Local Government 2022-23 Provisional Outturn and 2023-24 Budget Estimates

Revenue Expenditure

Revenue expenditure is the cost of delivering services each year and includes both service operating costs and overheads. These costs might include salaries, rent, building maintenance, supplies and services. The benefits from revenue expenditure are mainly received within the financial year.

Net revenue expenditure is the element of revenue expenditure funded by general funding or reserves. It is calculated as gross service expenditure minus gross service income. Gross service income is any income received directly relating to services, such as service-specific grants or fees / charges received for the provision of services. Net revenue expenditure is therefore directly influenced by the amount of service income received, i.e. an increase in service income will reduce net revenue expenditure, and a decrease in service income will increase net revenue expenditure. Where service income is greater than service expenditure, a service would have a negative net revenue expenditure, i.e. net income. Individual local authority level figures can also be affected by large, one-off payments in any year, for example Equal Pay back-pay settlement expenditure.

The Revenue POBE collects net revenue expenditure for all General Fund services only. Revenue figures exclude amounts relating to a local authority's direct provision of housing which is recorded in the Housing Revenue Account (HRA), however 2022-23 budget estimates for local authority's HRA were published in the Housing Revenue Accounts Statistics in January 2023. It should also be noted that for the purposes of the Revenue POBE return and this publication, Trading Services includes amounts relating to Harbour Accounts. These are separate accounts and reserve funds specifically for harbour undertakings held by Orkney Islands and Shetland Islands councils only.

Local authorities have reported provisional outturn net revenue expenditure of £13,741 million in 2022-23, and have budgeted net revenue expenditure of £13,891 million for 2023-24. This is an increase on the £12,307 million seen in 2021-22, and higher than all the three preceding years (Figure 1).

Local authorities were asked to provide figures for additional gross expenditure directly incurred due to COVID-19 in order to give some indication of the impact of COVID-19 in each year. Compared to additional COVID-19 expenditure of £604 million in 2020-21^[1] and £375 million in 2021-22^[2], local authorities reported a provisional figure of £158 million in 2022-23 and budgeted for £50 million of additional COVID-19 expenditure in 2023-24. This reflects that whilst there is still continued additional expenditure relating to COVID-19 in both 2022-23 and 2023-24, local authorities expect this to reduce.

Source: POBE 2023 Return, LFR 00

Figure 2 provides a summary of the 2022-23 provisional outturn and 2023-24 budget estimate for net revenue expenditure against the SLGFS net revenue expenditure from 2021-22 by service. Education and Social Work continue to be the services with highest net revenue expenditure in both years. These services account for around 79% of general fund net revenue expenditure.

Education has the highest net revenue expenditure, with provisional outturn of £6,447 million in 2022-23, and a budget estimate for 2023-24 of £6,549 million. This is in line with the overall trend of gradually increasing net revenue expenditure as shown in Figure 1. Education accounts for 47% of general fund net revenue expenditure.

Social Work has the second highest net revenue expenditure, with local authorities reporting provisional outturn of £4,358 million in 2022-23 and have budgeted expenditure of £4,487 million for 2023-24. Social work accounts for 32% of net general fund revenue expenditure.

Compared to 2021-22 SLGFS figures, general fund net revenue expenditure is estimated to increase by 11.7% in 2022-23, and is estimated to increase by a further 1.1% in 2023-24.

Source: POBE 2023 Return, LFR 00

Local authorities also incur some revenue expenditure and income that is not attributable to specific services, such as interest paid or received, or statutory repayment of debts. As shown in Table 1, local authorities' provisional outturn and budget estimates for other expenditure and income is £896 million and £1,058 million respectively.

General funding principally consists of the General Revenue Grant (GRG) and local taxation, specifically Non-Domestic Rates (NDR) and Council Tax. Local authorities have reported provisional general funding of £14,186 million in 2022-23, and have budgeted for general funding of £14,594 million in 2023-24. Further information on funding of net revenue expenditure between 2019-20 and 2023-24 is available in Figure 3.

Please note the following:

GRG figures for 2019-20 differ from the Finance Circular allocation due to £10m for Teacher's Pay which was paid as part of the 2019-20 settlement but recorded by local authorities as income in 2018-19.

The 2020-21, 2021-22 and 2022-23 GRG figures differ to the Finance Circular allocation due to the exclusion of amounts for agency grants paid to local authorities via GRG.

'Other Funding' includes government grants paid to joint boards and income received through NDR Tax Incremental Financing (TIF) and Business Rates Incentivisation Scheme (BRIS). As this category amounts to less than 1% of the total shown in each year, this category is not visible in the chart, however figures are provided in the 'POBE 2023 – Tables' supporting Excel file.

Source: POBE 2023 Return, LFR A0

GRG is paid to local authorities by the SG and includes UK Government monies payable to a local authority. The SG guarantees the combined sum of GRG and NDR funding for local authorities in each financial year. There was a significant reduction in NDR in 2020-21 and 2021-22 due to rates relief to support various sectors during the COVID-19 pandemic. GRG figures for these years reflect an increase to match the decrease in NDR, as well as significant amounts of COVID-19 specific funding. Provisional outturn for 2022-23 and budget estimates for 2023-24 indicate a continued transition to the pre-pandemic composition of General Funding, with GRG and NDR accounting for around 61 and 19 per cent respectively in 2022-23 and 59 and 21 per cent in 2023-24. This compares to 56 and 23 per cent before the pandemic (in 2019-20).

More information on the process to determine local government funding from the SG is available in the Local Government Funding: Process Overview publication. Detailed funding figures per local authority are available in the latest Local Government Finance Circulars.

A surplus occurs when a local authority's revenue expenditure is less than the amount of general funding received. A surplus is added to a local authority's reserves and carried forward to the next year. A deficit occurs when a local authority's revenue expenditure is more than the amount of general funding received. Any deficit must be met from a local authority's reserves. Table 1 shows the surplus / deficit, in addition to the total movement in general fund reserves.

Please note that level of reserves held at 1 April and 31 March exclude amounts relating to unrealised gains that are included in revenue reserves in statutory Annual Accounts applying IFRS 9: Financial Instruments. This table also contains Harbour Account reserves and transactions for Orkney and Shetland, which total around £330 million at the end of each year. Further notes are contained in the accompanying Excel tables.

Source: POBE 2023 Return, LFR A0, LFR 23

Across all local authorities, the provisional outturn figures give a deficit of £451 million for 2022-23, a notable change from the significant surplus of £347 million seen in 2021-22. The 2021-22 surplus was largely attributed to unspent additional COVID-19 funding from the SG, that was carried forward in local authorities' General Fund reserves for use in future years. The deficit figures of £451 million for 2022-23 and £355 million for 2023-24 reflect local authorities using some of these reserves built up through the COVID-19 pandemic.

The General Fund balance across local authorities at 31 March 2023 was £2,671 million, a decrease from the balance of £3,150 million at 31 March 2022. Local authorities' budgets give a further decrease in the General Fund balance to £2,384 million at 31 March 2024.

For context, General Fund reserve balances (including the Harbour Account) were £1,584 million on 31 March 2020 (see Table 1 in POBE 2023 - Tables.xlsx). Therefore, whilst reserve balances remain above pre-pandemic levels for Scotland, these are beginning to be brought down.