Scottish local government finance statistics 2015-2016

3. Local Government Reserves, Fixed Assets and Debt

Local authorities can hold reserves to spend on services in the future and borrow to fund capital expenditure that will create an asset.

• Total reserves increased by 6% during the year;
• Total debt increased by 1% on the previous year;
• Value of fixed assets increased by 3%.

Total Debt, 31st March 2012 to 31st March 2016 (£thousands)

Value of Fixed Assets, 31st March 2012 - 31st March 2016 (£thousands)

3.1 Local Authority Debt

Local authority capital expenditure is financed from a number of sources. When this is by borrowing money or a credit arrangement (e.g. a finance lease or a Public-Private Partnership ( PPP) or Private Finance Initiative ( PFI)) a debt liability is created to be repaid by a local authority from future revenues.

The Local Government (Scotland) Act 1975 Act requires 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 is the amount to be met in each financial year from a local authority revenue budget.

The expenditure recorded in the loans fund is expenditure which has been deferred (i.e. not met by taxpayers or housing tenants when it is incurred) and is to be charged to taxpayers or housing tenants over a number of future years. 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 the loans fund will reduce when loans fund advances are repaid by making a charge to the General Fund or Housing Revenue Account. The balance on a loans fund at 31 March each year represents the amount of past expenditure a local authority has a liability to fund from its future revenue budgets.

A local authority will borrow externally to fund the expenditure that is deferred and recorded in the loans fund. The balance on the loans fund should be similar to the value of external borrowing. There may be 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.

The value of Loans Fund advances outstanding is set out in Table 3.1 and the level of credit arrangements outstanding is set out in Table 3.2.

Following a review of the Capital forms in 2015, the timing of the data collection was changed to allow for final, audited capital data to be collected. Prior to this, near-final data was collected and, as such, the loans fund advances outstanding on 31st March may not match the loans fund advances outstanding on 1st April.

The all Scotland value of loans fund advances outstanding at 31st March 2016 was £13.41 billion (of which £10.05 billion was General Fund and £3.36 billion was HRA). General Fund loans fund advances outstanding increased by £93.3 million (0.9%) between 1st April 2015 and 31st March 2016. HRA loans fund advances outstanding rose by £143 million (4.5%) between 1 ^st April 2015 and 31 ^st March 2016.

At 31st March 2016, the Scottish average General Fund loans fund advances outstanding was equal to £1,870 per person (up 0.4% on 31st March 2015) and the average HRA loans fund advances outstanding was equal to £10,609 per HRA dwelling (up 4.6% on 31st March 2015).

Table 3.1: General Fund and HRA Loans Fund Advances Outstanding, 2011-12 to 2015-16

£thousands

	2011-12	2012-13	2013-14	2014-15	2015-16
General Fund
Loans Fund advances outstanding 1 April	9,118,442	9,608,327	9,650,825	9,932,872	9,954,276
Add New advances from the Loans Fund	918,890	852,238	788,568	518,296	558,669
Less: Repayments in year	455,689	475,952	469,823	462,945	456,449
Less: Additional Voluntary Repayments in Year	68,547	45,299	34,546	27,437	8,934
Transfer of assets between funds (transfers out are negative)	258	-292	-1,411	-1,773	-65
Total Loans Fund advances outstanding (£ thousands)	9,513,353	9,939,022	9,933,613	9,959,013	10,047,542
Per Head (£)	1,810	1,870	1,865	1,862	1,870
Housing Revenue Account
Loans Fund advances outstanding 1 April	2,384,118	2,619,354	2,835,741	3,024,509	3,219,673
Add New advances from the Loans Fund	342,578	313,149	316,958	311,404	272,658
Less: Repayments in year	97,820	96,475	127,585	105,602	112,504
Less: Additional Voluntary Repayments in Year	7,414	2,920	9,956	12,411	16,931
Transfer of assets between funds (transfers out are negative)	-258	292	1,411	1,773	65
Total Loans Fund advances outstanding (£ thousands)	2,621,205	2,833,400	3,016,569	3,219,673	3,362,961
Per HRA dwelling (£)	8,284	8,973	9,533	10,138	10,609
Total ( GF + HRA) Loans Fund advances outstanding	12,134,558	12,772,422	12,950,182	13,178,687	13,410,504

Source: Capital Returns ( CR Final), Housing Revenue Account: Local authority housing income and expenditure, NRS Mid-Year Population Estimates (2013)

Table 3.2: Credit Arrangements, 2011-12 to 2015-16

£thousands

	2011-12	2012-13	2013-14	2014-15	2015-16
General Fund
Balance brought forward 1 April	2,846,858	2,865,124	2,845,843	2,800,193	2,750,910
Add: New credit arrangements in year	106,888	14,055	30,625	42,701	21,726
Less: Repayments of principal in year	97,269	84,955	90,802	92,895	87,933
Credit arrangements outstanding 31 March	2,856,476	2,794,224	2,785,666	2,749,999	2,684,703
Per Head (£)	544	526	523	514	500
Housing Revenue Account
Balance brought forward 1 April	14,226	10,508	7,132	4,965	3,469
Add: New credit arrangements in year	0	0	0	0	0
Less: Repayments of principal in year	3,683	3,380	2,167	1,496	790
Credit arrangements outstanding 31 March	10,543	7,128	4,965	3,469	2,679
Per Head (£)	33	23	16	11	8
Total ( GF + HRA) Credit Arrangements Outstanding	2,867,019	2,801,352	2,790,631	2,753,468	2,687,382

Source: Capital Returns ( CR Final)

Table 3.3: Total Debt, 31 ^st March 2012 to 31 ^st March 2016

£thousands

	31st March 2012	31st March 2013	31st March 2014	31st March 2015	31st March 2016
General Fund
Loans Fund Advances Outstanding	9,513,353	9,939,022	9,933,613	9,959,013	10,047,542
Credit Arrangements	2,856,476	2,794,224	2,785,666	2,749,999	2,684,703
Total General Fund Debt	12,369,830	12,733,246	12,719,279	12,709,012	12,732,245
Per Head (£)	2,354	2,396	2,387	2,377	2,370
Housing Revenue Account
Loans Fund Advances Outstanding	2,621,205	2,833,400	3,016,569	3,219,673	3,362,961
Credit Arrangements	10,543	7,128	4,965	3,469	2,679
Total HRA Debt	2,631,748	2,840,528	3,021,534	3,223,142	3,365,640
Per HRA Dwelling (£)	8,317	8,995	9,549	10,149	10,617
Total Debt	15,001,577	15,573,774	15,740,813	15,932,155	16,097,885

Source: Capital Returns ( CR Final)

3.2 Prudential Indicators

The 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.

Key prudential indicators are:

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

The Capital Financing Requirement ( CFR) represents the amount of capital expenditure which a local authority has determined should be met from borrowing with the repayment of that borrowing to be met from future local authority budgets. Each year the CFR will increase by the amount of new capital expenditure which a local authority has determined should be met by borrowing (which includes both borrowing money and credit arrangements such as PPP/ PFI) and decrease by the amounts repaid. The CFR only represents an authority's underlying need to borrow to finance capital expenditure. The actual Total External Debt may be less than the CFR where a local authority has chosen to utilise internal cash reserves rather than borrow externally. The Total External Debt may exceed the CFR where a local authority has chosen to borrow in advance of actual capital expenditure. The Prudential Code limits borrowing in advance to the CFR plus up to 2 years planned capital expenditure to be funded from borrowing.

Local authorities are also required to set limits on external debt. The Operational Boundary is based on the authority's capital spending plans and should reflect the most likely, i.e. 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 the operational boundary 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.

Local authority Total External Debt increased by £0.17 billion (1.1%), from £14.98 billion at the 31 ^st March 2015 to £15.15 billion at the 31 ^st March 2016. Local authorities are currently under-borrowed, i.e. utilising internal cash reserves rather than external borrowing, with total external debt as a percentage of the Capital Financing Requirement falling from 98% at 31 ^st March 2012 to 94% at 31 ^st March 2016.

Table 3.4: Prudential Information, 2011-12 to 2015-16

£thousands

	2011-12	2012-13	2013-14	2014-15	2015-16
Capital Financing Requirement at 1 April	13,988,396	14,674,452	14,893,146	15,863,207	16,020,231
Capital Expenditure to be financed by borrowing or credit arrangements	1,368,356	1,179,442	1,136,151	872,402	853,053
Capital Expenditure to be financed by borrowing	1,261,468	1,165,387	1,105,526	829,701	831,327
Capital Expenditure to be financed by credit arrangements	106,888	14,055	30,625	42,701	21,726
Loans Fund principal repayments	553,509	572,427	597,408	568,548	568,953
Credit arrangements principal repayments	100,952	88,335	92,969	94,391	88,723
Additional voluntary contributions of principal repayments	75,961	48,219	44,502	39,848	25,865
Change in Capital Financing Requirement	637,934	470,461	401,272	169,615	169,512
Capital Financing Requirement at 31 March	14,626,330	15,144,913	15,294,418	16,032,822	16,189,743
Borrowing at 1 April	10,800,370	11,290,176	11,558,504	11,897,475	12,378,022
Other long term liabilities at 1 April	2,920,001	2,875,632	2,852,975	2,690,905	2,648,120
Total External Debt at 1 April	13,720,371	14,165,808	14,411,479	14,588,380	15,026,142
Borrowing at 31 March	11,340,431	11,706,550	11,816,384	12,332,169	12,465,804
Other long term liabilities at 31 March	2,925,936	2,801,352	2,790,631	2,645,977	2,680,311
Total External Debt at 31 March	14,266,367	14,507,902	14,607,015	14,978,146	15,146,115
Operational boundary for external debt at 31 March	16,223,733	16,571,358	16,684,872	16,779,418	16,982,303
Authorised limit for external debt at 31 March	17,223,932	17,553,906	17,749,541	17,787,296	17,733,442
Total External debt as a percentage of the Capital Financing Requirement at 31 March	98%	96%	96%	93%	94%

Source: Capital Returns ( CR Final)

Chart 3.1: Prudential Indicators: 31 ^st March 2012 to 31 ^st March 2016

£thousands

Source: Capital Returns ( CR Final)

3.3 Fixed Assets

Capital Expenditure creates local authority assets. The value of local authority fixed assets is shown in Table 3.5 below. At 31 ^st March 2016, local authorities held a total of £40.7 billion of assets, an increase of 3.3% (£1,293 million) on 31 ^st March 2015.

Table 3.5: Value of Fixed Assets, 31 ^st March 2012 to 31 ^st March 2016

£thousands

	Value of fixed assets as at 31 March 2012 a	Value of fixed assets as at 31 March 2013	Value of fixed assets as at 31 March 2014 b	Value of fixed assets as at 31 March 2015	Value of fixed assets as at 31 March 2016
Operational Assets
Council dwellings	9,475,119	10,450,805	10,839,706	10,535,999	11,281,473
Other land and buildings	18,955,480	18,978,739	18,276,923	18,866,921	18,995,354
Vehicles, plant and machinery	937,152	1,022,046	1,003,162	1,178,814	1,197,642
Infrastructure assets	4,432,109	4,751,596	4,987,041	5,361,011	5,608,853
Community assets	165,502	168,819	161,728	169,971	184,156
Heritage assets	417,174	1,804,230	1,803,074	1,840,245	1,848,685
Total operational assets	34,382,536	37,176,235	37,071,634	37,952,961	39,116,163
Non-operational assets
Assets under construction	1,456,501	1,271,111	1,200,830	845,627	1,011,066
Surplus assets held for disposal	397,053	377,632	365,120	336,021	314,377
Investment properties	205,613	205,220	197,445	207,027	197,382
Total non-operational assets	2,059,167	1,853,963	1,763,395	1,388,675	1,522,825
Intangible Assets	77,184	19,747	23,913	52,306	48,437
Total Assets excluding Police & Fire	36,299,949	38,214,124	38,858,942	39,393,942	40,687,425
Total Assets	37,168,112	39,049,945	38,858,942	39,393,942	40,687,425

a. Total Assets for 2011-12 includes £649,225 thousand for South Ayrshire Council that couldn't be broken down into the above categories.
b. Following the Police and Fire Reform (Scotland) Act 2012 figures for 2013-14 onwards may not be comparable with previous years. See the Background chapter for details.
Source: Capital Returns ( CR Final)