Scottish Local Government Financial Statistics 2013-14

2. Local Government Capital Expenditure and Financing

2.1 Total Capital Expenditure and Financing

Capital expenditure by local authorities is mainly for purchasing, constructing or enhancing physical assets, such as buildings (e.g. care homes or schools), land (e.g. playing fields), infrastructure (e.g. roads), and vehicles, plant and machinery. Capital expenditure also includes expenditure that the Scottish Ministers have permitted the local authorities to treat as capital expenditure and meet from capital resources.

Capital expenditure is financed by one or more of the following types of income:

• Capital grants and contributions
• Borrowing/Finance leases
• Contributions from revenue funds
• Capital receipts from asset sales

The Local Government in Scotland Act 2003, provides local authorities with the power to finance capital expenditure by borrowing without securing Government approval. Local authorities have a statutory duty to set their own maximum capital expenditure limits. These limits must be set with regard to the CIPFA Prudential Code, which requires that capital expenditure undertaken by local authorities must be affordable, prudent and sustainable. Detailed breakdowns of Capital Expenditure can be found in Annexes G and H.

Table 2.1 - Total Capital Expenditure and Financing, 2013-14

£ thousands
	General Fund Services	Housing Revenue Account	Total
Acquisition of land, leases, existing buildings or works	49,759	40,576	90,335
New construction, conversions & enhancement to existing buildings	1,415,322	551,988	1,967,310
Vehicles, machinery & equipment	163,523	25,986	189,509
Intangible assets	13,096	23	13,119
Total Gross Capital Expenditure	1,641,700	618,573	2,260,273
Revenue Expenditure funded from Capital Resources	199,585	143	199,728
Total Expenditure to be met from Capital Resources	1,841,285	618,716	2,460,001
Scottish Government General Capital Grant	438,163	0	438,163
Scottish Government Specific Capital Grants	136,731	43,818	180,549
Grants from Scottish Government Agencies and NDPBs	145,737	5,024	150,761
Other Grants and Contributions	124,601	17,476	142,077
Borrowing	788,568	316,958	1,105,526
Capital receipts used from asset sales/disposals	43,794	48,373	92,167
Capital Reserves (Capital Fund)	23,438	1,360	24,798
Capital funded from current revenue	109,628	185,707	295,335
Assets acquired under credit arrangements (e.g. finance leases, PPP/PFI)	30,625	0	30,625
Total Financing	1,841,285	618,716	2,460,001

Source: Capital Returns (CR Final)

In 2013-14 total gross capital expenditure was £2.26 billion. In addition to this, local authorities funded £0.20 billion of revenue expenditure from capital resources - this was mostly funding third party capital housing projects. This means that total expenditure funded from capital resources was £2.46 billion in 2013-14 (£0.62 billion in the housing revenue account and £1.84 billion in the General Fund). The majority (around 80%) of capital expenditure went on new construction, conversions and enhancements to existing buildings.

The largest source of financing for capital expenditure in 2013-14 was borrowing. Local authorities borrowed £1.11 billion (45% of total financing) to fund capital expenditure (£0.79 billion for the General Fund and £0.32 billion for the HRA). The second most significant source of financing were grants from the Scottish Government and its Agencies. These funded a further £0.77 billion (31% of total financing) of capital expenditure.

The capital data from 2009-10 include the cost of changes arising from accounting changes from the introduction of International Financial Reporting Standards (IFRS). Based on these standards, more assets are now recognised as assets of the local authority (on-balance sheet) which they were not under the previous arrangements. The associated liability to finance the asset is a type of debt which is known as a finance lease or credit arrangement. The 2009-10 figures will not be comparable with earlier or later years as they include an adjustment to implement the new accounting standards.

Table 2.2 - Total Capital Expenditure and Financing, 2009-10 to 2013-14

£ thousands
	2009-10a	2010-11	2011-12	2012-13	2013-14b
Acquisition of land, leases, existing buildings or works	477,203	98,730	137,332	146,930	90,335
New construction, conversions & enhancement to existing buildings	2,385,906	1,876,692	2,142,293	2,037,385	1,967,310
Vehicles, machinery & equipment	183,013	156,289	194,836	197,022	189,509
Intangible assets	11,197	5,042	6,052	6,638	13,119
Total Gross Capital Expenditure	3,057,319	2,136,753	2,480,513	2,387,975	2,260,273
Revenue Expenditure funded from Capital Resources	214,040	211,409	181,021	161,349	199,728
Total Expenditure to be met from Capital Resources	3,271,359	2,348,162	2,661,534	2,549,324	2,460,001
Scottish Government General Capital Grant	462,640	352,652	565,541	450,088	438,163
Scottish Government Specific Capital Grants	268,370	228,865	234,365	217,281	180,549
Grants from Scottish Government Agencies and NDPBs	160,281	115,726	82,764	141,311	150,761
Other Grants and Contributions	104,575	94,486	85,714	124,311	142,077
Borrowing from Loans fund	1,091,548	1,113,929	1,261,468	1,165,387	1,105,526
Capital receipts used from asset sales/disposals	164,746	114,722	94,020	105,937	92,167
Capital Fund applied	28,616	14,916	21,653	36,867	24,798
Capital funded from current revenue	166,141	208,894	209,122	294,087	295,335
Assets acquired under credit arrangements (e.g. finance leases, PPP/PFI)	824,442	103,972	106,888	14,055	30,625
Total Financing	3,271,359	2,348,162	2,661,534	2,549,324	2,460,001

a.Figures for 2009-10 include assets acquired through PPP/PFI for past years. (more information on the changes can be found here - http://www.scotland.gov.uk/Topics/Government/local-government/17999/LACapital/CapExReport200910)

b. Following the Police and Fire Reform (Scotland) Act 2012 figures for 2013-14 may not be comparable with previous years. See section 5.2 for details.

Source: Capital Returns (CR Final)

Because of the changes in accounting practice noted above and Police and Fire Reform, it is difficult to draw conclusions about changes in capital expenditure and financing over the time period presented in Table 2.2 and Chart 2.1. In particular the figures for 2009-10 include all of the expenditure financed by PPP/PFI in the years up to then that would be counted as expenditure under the new regime - this is illustrated by the high level of capital expenditure financing for 2009-10 shown in chart 2.1. Figures for 2013-14 do not include Police or Fire Boards, which were replaced by new national bodies that are not classified as local government.

The majority of capital expenditure is financed by borrowing from the Loans Fund, with 45% of capital expenditure funded from borrowing in 2013-14. The next largest source of financing is Grants from Scottish Government (SG General/Specific, Agencies and NDPBs) which financed 31% of capital expenditure in 2013-14. Capital funded from current revenue has steadily increased since 2009-10, increasing from 5% of capital financing to 12% in 2013-14.

Chart 2.1 - Capital Expenditure Financing^{1, 2}

£thousands

1. Figures for 2009-10 include assets acquired through PPP/PFI for past years. (more information on the changes can be found here - http://www.scotland.gov.uk/Topics/Government/local-government/17999/LACapital/CapExReport200910)

2. Following the Police and Fire Reform (Scotland) Act 2012 figures for 2013-14 may not be comparable with previous years. See section 5.2 for details.

Source: Capital Returns (CR Final)

2.2 General Fund Capital Expenditure

General fund capital expenditure in 2013-14 was £1,841 million. The service with the highest capital expenditure was education with 28% (£524 million) of capital expenditure. It should be noted that expenditure for 2009-10 includes a large amount of expenditure funded by PPP/PFI for past years and this disproportionately affects education expenditure.

The next biggest service for capital expenditure is roads and transport which had expenditure of £459 million (25% of General Fund expenditure).

Table 2.3 - Capital Expenditure by Service, 2009-10 to 2013-14

£ thousands
	2009-10a	2010-11	2011-12	2012-13	2013-14
Education	1,248,645	508,691	691,878	517,158	523,776
Cultural & Related Services	216,345	196,014	245,371	257,040	148,933
Social Work	66,379	51,256	46,487	73,812	80,849
Roads & Transport	471,795	399,084	482,554	503,480	458,876
Environmental Services	121,769	102,458	105,036	126,631	188,525
Planning & Development Services	171,613	120,742	113,476	118,282	94,415
Central Services	212,250	180,486	143,678	123,740	175,153
Non-HRA Housing	182,808	174,404	149,002	136,363	156,699
Trading Services	21,935	12,687	10,390	18,419	14,059
Total General Fund Capital Expenditure excluding Police & Fire	2,713,539	1,745,822	1,987,872	1,874,925	1,841,285
Police2	37,744	25,241	30,188	45,365
Fire2	24,759	30,983	43,856	21,755
Total General Fund Capital Expenditure	2,776,042	1,802,046	2,061,916	1,942,045	1,841,285
Housing Revenue Account	495,317	546,116	599,618	607,279	618,716
Total Capital Expenditure	3,271,359	2,348,162	2,661,534	2,549,324	2,460,001

a. From 2009-10 onwards assets acquired through PPP/PFI are included. In addition, figures for 2009-10 include assets acquired through PPP/PFI for past years. (more information on the changes can be found here - http://www.scotland.gov.uk/Topics/Government/local-government/17999/LACapital/CapExReport200910)

2. Following the Police and Fire Reform (Scotland) Act 2012 figures for 2013-14 may not be comparable with previous years. See section 5.2 for details.

Source: Capital Returns (CR Final)

Chart 2.2 - Capital Expenditure

£thousands

Figures for 2009-10 include assets acquired through PPP/PFI for past years. (more information on the changes can be found here - http://www.scotland.gov.uk/Topics/Government/local-government/17999/LACapital/CapExReport200910)

In any given year capital expenditure per capita varies substantially between local authority areas. This will in part reflect the different priorities of local authorities however it also reflects differences in the timing of capital projects. Expenditure on capital projects is uneven and expenditure per head in local authority areas will move (possibly substantially) from year to year.

Chart 2.3 - Gross Capital Expenditure per Capita by Local Authority Area 2013-14

Source: Capital Returns (CR Final) & National Records of Scotland Mid-Year Population Estimates (2013)

2.3 General Fund Capital Financing

2.3.1 Capital Grants

Capital grants are grants provided to local authorities to fund capital investment. The Scottish Government provides two types of grant funding to local authorities - a General Capital Grant and a number of ring-fenced grants. Scottish Government Agencies, such as Transport Scotland, and Non-Departmental Bodies such as sportscotland may also award grants for projects. Other grants and contributions include grants from other local authorities, European Structural Funds, contributions from private developers or persons, and grants from the National Lottery. Table 2.4 details capital grants by source, and type of local authority.

Table 2.4 - Capital Grants, 2013-14 ^{a, b}

£ thousands
	Scotland	Unitary Authorities	Regional Transport Partnerships	Bridge Authorities	Valuation Boards
Grants from Scottish Government Agencies and NDPBs	662,704	649,888	7,860	4,956	0
Grants from other Local Authorities/Joint Boards	15,943	13,537	2,383	0	23
European Union Structural Funds	9,545	9,545	0	0	0
Contributions from private developers or persons	17,034	17,034	0	0	0
Grants from the National Lottery	12,311	12,311	0	0	0
Other grants/ contributions	91,119	87,491	3,530	0	98
Total Grants	808,656	789,806	13,773	4,956	121

a. These figures are those reported by local authorities in their 2013-14 Final Capital Return for Income. They will not, therefore, match the figures for financing in Table 2.2

b. Figures include Housing Revenue Account

Source: Capital Returns (CR Final)

2.3.2 Capital Receipts

'Capital receipts' is the term used to recognise income from the sale or disposal of a fixed asset, such as land or council housing. Under statute capital receipts may only be used to fund capital expenditure or for the repayment of the principal of loans.

Table 2.5 details capital receipts categorised by service from 2009-10 to 2013-14. In order to reflect the corporate nature of assets and to promote good asset management practices local authorities commonly move assets to "Central Services" (which includes "Other Services" categorisation in this table) when they become identified as surplus for disposal. This can be seen from the table where in recent years for General Fund services, the greatest value of capital receipts has generally been reported against "Central Services". From 2009-10, Local authorities have been required to report Capital Receipts against the service with which the asset was last in use. A detailed breakdown of Capital Receipts by Service for 2013-14 can be found in Annex J.

Capital receipts can be used to finance capital expenditure and repay debt (principal but not interest). These receipts are generated through the sale or disposal of assets, such as a council house or other local authority land/building. Revenue raised from capital receipts has been falling for a number of years, but because of the changes in recording practice it is difficult to attribute this fall to a particular service.

Table 2.5 - Capital Receipts Raised by Service, 2009-10 to 2013-14^a

£ thousands
	2009-10	2010-11	2011-12	2012-13	2013-14
Education	4,089	18,822	20,177	5,623	13,798
Culture & Related Services	2,243	12,013	746	1,025	3,574
Social Work	285	2,026	3,477	3,155	2,632
Roads & Transport	742	913	6,087	2,778	1,742
Environmental Services	1,113	799	611	507	1,378
Planning & Development Services	8,996	17,901	13,962	15,011	58,276
Central Services	142,394	18,613	15,663	23,925	28,128
Non-HRA Housing	602	453	344	81	198
Trading Services	133	1,082	1	35	6
Total GF Capital Receipts excluding Police & Fire	160,597	72,622	61,068	52,140	109,732
Police & Fire1	3,709	3,834	4,926	7,206
Total GF Capital Receipts	164,306	76,456	65,994	59,346	109,732
Housing Revenue Account	65,091	65,515	46,326	42,369	53,529
Total Capital Receipts	229,397	141,971	112,320	101,715	163,261

a. Following the Police and Fire Reform (Scotland) Act 2012 figures for 2013-14 may not be comparable with previous years. See section 5.2 for details.

2. In 2012-13 fire boards had £41k in education capital receipts raised.

Source: Capital Returns (CR Final)

Table 2.6 - Capital receipts summary, 2013-14

£ thousands
	General Fund	Housing Revenue Account	TOTAL
Capital Receipts brought forward at 1 April 2013	45,123	2,821	47,944
Capital receipts from the sale/ disposal of fixed assets	109,732	53,529	163,261
Total capital receipts available for use	154,855	56,350	211,205
Capital receipts used from asset sales/disposals	43,794	48,373	92,167
Capital receipts used to repay debt	55,231	3,955	59,186
Capital receipts transferred to Capital Fund	34,228	0	34,228
Capital receipts held 31 March 2014	21,602	4,022	25,624

Source: Capital Returns (CR Final)

Table 2.6 shows the impact capital receipts raised and used have on the capital receipts brought forward at 1 April 2013 (£48.0m), resulting in capital receipts held at 31 March 2014 of £25.6m.

2.3.3 Borrowing

Local Authorities have the statutory power to borrow under Schedule 3 of the Local Government (Scotland) Act 1975. Local Authorities may borrow for the purposes of:

• Acquiring land
• Construction of buildings
• Undertaking permanent work or provision of plant and machinery
• Lending to relevant authorities or Community Councils
• Any other purpose for which the authority is authorised under any enactment to borrow

Borrowing is a major component of the funding of capital expenditure as shown in Table 2.7.

Local authorities are required by legislation to operate a loans fund. All money borrowed by local authorities must be paid into this loans fund, which then makes advances to service accounts to fund capital expenditure. The Scottish Government monitors the value of debt recorded in the loans fund (rather than the level of external debt) because it is this amount of debt that is charged to services over a period of time. It is not expected, however, that the levels of loan pool debt and external debt will be significantly different in value.

Table 2.7 - Loans Fund Borrowing to Finance Capital Expenditure - 2009-10 to 2013-14

£ thousands
	2009-10	2010-11a	2011-12	2012-13	2013-14
General Fund	779,807	808,181	918,890	852,238	788,568
Advances for Capital Expenditure	758,526	794,407	915,766	846,269	751,634
Advances for Consented Borrowing	21,281	13,774	3,124	5,969	36,934
Housing Revenue Account	311,741	305,748	342,578	313,149	316,958
Advances for Capital Expenditure	311,741	305,748	342,578	313,053	316,815
Advances for Consented Borrowing	0	0	0	96	143
Total Loans Fund Borrowing	1,091,548	1,113,929	1,261,468	1,165,387	1,105,526

a. Data from Valuation Boards was collected for the first time in 2010-11

Source: Capital Returns (CR Final)

The costs of servicing debt on Local Authority trading services (e.g. piers and harbours) are mainly met through the charges made for these services, while the costs of servicing Housing Revenue Account (HRA) debt are met principally through income from rents. The costs of servicing debt are detailed in Table 1.1 which shows interest paid and the cost of repayments can be seen in Annex B (Statutory Repayment of Debt).