Scottish Local Government Financial Statistics 2011-12

Scottish Local Government Financial Statistics is an annual publication that provides a comprehensive overview of Scottish Local Authority financial activity. The publication covers Local Authority income, revenue and capital expenditure, outstanding debt, local taxation and Local Authority pensions.

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3. Local Government Capital Expenditure and Financing

3.1 Total Capital Expenditure and Financing

Capital expenditure undertaken by Local Authorities is mainly for purchasing, constructing or enhancing physical assets, such as buildings (e.g. police or fire stations and schools), land (e.g. playing fields), infrastructure (e.g. roads), and vehicles, plant and machinery. Capital expenditure also includes expenditure that the Scottish Ministers have permitted the local authorities to treat as capital expenditure and is met from capital resources.

Capital expenditure is financed by one or more of the following types of income:

  • Capital grants and contributions
  • Borrowing/Finance leases
  • Contributions from revenue funds
  • Capital receipts from asset sales

Prior to 1 April 2004, Local Authorities were only permitted to incur liability to fund capital expenditure with the consent of Scottish Ministers. These capital consents were issued by Ministers under section 94 of the Local Government (Scotland) Act 1973. Following the introduction of the Local Government in Scotland Act 2003, Local Authorities are permitted to finance capital expenditure by borrowing without securing Government approval. Local Authorities have a statutory duty to set their own maximum capital expenditure limits. These limits must be set with regard to the CIPFA Prudential Code, which requires that capital expenditure undertaken by Local Authorities must be affordable, prudent and sustainable. Detailed breakdowns of Capital Expenditure can be found in Annexes G and H.

Table 3.1 - Total Capital Expenditure and Financing, 2011-12

£ thousands

General Fund Services Housing Revenue Account Total
Acquisition of land, leases, existing buildings or works 80,360 56,972 137,332
New construction, conversions & enhancement to existing buildings 1,639,155 503,138 2,142,293
Vehicles, machinery & equipment 155,462 39,374 194,836
Intangible assets 5,918 134 6,052
Total Gross Capital Expenditure 1,880,895 599,618 2,480,513
Revenue Expenditure funded from Capital Resources 181,021 0 181,021
Total Expenditure to be met from Capital Resources 2,061,916 599,618 2,661,534
Scottish Government General Capital Grant 565,541 0 565,541
Scottish Government Specific Capital Grants 191,143 43,222 234,365
Grants from Scottish Government Agencies and NDPBs 78,209 4,555 82,764
Other Grants and Contributions 75,489 10,225 85,714
Borrowing from Loans fund 918,890 342,578 1,261,468
Capital receipts used from asset sales/disposals 50,296 43,724 94,020
Capital Fund applied 21,653 0 21,653
Capital funded from current revenue 53,807 155,315 209,122
Assets acquired under credit arrangements (e.g. finance leases, PPP/PFI) 106,888 0 106,888
Total Financing 2,061,916 599,618 2,661,534

Source: Capital Returns (CR Final)

In 2011-12 total gross capital expenditure was £2.48 billion. In addition to this, local authorities had £180 million of revenue expenditure from their capital resources - this was mostly funding third party capital projects in non-HRA housing. This means that total expenditure funded from capital resources was £2.66 billion in 2011-12 ( £0.60 billion in the housing revenue account and £2.06 in the General Fund), compared to £2.35 billion in 2010-11 - an increase of £313m. The majority of capital expenditure went on New construction, conversions and enhancements to existing buildings, this category accounted for over 80% of expenditure.

The largest source of financing for capital expenditure in 2011-12 was borrowing. Local authorities borrowed £1.26 billion to fund capital expenditure (£918 million for the general fund and £343 million for the HRA). The second most significant source of financing were grants from the Scottish Government and its Agencies these funded a further £883 million of capital expenditure.

The capital data for 2009-10 (and subsequent years) include the changes arising from the introduction of International Financial Reporting Standards (IFRS). Under the new accounting arrangements the criteria for asset recognition moved from risk and reward to the control of service provision and control of the residual value of the asset. Based on the new tests most local authorities identified that they do have control of service provision and the residual interest in the PFI assets, such as schools. These assets are now recognised as assets of the local authority (on-balance sheet) which they were not under the previous arrangements and now form part of the capital regime. Any expenditure on their construction or enhancement will be capital expenditure. The associated financing of the arrangement is a type of debt which is known as a finance lease or credit arrangement.

Table 3.2 - Total Capital Expenditure and Financing, 2007-08 to 2011-12

£ thousands

2007-08 2008-09 2009-10 2010-11 2011-12
Acquisition of land, leases, existing buildings or works 76,370 284,120 477,203 98,730 137,332
New construction, conversions & enhancement to existing buildings 1,897,118 1,808,204 2,385,906 1,876,692 2,142,293
Vehicles, machinery & equipment 157,491 189,280 183,013 156,289 194,836
Intangible assets 51,530 50,373 11,197 5,042 6,052
Total Gross Capital Expenditure 2,182,509 2,331,977 3,057,319 2,136,753 2,480,513
Revenue Expenditure funded from Capital Resources 1,838 200,164 214,040 211,409 181,021
Total Expenditure to be met from Capital Resources 2,184,347 2,532,141 3,271,359 2,348,162 2,661,534
Scottish Government General Capital Grant nc 364,039 462,640 352,652 565,541
Scottish Government Specific Capital Grants nc 262,093 268,370 228,865 234,365
Grants from Scottish Government Agencies and NDPBs 94,655 141,590 160,281 115,726 82,764
Grants from Scottish Government Directorates 627,516 nc nc nc nc
Other Grants and Contributions 132,287 115,871 104,575 94,486 85,714
Borrowing from Loans fund 710,474 1,206,318 1,091,548 1,113,929 1,261,468
Capital receipts used from asset sales/disposals 406,547 204,048 164,746 114,722 94,020
Capital Fund applied 34,440 40,609 28,616 14,916 21,653
Capital funded from current revenue 173,668 196,836 166,141 208,894 209,122
Assets acquired under credit arrangements (e.g. finance leases, PPP/PFI) 4,760 737 824,442 103,972 106,888
Total Financing 2,184,347 2,532,141 3,271,359 2,348,162 2,661,534

1. From 2009-10 onwards assets acquired through PPP/PFI are included. In addition, figures for 2009-10 include assets acquired through PPP/PFI for past years. ( more information on the changes can be found here - http://www.scotland.gov.uk/Topics/Government/local-government/17999/LACapital/CapExReport200910)

Source: Capital Returns (CR Final)

Because of the changes in accounting practice noted above it is difficult to draw conclusions about changes in capital expenditure and financing over the time period presented in Table 3.2 and Chart 3.1. In particular the figures for 2009-10 include all of the expenditure financed by PPP/PFI in the years up to then that would be counted as expenditure under the new regime - this is illustrated by the spike in capital expenditure financing for 2009-10 shown in chart 3.1. However, despite this, it is possible to conclude that there have been some changes in the way capital expenditure has been financed over recent years. As revenue from capital receipts has fallen they play an increasingly small part in financing expenditure, with other forms of financing (for example borrowing from the loans fund) increasing their proportion of total capital financing.

Chart 3.1 - Capital Expenditure Financing

Chart 3.1 - Capital Expenditure Financing

Source: Capital Returns (CR Final)

3.2 General Fund Capital Expenditure

General fund capital expenditure in 2011-12 was £2,062 million. The service with the highest capital expenditure was education with £692 million; around a third (34%) of local government capital expenditure went on education. It is difficult to make comparisons with past data for education expenditure because of the changes made to accounting for PPP/PFI from 2009-10 onwards. It should be noted expenditure for 2009-10 includes a large amount of expenditure funded by PPP/PFI for past years and this disproportionately effects education expenditure. In total, local authorities recorded their past years' PPP/PFI funded expenditure as £867 million and of this, £830 million was in education.

The next biggest service for capital expenditure is roads and transport which had expenditure of £483 million (23% of general fund expenditure). Expenditure on roads and transport by City of Edinburgh Council in 2011-12 was £135 million (28% of total roads and transport expenditure). In the period 2007-08 to 2011-12 City of Edinburgh Council's expenditure on roads and transport was £609 million out of a total of £2,317 million in Scotland this represents 25% of total roads and transport expenditure. This high share of expenditure includes expenditure related to the construction of the Edinburgh Trams.

Table 3.3 - Capital Expenditure by Service, 2007-08 to 2011-12

£ millions

2007-08 2008-09 2009-102 2010-11 2011-12
Education 464,827 479,258 1,248,645 508,691 691,878
Social Work 65,449 63,233 66,379 51,256 46,487
Police 42,115 45,673 37,744 25,241 30,188
Fire 26,565 33,449 24,759 30,983 43,856
Cultural & Related Services 166,636 207,088 216,345 196,014 245,371
Environmental Services 101,341 121,267 121,769 102,458 105,036
Roads & Transport 1 484,669 479,769 471,795 399,084 482,554
Central Services 179,887 274,923 212,250 180,486 143,678
Planning & Economic Development 122,754 124,060 171,613 120,742 113,476
Non-HRA Housing 54,806 180,099 182,808 174,404 149,002
Trading Services 22,179 22,764 21,935 12,687 10,390
Total General Fund Capital Expenditure 1,731,228 2,031,583 2,776,042 1,802,046 2,061,916
Housing Revenue Account 453,119 500,558 495,317 546,116 599,618
Total Capital Expenditure 2,184,347 2,532,141 3,271,359 2,348,162 2,661,534

1. From 2009-10 onwards assets acquired through PPP/PFI are included. In addition, figures for 2009-10 include assets acquired through PPP/PFI for past years. ( more information on the changes can be found here - http://www.scotland.gov.uk/Topics/Government/local-government/17999/LACapital/CapExReport200910)

Source: Local Financial Returns - LFR 00

The next largest spending service is cultural and related services (which includes recreation and sports facilities) with expenditure of £245 million (12% of total general fund expenditure). Glasgow City Council had capital expenditure on cultural and related services of £81 million (33% of total cultural and related services expenditure).

In the period 2007-08 to 2011-12 Glasgow City Council's expenditure on cultural and related services was £288 million out of a total of £1,031 million in Scotland. This represents 28% of cultural and related services expenditure. This high share of expenditure includes some expenditure related to the Commonwealth Games.

Chart 3.2 - Capital Expenditure

Chart 3.2 - Capital Expenditure

In any given year capital expenditure per capita 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. For example in 2011-12 Inverclyde has the third highest expenditure per head but in 2010-11 it had the third lowest expenditure. This is mostly due to large expenditure on education recorded in 2011-12 by Inverclyde Council.

On the other hand, in Clackmannanshire expenditure per head in 2011-12 was £179, which ranks 32nd, however two years earlier Clackmannanshire had the 8th highest expenditure per head of £764. This again relates to large expenditure on education in 2009-10. Expenditure on capital projects is uneven and expenditure per head in local authority areas will move (possibly substantially) from year to year.

Chart 3.3 - Gross Capital Expenditure per Capita by Local Authority Area 2011-12

Chart 3.3 - Gross Capital Expenditure per Capita by Local Authority Area 2011-12

3.3 General Fund Capital Financing

3.3.1 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 ring-fenced grants. Scottish Government Agencies, such as Transport Scotland, and Non-Departmental Bodies, such as Sportscotland may also award grant for projects. Other grants and contributions include grants from other local authorities, European Structural Funds, contributions from private developers or persons, and grants from the National Lottery. Table 3.4 details capital grants by source, and type of local authority.

Table 3.4 - Capital Grants, 2011-12 1, 2

   £ thousands
  Scotland Unitary Authorities Police Boards Fire Boards Regional Transport Partnerships Bridge Authorities Valuation Boards
Grants from Scottish Government Agencies and NDPBs 724,402 647,870 6,494 11,527 40,588 17,923 0
Grants from other Local Authorities/Joint Boards 30,483 8,413 18,913 0 3,122 0 35
European Union Structural Funds 5,788 5,788 0 0 0 0 0
Contributions from private developers or persons 13,148 13,148 0 0 0 0 0
Grants from the National Lottery 3,007 3,007 0 0 0 0 0
Other grants/ contributions 43,020 41,636 250 442 638 0 54
Total Grants 819,848 719,862 25,657 11,969 44,348 17,923 89

1. These figures are those reported by local authorities in their 2011-12 Final Capital Return for Income. They will not, therefore, match the figures for financing in Table 3.2
2. Figures include Housing Revenue Account
Source: Capital Returns (CR Final)

3.3.2 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 the principal of loans.

Table 3.5 details capital receipts categorised by service from 2007-08 to 2011-12. 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 forms part of the "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 "Other Services". From 2009-10, Local authorities have been required to report Capital Receipts against the service with which the asset was last in use. A detailed breakdown of Capital Receipts by Service for 2011-12 can be found in Annex J.

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. Revenue raised from capital receipts has been falling for a number of years but because of the changes in recording practice it is difficult to attribute this fall to a particular service.

Table 3.5 - Capital Receipts Raised by Service, 2007-08 to 2011-12

£ thousands

2007-08 2008-09 2009-10 2010-11 2011-12
Education 62,563 30,489 4,089 18,822 20,177
Culture & Related Services 12,697 2,594 2,243 12,013 746
Social Work 3,473 715 285 2,026 3,477
Police & Fire 4,112 4,908 3,709 3,834 4,926
Roads & Transport 5,849 1,928 742 913 6,087
Environmental Services 644 793 1,113 799 611
Planning & Economic Development 26,421 9,120 8,996 17,901 13,962
Trading Services 243 6 133 1,082 1
Other Services 168,348 43,557 142,394 18,613 15,663
Non-HRA Housing 454 211 602 453 344
Total General Fund Services 284,804 94,321 164,306 76,456 65,994
Housing Revenue Account 229,109 135,657 65,091 65,515 46,326
Total Services 513,913 229,978 229,397 141,971 112,320

Source: Capital Returns (CR Final)

Table 3.6 - Capital receipts summary, 2011-12

£ thousands

General Fund Housing Revenue Account TOTAL
Capital Receipts brought forward at 1 April 2011 63,525 10,435 73,960
Capital receipts from the sale/ disposal of tangible fixed assets 65,924 43,072 108,996
Capital receipts from the sale/ disposal of intangible fixed assets 70 3,254 3,324
Total capital receipts available for use 129,519 56,761 186,280
Capital receipts used from asset sales/disposals 50,296 43,724 94,020
Capital receipts used to repay debt 2,912 7,420 10,332
Capital receipts transferred to Capital Fund 16,634 0 16,634
Capital receipts held 31 March 2012 59,677 5,618 65,295

Source: Capital Returns (CR Final)

Table 3.6 shows the impact capital receipts raised and used have on the capital receipts brought forward at 1 April 2011 (£74.0m), resulting in capital receipts held at 31 March 2012 of £65.3m.

3.3.3 Borrowing

Local Authorities have the statutory power to borrow under Schedule 3 of the Local Government (Scotland) Act 1975. 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

Borrowing is a major component of the funding of capital expenditure, whose proportion in terms of capital expenditure financing increased greatly from 2007-08 to 2008-09, as shown in Table 3.7.

The Scottish Government provides loan charge support as part of local authority revenue funding, which covers the debt charges on a notional amount of capital expenditure each year. This is known as supported borrowing. Borrowing over and above the level of supported borrowing is classified as self-financed borrowing, and is financed by the local authority itself.

Local authorities are required by legislation to operate a loans fund. All amounts of 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. It is not expected, however, that the levels of loan pool debt and external debt will be significantly different in value.

Table 3.7 - Loans Fund Borrowing to Finance Capital Expenditure

£ thousands

2007-08 2008-09 2009-10 2010-11 2011-12
Scotland 710,474 1,206,318 1,091,548 1,113,929 1,261,468
Unitary Authorities 706,643 1,194,867 1,086,559 1,110,056 1,245,898
Fire 0 5,674 0 3,873 15,570
Police 3,831 5,777 4,989 0 0
Valuation Boards1 nc nc nc 0 0
Regional Transport Partnerships 0 0 0 0 0
Bridge Authorities 0 0 0 0 0

1. Data from Valuation Boards was collected for the first time in 2010-11

Source: Capital Returns (CR Final)

The costs of servicing debt on Local Authority trading services (e.g piers and harbours) are mainly met through the charges made for these services, while the costs of servicing Housing Revenue Account (HRA) debt are met principally through income from rents and from Housing Support Grant. The costs of servicing debt are detailed in Table 2.1 which shows interest paid and the cost of repayments can be seen in Annex B (Statutory Repayment of Debt).

Contact

Email: Bruce Golding

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