Scottish Local Government Finance Statistics 2023-24

3. Capital Expenditure and Financing

Capital expenditure is expenditure that creates an asset, it includes the initial costs of acquisition and construction, and costs incurred subsequently to add to, replace part of, or service the asset. Subsequent costs arising from day-to-day services of an asset, known as repairs and maintenance, is not capital expenditure. Capital expenditure purchases or constructs the buildings and infrastructure necessary to provide services, such as schools, care homes, flood defences, roads, vehicles, plant and machinery. Due to the nature of capital expenditure, it can fluctuate substantially between years.

Capital expenditure also includes grants a local authority provides to a third party to fund capital expenditure of the third party; direct expenditure on a third parties’ assets; and loans to third parties to support capital investment of a third party.

Capital expenditure can be financed by one or more of the following:

• capital grants and contributions;
• borrowing or credit arrangements;
• contributions from capital or revenue reserve funds;
• capital receipts from the sale of assets.

Chapter 4.1 provides more information on local authorities’ capital reserve funds.

3.1 Capital Expenditure

In 2023-24, total capital expenditure was £3,689 million, a decrease of 2.5 per cent, or £96 million, from 2022-23. This includes expenditure on the Housing Revenue Account.

Chart 3.1 shows the split of capital expenditure into these six categories in 2023-24. The majority of capital expenditure, £2,923 million or 79 per cent, related to new construction, conversions & enhancements to existing buildings.

Chart 3.1: Capital Expenditure in 2023-24 by Expenditure Type, £ millions

Please note, ‘Third party capital projects funded from capital grant’ and ‘Revenue expenditure funded from borrowing’ are also included in authorities’ revenue figures.

Source: LFR CR

Table 3.1 shows a breakdown of capital expenditure between 2019-20 and 2023-24. New construction, conversions and enhancements to existing building has consistently accounted for the majority of capital expenditure over this period. This type of capital expenditure has decreased by 1.2 per cent, or £36 million, between 2022-23 and 2023-24.

All categories have decreased between 2022-23 and 2023-24, with the exception of Intangible Assets which increased from £4 million to £24 million.

Table 3.1: Capital Expenditure from 2019-20 to 2023-24 by Expenditure Type, £ millions

Expenditure Type	2019-20	2020-21	2021-22	2022-23	2023-24
Acquisition of land, existing buildings or works	633	66	151	207	180
New construction, conversions & enhancements to existing buildings	2,616	2,013	2,623	2,959	2,923
Vehicles, plant, machinery & equipment	228	232	222	292	245
Intangible assets	17	20	30	4	24
Third Party Capital Projects funded from Capital Grant	257	240	286	284	289
Revenue Expenditure Funded from Borrowing: Third Party Capital Grants	15	14	26	20	20
Revenue Expenditure Funded from Borrowing: Consented Borrowing	28	19	4	18	9
Total Capital Expenditure	3,794	2,604	3,341	3,785	3,689

Please note, ‘Revenue expenditure funded from capital grant and borrowing’ is also included in authorities’ revenue figures.

Source: LFR CR

3.1.1 Capital Expenditure by Service

Chart 3.2 shows capital expenditure in 2023-24 by service. HRA had the largest share of expenditure at £1,162 million, followed by Roads & Transport (£713m) and Education (£678 million).

Chart 3.2: Capital Expenditure in 2023-24 by Service, £ millions

Please note, ‘Other’ includes Social Work, Central Services and Trading Services.

Source: LFR CR

Chart 3.3 shows capital expenditure for 2019-20 to 2023-24 for the six services with the highest capital expenditure in 2023-24. Roads & Transport increased by 9.0 per cent (£59 million) and Environmental Services increased by 17.5 per cent (£27 million). Capital expenditure reduced for Non-HRA Housing (-6.6 per cent, -£15 million).

Chart 3.3: Capital Expenditure from 2019-20 to 2023-24 by Service, £ millions

This chart excludes expenditure for Culture & Related Services; Social Work; Trading Services; and Other, including Central Services which, combined, accounted for 13 per cent of total capital expenditure in 2023-24.

Source: LFR CR

3.1.2 General Fund Capital Expenditure by Council

Chart 3.4: General Fund Capital Expenditure in 2023-24 by Council, £ per person

Source: LFR CR, National Records of Scotland Mid-2023 population estimates

3.2 Capital Financing

Chart 3.5 shows how local authorities financed their capital expenditure in 2023-24. This includes expenditure on the Housing Revenue Account. The two main sources of financing were borrowing from the Loans Fund, £1,704 million, and grants & contributions, £1,640 million, which together accounted for over nine-tenths (91 per cent) of all capital financing in 2023-24.

Capital grants and contributions are provided to local authorities to fund capital investment. This includes grants and contributions received from the Scottish and UK Governments; other government agencies and Non-Departmental Public Bodies (NDPBs); other local authorities; and private developers. The Scottish Government provides two types of capital grant funding to local authorities – a General Capital Grant (GCG) and a number of specific capital grants. The General Capital Grant accounted for just over two-fifths of grants and contributions in 2023-24[7].

More information on borrowing is provided in Chapter 3.3 and more information on the Loans Fund is provided in Chapter 5.1.1.

Chart 3.5: Capital Financing in 2023-24 by Source, £ millions

Please note that ‘Grants & Contributions’ and ‘Borrowing from Loans Fund’ include amounts used to fund grant to third party capital projects which will also be included in the revenue figures.

Source: LFR CR

Chart 3.6 shows capital financing by type from 2019-20 to 2023-24. Except for credit arrangements and capital funded from revenue, all types of financing have increased between 2022-23 and 2023-24. Grants & contributions and Borrowing from the Loans Fund continue to be the main sources of capital financing.

The fluctuations in borrowing reflect the nature of capital and can be influenced by the type of expenditure being undertaken in each year. In particular, the decrease in borrowing in 2020-21 will reflect the overall reduction in capital expenditure due to the impacts of the Covid-19 pandemic.

Chart 3.6: Capital Financing from 2019-20 to 2023-24 by Source, £ millions

Please note that ‘Grants & Contributions’ and ‘Borrowing from Loans Fund’ include amounts used to fund grants to third party capital projects which will also be included in the revenue figures.

Source: LFR CR

Financing from credit arrangements was notably high in 2019-20 compared to other years, this was due to the significant one-off sale and leaseback transactions for Culture and Related Services by Glasgow City Council. In addition, during 2022-2023, Glasgow City Council secured a further £200 million in credit arrangements as part of a sale and leaseback arrange to fund its £200 million equal pay settlement. The properties involved included Kelvingrove Art Gallery, Kelvin Hall, the Gallery of Modern Art and the City Chambers[8].

The Local Government (Scotland) Act 1973 provides councils with a general power to borrow money. Other local authorities’ powers are set out in legislation specific to that authority. The Local Authority (Capital Finance and Accounting) (Scotland) Regulations 2016 sets out the purposes for which a local authority may borrow.

Table 3.2 provides a summary of borrowing and credit arrangements in 2023-24. Local authorities financed £1,704 million of capital expenditure from borrowing in 2023-24. From Chart 3.6, this was an increase of 11.2 per cent, £171 million, compared to 2022-23.

In 2023-24, local authorities also entered into credit arrangements, recognising debt of £2 million, a decrease of 99.4 per cent, or £264 million, from 2022-23.

Table 3.2: Borrowing and Credit Arrangement Summary for 2023-24, £ million

Category	General Fund	HRA	Total
Advances for Capital Expenditure	953	743	1,696
Advances for Consented Borrowing	9	0	9
Total Loans Fund Borrowing	962	743	1,704
Credit Arrangements	2	0	2
Total Borrowing and Credit Arrangements	963	743	1,706

Please note that ‘Advances for Capital Expenditure’ includes borrowing from the Loans Fund used to fund grants to third party capital projects which will also be included in the revenue figures.

Source: LFR CR

Trends for borrowing from the Loans Fund and credit arrangements between 2019-20 and 2023-24 are shown in Chart 3.6 and discussed in Chapter 3.2.

3.4 Capital Receipts

Capital receipts is the term used to recognise income from the sale or disposal of an asset, such as land or council housing. As shown in Table 3.3, local authorities generated £124 million in capital receipts in 2023-24. This is a decrease of £200 million compared to 2022-23. The larger figures in 2019-20 and 2023-24 are due to Glasgow City Council’s sale and leaseback transactions (see Chapter 3.2)

Table 3.3: Capital Receipts raised in 2019-20 to 2023-24, £ millions

Category	2019-20	2020-21	2021-22	2022-23	2023-24
General Fund	537	68	44	292	89
HRA	5	25	22	32	36
Total	541	93	67	324	124

Source: LFR CR

Capital receipts may only be used to fund capital expenditure or for a purpose specified by statute, or statutory guidance. Local authorities can also hold capital receipts in a capital reserve for future use. This means the value of capital receipts raised in year may not equal the amount used in year. Table 3.4 sets out how capital receipts were used in 2023-24.

Table 3.4: Use of capital receipts in 2023-24, £ millions

Use	General Fund	HRA	Total
Fund capital expenditure	37	23	61
Repay debt	10	1	11
Fund transformation projects	43	0	43
Fund premiums incurred on refinancing	0	0	0
Fund deferred premiums	0	0	0
Fund impact of Covid-19	0	0	0
Total capital receipts used in year	90	24	115

Source: LFR CR

Local authorities used a total of £115 million capital receipts in 2023-24. The majority of these were used to fund capital expenditure and transformation projects, which accounted for 53 and 38 per cent of capital receipts used respectively.