown of Total External Debt between 2014-15 and 2018-19 is provided in Table 5.5a in the associated Excel file.

As shown in Chart 5.2, the CFR has remained above total external debt between 2014-15 and 2018-19. This means that local authorities continue to be under-borrowed, that is they are utilising internal cash reserves rather than borrowing externally. At 31 March 2019, total external debt was 93.3 per cent of the CFR – this is consistent with prior years.

5.3.3 Operational Boundary and Authorised Limit

The Operational Boundary is based on the authorities’ capital spending plans and should reflect the most likely, or 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 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.

Table 5.6 shows the operational boundary and authorised limit for 2018-19. The Operational Boundary was £18,935 million at 31 March 2019. There has been little change to this indicator in year with a decrease of only 0.2 per cent from £18,966 million at 1 April 2018. The Authorised Limit was £20,909 million at 31 March 2019 following a 2.7 per cent increase in year from £20,353 million at 1 April 2018.

Table 5.6: Operational Boundary and Authorised Limit for 2018-19, £ millions

	At 1 April	At 31 March
Operational Boundary for External Debt	18,966	18,935
Authorised Limit for External Debt	20,353	20,909

Source: CR Final

As shown in Chart 5.2, neither the operational boundary nor the authorised limit have been breached in the last five years. This means that local authorities’ borrowing has consistently remained below these limits.