Scottish local government financial statistics 2016-2017

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 revenue reserves increased by 1.2% from £1.91 billion on the 1 ^st April 2016 to £1.93 billion on the 31 ^st March 2017;
• Total Local Authority debt increased by 5% from £16.1 billion at the 31 ^st March 2016 to £16.8 billion at the 31 ^st March 2017;
• Value of fixed assets increased by 3.5% from £40.7 billion at the 31 ^st March 2016 to £42.1 billion at the 31 ^st March 2017.

Total Revenue Reserves: £1.93 billion

Total Debt, 31st March 2013 to 31st March 2017 (£thousands)

Value of Fixed Assets, 31st March 2013 - 31st March 2017 (£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. finance lease, Public-Private Partnership ( PPP) or Private Finance Initiative ( PFI)) a debt liability is created to be repaid by the 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 are 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, the data was collected after the financial year had ended, but before the audit of the accounts was complete.

The all-Scotland value of Loans Fund advances outstanding at 31st March 2017 was £14.04 billion (of which £10.58 billion was General Fund and £3.45 billion was HRA). General Fund Loans Fund advances outstanding increased by £512 million (5.1%) between 1st April 2016 and 31st March 2017. HRA Loans Fund advances outstanding rose by £90 million (2.7%) between 1 ^st April 2016 and 31 ^st March 2017.

At 31st March 2017, the Scottish average General Fund Loans Fund advances outstanding was equal to £1,958 per person (up 4.7% on 31st March 2016) and the average HRA Loans Fund advances outstanding was equal to £10,900 per HRA dwelling (up 2.7% on 31st March 2016).

Table 3.1 – General Fund and HRA Loans Fund Advances Outstanding, 2012-13 to 2016-17 ( £thousands)

	2012-13	2013-14	2014-15	2015-16	2016-17
General Fund
Loans Fund advances outstanding 1 April	9,608,327	9,650,825	9,932,872	9,954,276	10,067,865
ADD New advances from the Loans Fund	852,238	788,568	518,296	558,669	954,113
LESS: Repayments in year	475,952	469,823	462,945	456,449	434,452
LESS: Additional Voluntary Repayments in Year	45,299	34,546	27,437	8,889	3,584
Transfer of assets between funds (transfers out are negative)	-292	-1,411	-1,773	-65	-3,552
Total Loans Fund advances outstanding	9,939,022	9,933,613	9,959,013	10,047,542	10,580,390
Per Head (£)	1,870	1,865	1,862	1,870	1,958
Housing Revenue Account
Loans Fund advances outstanding 1 April	2,619,354	2,835,741	3,024,509	3,219,673	3,360,105
ADD New advances from the Loans Fund	313,149	316,958	311,404	272,658	224,697
LESS: Repayments in year	96,475	127,585	105,602	112,504	116,884
LESS: Additional Voluntary Repayments in Year	2,920	9,956	12,411	16,931	20,987
Transfer of assets between funds (transfers out are negative)	292	1,411	1,773	65	3,552
Total Loans Fund advances outstanding	2,833,400	3,016,569	3,219,673	3,362,961	3,450,483
Per HRA dwelling (£)	8,973	9,533	10,138	10,609	10,900
Total ( GF + HRA) Loans Fund advances outstanding	12,772,422	12,950,182	13,178,687	13,410,504	14,041,714

a. Following the Police and Fire Reform (Scotland) Act 2012 figures for 2013-14 onwards may not be comparable with previous years. See Background to Local Government section for details.
Source: Capital Returns ( CRFinal), Housing Statistics for Scotland, NRS Mid-Year Population Estimates

Credit arrangements such as Private Finance Initiatives ( PFI) and Public Private Partnerships ( PPP) including the Scottish Non Profit Distributing ( NPD) model are not charged to the Loans Fund, but are a form of borrowing and included in the total debt figures.

Total credit arrangements outstanding stood at £2.80 billion on the 31 ^st March 2017, an increase of 4% on the previous year. Credit arrangements per head within the General Fund increased by 3.4% to £517 per head, while within the Housing Revenue Account, credit arrangements per HRA dwelling fell by 4.9% to £8 per dwelling.

Table 3.2 – Credit Arrangements, 2012-13 to 2016-17 ( £thousands)

	2012-13	2013-14	2014-15	2015-16	2016-17
General Fund
Balance brought forward 1 April	2,865,124	2,845,843	2,800,193	2,750,910	2,675,714
ADD: New credit arrangements in year	14,055	30,625	42,701	21,726	207,018
LESS: Repayments of principal in year	84,955	90,802	92,895	87,933	90,265
Credit arrangements outstanding 31 March	2,794,224	2,785,666	2,749,999	2,684,703	2,792,467
Per Head (£)	526	523	514	500	517
Housing Revenue Account
Balance brought forward 1 April	10,508	7,132	4,965	3,469	2,679
ADD: New credit arrangements in year	0	0	0	0	0
LESS: Repayments of principal in year	3,380	2,167	1,496	790	136
Credit arrangements outstanding 31 March	7,128	4,965	3,469	2,679	2,543
Per HRA Dwelling (£)	23	16	11	8	8
Total ( GF + HRA) Credit Arrangements Outstanding	2,801,352	2,790,631	2,753,468	2,687,382	2,795,010

Source: Capital Returns ( CRFinal)

Total debt increased by 5% from £16.1 billion on the 31 ^st March 2016 to £16.8 billion on the 31 ^st March 2017. Of this, £13.4 billion was in the General Fund, which equates to £2,474 per head of population and £3.5 billion was in the Housing Revenue Account, which equates to £10,908 per HRA dwelling.

Table 3.3 – Total Debt, 31 ^st March 2013 to 31 ^st March 2017 ( £thousands)

	31st March 2013	31st March 2014	31st March 2015	31st March 2016	31st March 2017
General Fund
Loans Fund Advances Outstanding	9,939,022	9,933,613	9,959,013	10,047,542	10,580,390
Credit Arrangements	2,794,224	2,785,666	2,749,999	2,684,703	2,792,467
Total General Fund Debt	12,733,246	12,719,279	12,709,012	12,732,245	13,372,857
Per Head (£)	2,396	2,387	2,377	2,370	2,474
Housing Revenue Account
Loans Fund Advances Outstanding	2,833,400	3,016,569	3,219,673	3,362,961	3,450,483
Credit Arrangements	7,128	4,965	3,469	2,679	2,543
Total HRA Debt	2,840,528	3,021,534	3,223,142	3,365,640	3,453,026
Per HRA Dwelling (£)	8,995	9,549	10,149	10,617	10,908
Total Debt	15,573,774	15,740,813	15,932,155	16,097,885	16,825,883

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, which includes 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 £0.80 billion (5.3%), from £15.15 billion at the 31 ^st March 2016 to £15.94 billion at the 31 ^st March 2017. 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 of 94% at 31 ^st March 2017.

Table 3.4 - Prudential Information, 2012-13 to 2016-17 ( £thousands)

	2012-13	2013-14	2014-15	2015-16	2016-17
Capital Financing Requirement at 1 April	14,674,452	14,893,146	15,863,207	16,020,231	16,197,880
Capital Expenditure to be financed by borrowing or credit arrangements	1,179,442	1,136,151	872,402	853,053	1,385,828
Capital Expenditure to be financed by borrowing	1,105,526	829,701	829,701	831,327	1,178,810
Capital Expenditure to be financed by credit arrangements	14,055	30,625	42,701	21,726	207,018
Loans Fund principal repayments	572,427	597,408	568,548	568,953	558,595
Credit arrangements principal repayments	88,335	92,969	94,391	88,723	90,401
Additional voluntary contributions of principal repayments	48,219	44,502	39,848	25,865	26,359
Change in Capital Financing Requirement	470,461	401,272	169,615	169,512	710,473
Capital Financing Requirement at 31 March	15,144,913	15,294,418	16,032,822	16,189,743	16,908,353
Borrowing at 1 April	11,290,176	11,558,504	11,897,475	12,378,022	12,465,897
Other long term liabilities at 1 April	2,875,632	2,852,975	2,690,905	2,648,120	2,674,322
Total External Debt at 1 April	14,165,808	14,411,479	14,588,380	15,026,142	15,140,219
Borrowing at 31 March	11,706,550	11,816,384	12,332,169	12,465,804	13,159,196
Other long term liabilities at 31 March	2,801,352	2,790,631	2,645,977	2,680,311	2,782,628
Total External Debt at 31 March	14,507,902	14,607,015	14,978,146	15,146,115	15,941,824
Operational boundary for external debt at 31 March	16,571,358	16,684,872	16,779,418	16,982,303	17,519,099
Authorised limit for external debt at 31 March	17,553,906	17,749,541	17,787,296	17,733,442	19,083,076
Total External debt as a percentage of the Capital Financing Requirement at 31 March	96%	96%	93%	94%	94%

Source: Capital Returns ( CRFinal)

Chart 3.1 – Prudential Indicators: 31 ^st March 2013 to 31 ^st March 2017 ( £thousands)

Source: Capital Returns ( CRFinal)

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 2017, local authorities held a total of £42.1 billion of assets, an increase of 3.5% (£1,433 million) on 31 ^st March 2016.

Table 3.5 – Value of Fixed Assets, 31 ^st March 2013 to 31 ^st March 2017 ( £thousands)

	Value of fixed assets as at 31 March 2013	Value of fixed assets as at 31 March 2014b	Value of fixed assets as at 31 March 2015	Value of fixed assets as at 31 March 2016	Value of fixed assets as at 31 March 2017
Operational Assets
Council dwellings	10,450,805	10,839,706	10,535,999	11,281,473	11,189,874
Other land and buildings	18,978,739	18,276,923	18,866,921	18,995,354	20,177,171
Vehicles, plant and machinery	1,022,046	1,003,162	1,178,814	1,197,642	1,145,829
Infrastructure assets	4,751,596	4,987,041	5,361,011	5,608,853	5,710,060
Community assets	168,819	161,728	169,971	184,156	177,537
Heritage assets	1,804,230	1,803,074	1,840,245	1,848,685	1,857,999
Total operational assets	37,176,235	37,071,634	37,952,961	39,116,163	40,258,470
Non-operational assets
Assets under construction	1,271,111	1,200,830	845,627	1,011,066	1,316,259
Surplus assets held for disposal	377,632	365,120	336,021	314,377	301,251
Investment properties	205,220	197,445	207,027	197,382	192,725
Total non-operational assets	1,853,963	1,763,395	1,388,675	1,522,825	1,810,235
Intangible Assets	19,747	23,913	52,306	48,437	51,435
Total Assets excluding Police & Fire	38,214,124	38,858,942	39,393,942	40,687,425	42,120,140
Total Assets	39,049,945	38,858,942	39,393,942	40,687,425	42,120,140

Source: Capital Returns ( CRFinal)