Scottish Local Government Financial Statistics 2009-10

4 LOCAL GOVERNMENT CAPITAL EXPENDITURE

KEY SUMMARY FACTS

• Total capital expenditure in 2009-10 was £3,293 million.
• Capital grants from the Scottish Government to finance capital expenditure in 2009-10 were £891 million.
• Borrowing to finance capital expenditure (including finance leases) in 2009-10 was £1,916 million.
• Capital receipts used to finance 2009-10 capital expenditure were £165 million.
• Capital funded from current revenue in 2009-10 was £166 million.
• The value of Local Authority fixed assets at 31 March 2010 was £34.5 billion.
• Total outstanding debt at 31 March 2010 was £10.9 billion.

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

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 I and J.

Table 4.1 - Capital Expenditure, 2009-10 ¹

£ thousands

	General Fund Services	Housing Revenue Account	Total
Acquisition of land, leases, existing buildings or works	455,789	21,414	477,203
New construction, conversions & enhancement to existing buildings	1,920,724	465,182	2,385,906
Vehicles, machinery & equipment	174,688	8,325	183,013
Intangible assets	10,801	396	11,197
Total	2,562,002	495,317	3,057,319
Revenue Expenditure funded from Capital Resources	235,316	-	235,316
Total Capital Expenditure	2,797,318	495,317	3,292,635

1. Includes capital funded from current revenue

Table 4.2 - Capital Expenditure By General Fund Service ¹

£ thousands

	2005-06	2006-07	2007-08	2008-09	2009-10
Education	330,458	415,392	464,827	479,258	1,248,645
Cultural & Related Services	120,063	136,412	165,992	207,088	216,345
Social Work	46,843	58,962	65,449	63,233	66,379
Police & Fire	66,533	66,820	68,680	101,062	83,779
Roads & Transport	345,831	427,303	484,669	479,769	471,795
Environmental Services	79,823	69,260	101,325	121,267	121,769
Planning & Economic Development	78,398	71,188	121,596	124,060	171,613
Non- HRA housing	89,940	82,259	54,786	180,099	182,808
Trading Services	34,055	48,960	22,179	22,764	21,935
Other Services	206,667	283,610	181,725	274,923	212,250
Total GF Capital Expenditure	1,398,611	1,660,166	1,731,228	2,053,523	2,797,318
Housing Revenue Account	418,078	489,313	453,119	500,558	495,317
Total Capital Expenditure	1,816,689	2,149,479	2,184,347	2,554,081	3,292,635

1. Includes capital funded from current revenue
2. Due to revised accounting arrangements for PPP and PFI, it is not possible to compare capital expenditure for 2009-10 with previous years for services in which there are PPP or PFI schemes. This mainly affects Education.

Table 4.3 - Capital Expenditure By Local Authority type, 2009-10

£ thousands

	General Fund	Housing Revenue Account	Total		General Fund	Housing Revenue Account	Total
Scotland	2,797,318	495,317	3,292,635
Aberdeen City	154,675	48,547	203,222	Central Scotland Fire	986	.	986
Aberdeenshire	55,825	19,224	75,049	Dumfries & Galloway Fire	735	.	735
Angus	33,368	9,621	42,989	Fife Fire and Rescue Service	3,662	.	3,662
Argyll & Bute 1	29,022	-	29,022	Grampian Fire	2,385	.	2,385
Clackmannanshire	33,468	4,824	38,292	Highlands & Islands Fire	2,771	.	2,771
Dumfries & Galloway 1	109,684	-	109,684	Lothian and Borders Fire	2,192	.	2,192
Dundee City	78,753	20,805	99,558	Strathclyde Fire	9,909	.	9,909
East Ayrshire	24,463	12,556	37,019	Tayside Fire	2,119	.	2,119
East Dunbartonshire	172,092	4,432	176,524	TOTAL FIRE	24,759	.	24,759
East Lothian	31,895	21,618	53,513
East Renfrewshire	12,820	3,903	16,723	Central Scotland Police	2,492	.	2,492
Edinburgh, City of	460,824	33,864	494,688	Dumfries & Galloway Police	828	.	828
Eilean Siar 1	17,978	-	17,978	Fife Constabulary	2,150	.	2,150
Falkirk	72,358	14,099	86,457	Grampian Police	2,526	.	2,526
Fife	74,799	52,238	127,037	Lothian & Borders Police	10,829	.	10,829
Glasgow City 1	296,357	-	296,357	Northern Police	3,796	.	3,796
Highland	70,606	10,738	81,344	Strathclyde Police	12,896	.	12,896
Inverclyde 1	38,520	-	38,520	Tayside Police	2,103	.	2,103
Midlothian	19,993	22,670	42,663	TOTAL POLICE	37,620	.	37,620
Moray	31,937	4,258	36,195
North Ayrshire	22,131	20,286	42,417	Forth Estuary Transport	8,835	.	8,835
North Lanarkshire	100,900	53,844	154,744	Tay Road Bridge	1,921	.	1,921
Orkney Islands	9,067	1,401	10,468	TOTAL BRIDGE AUTHORITIES	10,756	.	10,756
Perth & Kinross	118,962	18,594	137,556
Renfrewshire	39,862	12,623	52,485	HITRANS	-	.	-
Scottish Borders 1	73,931	-	73,931	NESTRANS	3,278	.	3,278
Shetland Islands	31,915	2,168	34,083	SESTRAN	-	.	-
South Ayrshire	19,310	7,904	27,214	SWESTRANS	465	.	465
South Lanarkshire	185,935	39,612	225,547	SPT	26,656	.	26,656
Stirling	26,256	8,997	35,253	TACTRAN	-	.	-
West Dunbartonshire	108,364	16,099	124,463	ZetTrans	-	.	-
West Lothian	137,714	30,392	168,106	TOTAL REGIONAL TRANSPORT PARTNERSHIPS	30,399	.	30,399
TOTAL UNITARY AUTHORITIES	2,693,784	495,317	3,189,101

1. These councils have transferred their housing stock to Registered Social Landlords

4.1 Financing Capital Expenditure

Capital expenditure can be financed by central Government grants, capital receipts (proceeds from the sale of fixed assets), other grants and contributions, revenue resources and prudential borrowing (consisting of self-financed borrowing and borrowing supported through loan charge support from the Scottish Government).

The capital data for 2009-10 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 4.4 - Financing of capital expenditure, 2009-10

£ thousands

	General Fund	Housing Revenue Account	Total
Scottish Government General Capital Grant	462,640	-	462,640
Scottish Government Specific Capital Grants	265,605	2,765	268,370
Grants from Scottish Government Agencies and NDPBs	157,955	2,326	160,281
Other Grants and Contributions	121,558	4,293	125,851
Borrowing from Loans fund	779,807	311,741	1,091,548
Capital receipts used from asset sales/disposals	110,418	54,328	164,746
Capital Fund applied	28,017	599	28,616
Capital funded from current revenue	46,876	119,265	166,141
Assets acquired under credit arrangements ( e.g. finance leases, PPP/ PFI)	824,442	-	824,442
TOTAL	2,797,318	495,317	3,292,635

Table 4.5 - Total Capital Expenditure and Financing ¹

£ thousands

	2005-06	2006-07	2007-08	2008-09	2009-10
Total Capital Expenditure	1,816,689	2,149,479	2,184,347	2,554,081	3,292,635
Financed by:
Scottish Government grants	446,533	553,047	722,171	767,722	891,291
Borrowing 2	663,119	766,272	715,234	1,207,055	1,915,990
Other grants and contributions	147,337	176,929	132,287	137,811	125,851
Capital Receipts/Capital Fund applied	313,241	454,178	440,987	244,657	193,362
Capital funded from current revenue	246,459	199,053	173,668	196,836	166,141

1. Includes Housing Revenue Account expenditure and financing.
2. Includes finance leases.

Chart 4.1 - Capital Expenditure Financing

4.2 Capital Receipts

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. The amount of capital receipts used to finance capital expenditure can be less than the amount of capital receipts raised in a given year.

Table 4.6 - Capital receipts summary, 2009-10

£ thousands

	General Fund	HRA	TOTAL
Capital Receipts brought forward at 1 April 2009	74,748	3,725	78,473
Capital receipts from the sale/ disposal of tangible fixed assets	164,306	63,609	227,915
Capital receipts from the sale/ disposal of intangible fixed assets	-	1,482	1,482
Total capital receipts available for use	239,054	68,816	307,870
Capital receipts used from asset sales/disposals	110,418	54,328	164,746
Capital receipts used to repay debt	1,557	11,028	12,585
Capital receipts transferred to Capital Fund	74,061	.	74,061
Capital receipts held 31 March 2010	53,018	3,460	56,478

4.3 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 Chart 4.1. This increase is likely reflective of advice given to authorities to take advantage of recent market conditions by borrowing where possible, instead of, for example, using receipts from sales of assets, which has shown a corresponding decrease in proportion of capital expenditure financing.

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 4.7 - Loans Fund Advances to Finance Capital Expenditure

£ thousands

	2005-06	2006-07	2007-08	2008-09	2009-10
Scotland	663,119	766,272	710,474	1,206,318	1,091,548
Unitary Authorities	662,785	760,598	706,643	1,194,867	1,086,559
Fire	-	616	-	5,674	-
Police	334	994	3,831	5,777	4,989
Regional Transport Partnerships	-	-	-	-	-
Bridge Authorities	-	4,064	-	-	-

Local Authorities often need to provide long term financing for capital projects. Borrowing allows authorities a flexible, yet largely predictable method of finance. The Scottish Government provides Local Authorities with support for the costs of an agreed level of new borrowing each year.

The ongoing cost of servicing the majority of this debt is supported through loan charges support within Total Revenue Funding ( TRF). New debt incurred over and above the levels of supported borrowing is self-financed by local authorities and the small element of non-revenue generating debt on general fund services that is not relevant for loan charges support within TRF is generally on programmes supported through ring-fenced grants up to and including 2008-09.

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.

4.4 Fixed Assets and Outstanding Debt

As a result of capital expenditure, Local Authorities generate assets and liabilities. The value of Local Authority fixed assets is shown in Table 4.8 below, and the levels of outstanding debt are shown in Table 4.9.

Table 4.8 - Value Of Fixed Assets, 2009-10

£ thousands

	Value of fixed assets as at 31 March 2010
Operational Assets
Council dwellings	9,140,999
Other land and buildings	18,182,691
Vehicles, plant and machinery	769,104
Infrastructure assets	3,941,374
Community assets	172,117
Total operational assets	32,206,285
Non-operational assets
Assets under construction	983,249
Surplus assets held for disposal	583,577
Investment properties	702,732
Total non-operational assets	2,269,558
Intangible Assets	42,756
TOTAL ASSETS	34,518,599

Table 4.9 - Outstanding Debt On Local Authority Services, 2009-10

	General Fund Services 1		Housing Revenue Account		Total All Debt (£000s)
	Total Debt (£000s)	Per Head (£)	Total Debt (£000s)	Per HRA dwelling (£)
Scotland	8,701,375	1,675	2,209,731	6,838	10,911,106
Aberdeen City	397,896	1,861	163,658	7,175	561,554
Aberdeenshire	284,943	1,170	126,065	9,741	411,008
Angus	124,573	1,130	27,114	3,462	151,687
Argyll & Bute 2	191,110	2,123	-	-	191,110
Clackmannanshire	95,744	1,894	33,788	6,748	129,532
Dumfries & Galloway 2	232,057	1,563	-	-	232,057
Dundee City	213,396	1,488	141,567	9,589	354,963
East Ayrshire	164,875	1,372	68,030	5,241	232,905
East Dunbartonshire	110,395	1,055	16,320	4,523	126,715
East Lothian	178,687	1,845	56,276	6,996	234,963
East Renfrewshire	93,528	1,048	23,134	7,531	116,662
Edinburgh, City of	850,108	1,780	313,160	14,711	1,163,268
Eilean Siar 2	146,296	5,588	-	-	146,296
Falkirk	185,273	1,215	37,584	2,296	222,857
Fife	475,108	1,307	128,623	4,184	603,731
Glasgow City 2	1,467,764	2,494	-	-	1,467,764
Highland	468,309	2,124	139,221	10,233	607,530
Inverclyde 2	183,641	2,290	-	-	183,641
Midlothian	104,649	1,295	85,498	13,047	190,147
Moray	119,536	1,364	37,341	6,428	156,877
North Ayrshire	163,472	1,206	71,423	5,328	234,895
North Lanarkshire	389,437	1,193	120,266	3,227	509,703
Orkney Islands	35,228	1,765	-	-	35,228
Perth & Kinross	173,082	1,186	48,543	6,560	221,625
Renfrewshire	169,352	997	126,378	9,639	295,730
Scottish Borders 2	195,180	1,732	-	-	195,180
Shetland Islands	12,401	558	42,739	23,626	55,140
South Ayrshire	130,073	1,167	56,154	6,792	186,227
South Lanarkshire	555,544	1,787	149,651	5,793	705,195
Stirling	130,761	1,474	19,081	3,409	149,842
West Dunbartonshire	118,638	1,305	95,406	8,385	214,044
West Lothian	324,446	1,897	82,711	6,429	407,157
Central Scotland Fire	6,571	23	.	.	6,571
Dumfries & Galloway Fire	-	-	.	.	-
Fife Fire and Rescue Service	-	-	.	.	-
Grampian Fire	10,444	19	.	.	10,444
Highlands & Islands Fire	12,211	42	.	.	12,211
Lothian and Borders Fire	9,638	10	.	.	9,638
Strathclyde Fire	28,586	13	.	.	28,586
Tayside Fire	6,820	17	.	.	6,820
Central Scotland Police	9,781	34	.	.	9,781
Dumfries & Galloway Police	-	-	.	.	-
Fife Constabulary	-	-	.	.	-
Grampian Police	6,436	12	.	.	6,436
Lothian & Borders Police	28,322	30	.	.	28,322
Northern Police	18,632	65	.	.	18,632
Strathclyde Police	36,876	17	.	.	36,876
Tayside Police	11,298	28	.	.	11,298
Forth Estuary Transport	-	..	.	.	-
Tay Road Bridge	-	..	.	.	-
HITRANS	-	-	.	.	-
NESTRANS	-	-	.	.	-
SESTRAN	-	-	.	.	-
SWESTRANS	-	-	.	.	-
SPT	30,258	14	.	.	30,258
TACTRAN	-	-	.	.	-
ZetTrans	-	-	.	.	-

1. Includes Trading Services
2. These councils have transferred their housing stock to Registered Social Landlords