Local Government 2023-24 Provisional Outturn and 2024-25 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 2023-24 budget estimates for local authority’s HRA were published in the Housing Revenue Accounts Statistics in November 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 £14,627 million in 2023-24, and have budgeted net revenue expenditure of £15,005 million for 2024-25. This is an increase on the £13,489 million seen in 2022-23, 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], £375 million in 2021-22[2], and £156 million in 2022-23[3], local authorities reported a provisional figure of £18 million in 2023-24 and budgeted for £6 million of additional COVID-19 expenditure in 2024-25. This reflects that whilst there is still continued additional expenditure relating to COVID-19 in both 2023-24 and 2024-25, local authorities expect this to reduce.

Figure 1: General Fund Net Revenue Expenditure for 2020-21 to 2024-25, £ millions

Source: POBE 2024 Return, LFR 00

Figure 2 provides a summary of the 2023-24 provisional outturn and 2024-25 budget estimate for net revenue expenditure against the SLGFS net revenue expenditure from 2022-23 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 £6,968 million in 2023-24, and a budget estimate for 2024-25 of £7,409 million. This is broadly in line with the overall trend of gradually increasing net revenue expenditure as shown in Figure 1. Education accounts for 48% of general fund net revenue expenditure.

Social Work has the second highest net revenue expenditure, with local authorities reporting provisional outturn of £4,557 million in 2023-24 and budgeting expenditure of £4,668 million for 2024-25. Social work accounts for 31% of net general fund revenue expenditure.

Figure 2: Net Revenue Expenditure for 2022-23 to 2024-25 by Service, £ millions

Source: POBE 2024 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 (2023-24) and budget estimates (2024-25) for Other Income and Expenditure is £818 million and £1,225 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 £14,910 million in 2023-24, and have budgeted for general funding of £15,952 million in 2024-25. Further information on funding of net revenue expenditure between 2020-21 and 2024-25 is available in Figure 3.

Figure 3: General Funding for 2020-21 to 2024-25, £ millions

Please note the following:

• The 2020-21, 2021-22 and 2022-23 GRG figures differ from the Finance Circular allocation due to the exclusion of amounts for agency grants paid to local authorities via GRG.
• GRG budget estimates for 2024-25 include an additional £147 million to fund the Council Tax freeze, which was not included in Finance Circular 2/2024.
• ‘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 2024 – Tables’ supporting Excel file.

Source: POBE 2024 Return, LFR A0

GRG is paid to local authorities by the SG. 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.

During the first full year of the pandemic (in 2020-21), GRG and NDR funding accounted for around 67 and 14 per cent of General Funding respectively. This has now settled to a position where GRG funding makes up around 60% of General Funding and NDR makes up around 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.

Table 1: Movement in General Fund Reserves from 2022-23 to 2024-25, £ millions

Please note that the level of reserves held at 1 April and 31 March excludes 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 £300 million at the end of each year. Further notes are contained in the accompanying Excel tables.

Source: POBE 2024 Return, LFR A0, LFR 23

Across all local authorities, the provisional outturn figures give a deficit of £535 million for 2023-24, a notable change from the small surplus of £27 million seen in 2022-23. The deficit figures of £535 million for 2023-24 and £277 million for 2023-24 reflect local authorities using some of the reserves built up through the COVID-19 pandemic.

The General Fund balance (including Harbour Accounts) across local authorities at 31 March 2024 was £2,930 million, a decrease from the balance of £3,177 million at 31 March 2023. Local authorities’ budgets give a further decrease in the General Fund balance to £2,676 million at 31 March 2025.

For context, General Fund reserve balances (including the Harbour Account) were £1,584 million on 31 March 2020 (see LFR 23, row 73 in Scottish local government finance statistics (SLGFS) 2019-20: workbooks). Therefore, whilst reserve balances remain above pre-pandemic levels for Scotland, these are beginning to be brought down.