Scottish Local Government Finance Statistics 2023-24

The General Fund is the principal usable revenue reserve of the local authority. Any deficit in a local authority’s revenue accounts is met from their General Fund, and any surplus is added to the General Fund reserve. The General Fund therefore reflects a local authority’s accumulation of surplus income that can be used to finance future revenue expenditure on services or to fund future capital expenditure.

The Orkney County Council Act 1974 and the Zetland County Council Act 1974 require Orkney and Shetland to also hold a Harbour Account, a separate account and reserve fund specifically for harbour undertakings. Orkney and Shetland are also able to transfer money between their General Fund and their Harbour Accounts. In this chapter Harbour Account figures are presented separately, however they are included within General Fund figures in other chapters within this publication.

Where a council has housing stock, the accumulation of surplus income relating to housing is separately identified in their Housing Revenue Account (HRA).

In addition to the General Fund a local authority may also hold other statutory usable revenue reserves, such as a Renewal and Repairs Fund, an Insurance Fund, or other reserves specific to a local authority as permitted by legislation. Amounts will be transferred to and from the General Fund to these reserves.

Local authorities hold two capital reserves – the Capital Fund / Capital Receipts Reserve and a Capital Grants and Receipts Unapplied Account.

The Capital Fund and Capital Receipts Reserve were previously identified separately but are now treated as a single reserve. The Capital Fund / Capital Receipts Reserve may be used for the purpose of meeting the cost of capital expenditure and for the repayment of principal on loans, but not any interest on loans.

The Capital Grants Unapplied Account holds capital grant that has been received but not yet used to fund capital expenditure, or capital receipts held pending their funding of specific expenditure as permitted by Scottish Ministers.

Local authorities also hold a number of unusable reserves, that is reserves which are not backed by cash resources and cannot be used to fund services. Unusable reserves include a Revaluation Reserve, where increases in the value of fixed assets are recorded. This reserve is not usable as an increase in value of an asset will not be realised until the asset is sold. Other unusable reserves include sums deferred or set aside as statutory adjustments which are used to ensure the Annual Accounts of a local authority reconcile to statutory requirements. As these are unusable reserves, they are not discussed in this publication. However this data is collected as part of the Local Financial Returns and is available in the published LFR 23 workbook. A summary of the movement in each unusable reserve in 2023-24 is also provided in the ‘SLGFS 2023-24 – Additional Analysis – Reserves’ supporting Excel file.

A change in accounting practice in 2018-19 (IFRS 9) resulted in unrealised gains in the value of investments held by local authorities being included in the General Fund / HRA / Harbour reserve balances, rather than in an unusable reserve as before. This gain is unrealised as the investment is still held and any gain will only be realised if the investment is sold. The unrealised gain is therefore required to be earmarked and is not available to fund future revenue expenditure or to fund capital investment. The value of usable reserves presented in this publication therefore exclude any IFRS 9 unrealised gains held as part of the General Fund / HRA balances.

Table 4.1 sets out the movements across all reserves in 2023-24. Figures relating to the General Fund (including Harbour Account figures) and HRA were also presented in Chapter 2.4.

Local authorities had a decrease of £60 million in their revenue reserves, and a decrease of £233 million in their capital reserves in 2023-24. This means local authorities’ usable reserves decreased by £293 million overall, from £4,551 million at 1 April 2023 to £4,258 million at 31 March 2024.

The majority of the decrease in usable reserves relates to a decrease in Capital Grants and Receipts Unapplied of £224 million between 1 April 2023 and 31 March 2024. This is because Glasgow City council transferred £200 million from this reserve in order to help fund £260 million of equal pay settlements.

As part of the annual budget setting process, the Scottish Government commits to providing a level of funding to Councils in the form of general and specific revenue and capital grants.

Specific revenue grants must be used to meet a specific Scottish Government priority and any unused specific grant can only be carried forward with the consent of the Scottish Ministers. General Capital Grant must be spent in the year received and any unspent General Capital Grant is required to be returned to the Scottish Government at the end of the financial year and may not be held in reserves. In both cases therefore, if this funding is not otherwise utilised within the financial year by the Scottish Government, then it will be reported within reserves as part of the Scottish Government Consolidated Accounts. If consent is provided to carry forward a specific revenue grant this will be disclosed in the local authority’s annual accounts as an earmarked reserve.

Earmarked reserves are held for a specific purpose, the majority of which will be fully committed to existing spend programmes and represent the extent to which resources are received or generated in advance of the actual spend.

Local authorities are able to earmark, or set aside, part of their General Fund reserves for future use for a specific purpose. At 31 March 2024, local authorities’ had earmarked 75.7 per cent, or £2,187 million of the £2,890 million General Fund reserves[1]. These figures exclude amounts relating to unrealised gains that are included in revenue reserves in statutory Annual Accounts applying IFRS 9: Financial Instruments.

Councils may hold an additional unearmarked amount to mitigate financial risk. This amount equated to £703 million as at 31 March 2024, or 2.8% of Gross Service Expenditure (£25,225 million).