Scottish Local Government Financial Statistics 2014-15

Scottish Local Government Financial Statistics is an annual publication that provides a comprehensive overview of Scottish Local Authority financial activity. The publication covers Local Authority income, revenue and capital expenditure, outstanding debt, local taxation and Local Authority pensions.


2. Local Government Capital Expenditure and Financing

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:

  • Capital grants and contributions
  • Borrowing or Credit Arrangements
  • 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 Chartered Institute of Public Finance & Accountancy (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, 2014-15

£thousands

General Fund Services Housing Revenue Account Total
Acquisition of land, leases, existing buildings or works 48,122 15,481 63,604
New construction, conversions & enhancement to existing buildings 1,308,806 640,186 1,948,992
Vehicles, machinery & equipment 165,645 8,798 174,443
Intangible assets 13,856 205 14,061
Total Gross Capital Expenditure 1,536,429 664,671 2,201,100
Revenue Expenditure funded from Capital Resources 198,176 826 199,002
Total Expenditure to be met from Capital Resources 1,734,605 665,497 2,400,102
Scottish Government General Capital Grant 677,689 2,802 680,491
Scottish Government Specific Capital Grants 145,308 58,136 203,444
Grants from Scottish Government Agencies and NDPBs 96,178 12,431 108,610
Other Grants and Contributions 83,685 24,045 107,731
Borrowing (advances from Loans Fund) 518,296 311,404 829,701
Capital receipts used from asset sales/disposals 41,850 66,069 107,919
Capital Reserves (Capital Fund) 34,595 0 34,595
Capital funded from current revenue 94,302 190,609 284,911
Assets acquired under credit arrangements (e.g. finance leases, PPP/PFI) 42,701 0 42,701
Total Financing 1,734,605 665,497 2,400,102

Source: Capital Returns (CR Final)

In 2014-15 total gross capital expenditure was £2.2 billion. In addition to this, local authorities funded £0.2 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 £2.4 billion in 2014-15 (£0.67 billion in the housing revenue account and £1.73 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 2014-15 was grants. Local authorities received a total of £1.1 billion (46% of total financing) in grants and contributions to fund capital expenditure (£1.0 billion for the General Fund and £0.1 billion for the HRA). The second most significant source of financing was borrowing (advances from the Loans Fund). This funded a further £0.83 billion (35% of total financing, £0.52 billion in the General Fund and £0.31 billion in the HRA) of capital expenditure.

Table 2.2 - Total Capital Expenditure and Financing, 2010-11 to 2014-15

£thousands

2010-11 2011-12 2012-13 2013-14a 2014-15
Acquisition of land, leases, existing buildings or works 98,730 137,332 146,930 90,335 63,604
New construction, conversions & enhancement to existing buildings 1,876,692 2,142,293 2,037,385 1,967,310 1,948,992
Vehicles, machinery & equipment 156,289 194,836 197,022 189,509 174,443
Intangible assets 5,042 6,052 6,638 13,119 14,061
Total Gross Capital Expenditure 2,136,753 2,480,513 2,387,975 2,260,273 2,201,100
Revenue Expenditure funded from Capital Resources 211,409 181,021 161,349 199,728 199,002
Total Expenditure to be met from Capital Resources 2,348,162 2,661,534 2,549,324 2,460,001 2,400,102
Scottish Government General Capital Grant 352,652 565,541 450,088 438,163 680,491
Scottish Government Specific Capital Grants 228,865 234,365 217,281 180,549 203,444
Grants from Scottish Government Agencies and NDPBs 115,726 82,764 141,311 150,761 108,610
Other Grants and Contributions 94,486 85,714 124,311 142,077 107,731
Borrowing (advances from the Loans fund) 1,113,929 1,261,468 1,165,387 1,105,526 829,701
Capital receipts used from asset sales/disposals 114,722 94,020 105,937 92,167 107,919
Capital Fund applied 14,916 21,653 36,867 24,798 34,595
Capital funded from current revenue 208,894 209,122 294,087 295,335 284,911
Assets acquired under credit arrangements (e.g. finance leases, PPP/PFI) 103,972 106,888 14,055 30,625 42,701
Total Financing 2,348,162 2,661,534 2,549,324 2,460,001 2,400,102

a. Following the Police and Fire Reform (Scotland) Act 2012 figures from 2013-14 onwards 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, figures from 2013-14 onwards do not include Police or Fire Boards, which were replaced by new national bodies that are not classified as local government.

Between 2013-14 and 2014-15, total capital expenditure to be met from capital resources fell by 2.4% (£0.06 billion). The amount of capital expenditure that is financed by grants from the Scottish Government, including Scottish Government Agencies and Non-Departmental Public Bodies has increased by 29% between 2013-14 and 2014-15. This is mainly due to the profiling of capital grant allocations over the whole spending review period. (-£120m in 2012-13, -£100m in 2013-14 and +£120m in 2014-15 with the remaining £94.2m allocated in 2015-16). Although the sum to be added back was originally £100 million this was reduced proportionately to £94.2 million following the transfer of the police and fire functions to the Scottish Government.

The amount of capital expenditure financed through Advances from the Loans Fund has decreased by 25% between 2013-14 and 2014-15.

From 2011-12 all borrowing undertaken by local authorities became self-financed. Prior to this the first £305 million of local authority borrowed was supported by the Scottish Government through grant included within the local government revenue settlement.

Chart 2.1 - Capital Expenditure Financing1

Chart 2.1 - Capital Expenditure Financing

1. Following the Police and Fire Reform (Scotland) Act 2012 figures for 2013-14 may not be comparable with previous years. See Background to Local Government section for details.

Source: Capital Returns (CR Final)

2.1 General Fund Capital Expenditure

General Fund capital expenditure in 2014-15 was £1.735 billion, 5.8% lower than in 2013-14. The service with the highest capital expenditure was Education with 32% (£559 million) of General Fund capital expenditure, which is 7% higher than in 2013-14.

The next biggest service for capital expenditure is Roads and Transport which had expenditure of £430 million (25% of General Fund expenditure and 6% lower than in 2013-14).

Table 2.3 - Capital Expenditure by Service, 2010-11 to 2014-15

£thousands

2010-11 2011-12 2012-13 2013-14 2014-15
Education 508,691 691,878 517,158 523,776 559,309
Cultural & Related Services 196,014 245,371 257,040 148,933 121,778
Social Work 51,256 46,487 73,812 80,849 73,690
Roads & Transport 399,084 482,554 503,480 458,876 430,265
Environmental Services 102,458 105,036 126,631 188,525 138,267
Planning & Development Services 120,742 113,476 118,282 94,415 66,488
Central Services 180,486 143,678 123,740 175,153 174,094
Non-HRA Housing 174,404 149,002 136,363 156,699 165,543
Trading Services 12,687 10,390 18,419 14,059 5,171
Total General Fund Capital Expenditure excluding Police & Fire 1,745,822 1,987,872 1,874,925 1,841,285 1,734,605
Police1 25,241 30,188 45,365
Fire1 30,983 43,856 21,755
Total General Fund Capital Expenditure 1,802,046 2,061,916 1,942,045 1,841,285 1,734,605
Housing Revenue Account 546,116 599,618 607,279 618,716 665,497
Total Capital Expenditure 2,348,162 2,661,534 2,549,324 2,460,001 2,400,102

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

Source: Capital Returns (CR Final)

Chart 2.2 - Capital Expenditure, 2010-11 to 2014-15

Chart 2.2 - Capital Expenditure, 2010 to 2014-15

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, as such, chart 2.3 should be interpreted with care.

Chart 2.3 - Total Expenditure to be met from Capital Resources per Capita by Local Authority Area 2014-15

Chart 2.3 - Total Expenditure to be met from Capital Resources per Capita by Local Authority Area 2014-15

Source: Capital Returns (CR Final) & National Records of Scotland Mid-Year Population Estimates (2014)

2.2 General Fund Capital Financing

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 the use of council tax discounts from second homes or long term empty properties. Table 2.2 (above) provides time series of grant income from 2010-11 to 2014-15.

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 2.4 details capital receipts categorised by service from 2010-11 to 2014-15. 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". A detailed breakdown of Capital Receipts by Service for 2014-15 can be found in Annex J.

Table 2.4 - Capital Receipts Raised by Service, 2010-11 to 2014-15a

£thousands

2010-11 2011-12 2012-13 2013-14a 2014-15
Education 18,822 20,177 5,623 13,798 15,498
Culture & Related Services 12,013 746 3,574 3,574 1,526
Social Work 2,026 3,477 3,155 2,632 5,574
Roads & Transport 913 6,087 2,778 1,742 21,398
Environmental Services 799 611 507 1,378 1,538
Planning & Development Services 17,901 13,962 15,011 58,276 22,163
Central Services 18,613 15,663 23,925 28,128 25,930
Non-HRA Housing 453 344 81 198 666
Trading Services 1,082 1 35 6 8
Total GF Capital Receipts excluding Police & Fire 72,622 61,068 54,689 109,732 94,302
Police & Firea 3,834 4,926 7,206
Total GF Capital Receipts 76,456 65,994 61,895 109,732 94,302
Housing Revenue Account 65,515 46,326 42,369 53,529 70,594
Total Capital Receipts 141,971 112,320 104,264 163,261 164,896

a. 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.

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

Source: Capital Returns (CR Final)

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. Authorities are able to transfer capital receipts to a Capital Fund for future use. As such, capital receipts raised and capital receipts used are not necessarily equal.

Table 2.5 - Capital receipts summary, 2014-15

£thousands

General Fund Housing Revenue Account TOTAL
Capital Receipts brought forward at 1 April 2014 46,604 2,877 49,481
Capital receipts from the sale/ disposal of fixed assets 94,302 70,594 164,896
Total capital receipts available for use 140,906 73,471 214,377
Capital receipts used from asset sales/disposals 41,850 66,069 107,919
Capital receipts used to repay debt 20,776 6,104 26,880
Capital receipts transferred to Capital Fund 25,134 0 25,134
Capital receipts held 31 March 2015 53,146 1,298 54,444

Source: Capital Returns (CR Final)

Table 2.5 shows that authorities had a total of £214 million of capital receipts available for use during 2014-15, of which £49 million was the balance brought forward at 1st April 2014 and £165 million was raised during the year from the sale/disposal of fixed assets.

The main use of capital receipts in 2014-15 was to finance capital expenditure (£108 million), with a further £27 million used to repay debt and £25 million transferred to the Capital Fund. This resulted in a Capital receipts balance of £54 million at the 31st March 2015.

2.3 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.

Local authorities are required by legislation to maintain 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 Loans Fund debt and external debt will be significantly different in value.

The total amount of Loans Fund borrowing in 2014-15 was £830 million. This is 25% less than in 2013-14, a fall that can be largely attributed to the profiling of capital grant allocations over the whole spending review period (-£120m in 2012-13, -£100m in 2013-14 and +£120m in 2014-15 with the remaining £94.2m allocated in 2015-16). Of the total Loans Fund borrowing, £518 million (down 34%) was in the General Fund and £311 million (down 2%) was in the HRA.

Table 2.6 - Loans Fund Borrowing to Finance Capital Expenditure - 2010-11 to 2014-15

£thousands

2010-11 2011-12 2012-13 2013-14 2014-15
General Fund 808,181 918,890 852,238 788,568 518,296
Advances for Capital Expenditure 794,407 915,766 846,269 751,634 489,774
Advances for Consented Borrowing 13,774 3,124 5,969 36,934 28,522
Housing Revenue Account 305,748 342,578 313,149 316,958 311,404
Advances for Capital Expenditure 305,748 342,578 313,053 316,815 311,404
Advances for Consented Borrowing 0 0 96 143 0
Total Loans Fund Borrowing 1,113,929 1,261,468 1,165,387 1,105,526 829,701

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 payable and the cost of repayments (Statutory Repayment of Debt).

Contact

Email: Euan Smith

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