Scottish local government financial statistics 2017-2018

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 decreased by 0.9% from £1.95 billion on the 1st April 2017 to £1.93 billion on the 31^st March 2018;
• Total Local Authority debt increased by 4.3% from £16.83 billion at the 31^st March 2017 to £17.55 billion at the 31^st March 2018;
• Value of assets increased by 2.0% from £42.12 billion at the 31st March 2017 to £42.97 billion at the 31^st

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 Authority (Capital Finance and Accounting) (Scotland) Regulations 2016 require 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 2018 was £14.45 billion (of which £10.88 billion was General Fund and £3.57 billion was HRA). General Fund Loans Fund advances outstanding increased by £296 million (2.8%) between 1st April 2017 and 31st March 2018. HRA Loans Fund advances outstanding rose by £120 million (3.5%) between 1^st April 2017 and 31^st March 2018.

At 31st March 2018, the Scottish average General Fund Loans Fund advances outstanding was equal to £2,006 per person (up 2.4% on 31st March 2017) and the average HRA Loans Fund advances outstanding was equal to £11,525 per HRA dwelling (up 4.2% on 31st March 2017).

Table 3.1 – General Fund and HRA Loans Fund Advances Outstanding, 2013-14 to 2017-18

£thousands

	2013-14	2014-15	2015-16	2016-17	2017-18
General Fund
Loans Fund advances outstanding 1 April	9,650,825	9,932,872	9,954,276	10,067,865	10,582,876
ADD New advances from the Loans Fund	788,568	518,296	558,669	954,113	739,527
LESS : Repayments in year	469,823	462,945	456,449	434,452	428,901
LESS : Additional Voluntary Repayments in Year	34,546	27,437	8,889	3,584	13,461
Transfer of assets between funds (transfers out are negative)	-1,411	-1,773	-65	-3,552	-449
Total Loans Fund advances outstanding (£ thousands)	9,933,613	9,959,013	10,047,542	10,580,390	10,879,592
Per Head (£)	1,865	1,862	1,870	1,958	2,006
Housing Revenue Account
Loans Fund advances outstanding 1 April	2,835,741	3,024,509	3,219,673	3,360,105	3,454,161
ADD New advances from the Loans Fund	316,958	311,404	272,658	224,697	254,849
LESS : Repayments in year	127,585	105,602	112,504	116,884	123,707
LESS : Additional Voluntary Repayments in Year	9,956	12,411	16,931	20,987	11,287
Transfer of assets between funds (transfers out are negative)	1,411	1,773	65	3,552	449
Total Loans Fund advances outstanding (£ thousands)	3,016,569	3,219,673	3,362,961	3,450,483	3,574,465
Per HRA dwelling (£)	9,559	10,227	10,722	11,057	11,525
Total (GF + HRA) Loans Fund advances outstanding	12,950,182	13,178,687	13,410,504	14,041,714	14,454,057

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 £3.10 billion on the 31^st March 2018, an increase of 10.9% on the previous year. Credit arrangements per head within the General Fund increased by 10.5% to £571 per head, while within the Housing Revenue Account, credit arrangements per HRA dwelling fell by 5.1% to £8 per dwelling.

Table 3.2 – Credit Arrangements, 2013-14 to 2017-18

£thousands

	2013-14	2014-15	2015-16	2016-17	2017-18
General Fund
Balance brought forward 1 April	2,845,843	2,800,193	2,750,910	2,675,714	2,792,467
ADD: New credit arrangements in year	30,625	42,701	21,726	207,018	396,216
LESS: Repayments of principal in year	90,802	92,895	87,933	90,265	92,470
Credit arrangements outstanding 31 March	2,785,666	2,749,999	2,684,703	2,792,467	3,096,213
Per Head (£)	523	514	500	517	571
Housing Revenue Account
Balance brought forward 1 April	7,132	4,965	3,469	2,679	2,543
ADD : New credit arrangements in year	0	0	0	0	0
LESS : Repayments of principal in year	2,167	1,496	790	136	145
Credit arrangements outstanding 31 March	4,965	3,469	2,679	2,543	2,398
Per HRA Dwelling (£)	16	11	9	8	8
Total ( GF + HRA ) Credit Arrangements Outstanding	2,790,631	2,753,468	2,687,382	2,795,010	3,098,611

Source: Capital Returns (CRFinal)

Total debt increased by 4.3% from £16.83 billion on the 31^st March 2017 to £17.55 billion on the 31^st March 2018. Of this, £13.98 billion was in the General Fund, which equates to £2,576 per head of population and £3.58 billion was in the Housing Revenue Account, which equates to £11,533 per HRA dwelling.

Table 3.3 – Total Debt, 31^st March 2014 to 31^st March 2018

£thousands

	31st March 2014	31st March 2015	31st March 2016	31st March 2017	31st March 2018
General Fund
Loans Fund Advances Outstanding	9,933,613	9,959,013	10,047,542	10,580,390	10,879,592
Credit Arrangements	2,785,666	2,749,999	2,684,703	2,792,467	3,096,213
Total General Fund Debt	12,719,279	12,709,012	12,732,245	13,372,857	13,975,805
Per Head (£)	2,394	2,385	2,381	2,474	2,576
Housing Revenue Account
Loans Fund Advances Outstanding	3,016,569	3,219,673	3,362,961	3,450,483	3,574,465
Credit Arrangements	4,965	3,469	2,679	2,543	2,398
Total HRA Debt	3,021,534	3,223,142	3,365,640	3,453,026	3,576,863
Per HRA Dwelling (£)	9,568	10,186	10,598	11,065	11,533
Total Debt	15,740,813	15,932,155	16,097,885	16,825,883	17,552,668

Source: Capital Returns (CRFinal)

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 £0.47 billion (3.0%), from £15.94 billion at the 31 ^st March 2017 to £16.41 billion at the 31 ^st March 2018. 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 93% at 31 ^st March 2018.

Table 3.4 - Prudential Information, 2013-14 to 2017-18

£thousands

	2013-14	2014-15	2015-16	2016-17	2017-18
Capital Financing Requirement at 1 April	14,893,146	15,863,207	16,020,231	16,197,880	16,913,113
Capital Expenditure to be financed by borrowing or credit arrangements	1,136,151	872,402	853,053	1,385,828	1,390,592
Capital Expenditure to be financed by borrowing	829,701	829,701	831,327	1,178,810	994,376
Capital Expenditure to be financed by credit arrangements	30,625	42,701	21,726	207,018	396,216
Loans Fund principal repayments	597,408	568,548	568,953	558,595	552,608
Credit arrangements principal repayments	92,969	94,391	88,723	90,401	92,615
Additional voluntary contributions of principal repayments	44,502	39,848	25,865	26,359	24,748
Change in Capital Financing Requirement	401,272	169,615	169,512	710,473	720,621
Capital Financing Requirement at 31 March	15,294,418	16,032,822	16,189,743	16,908,353	17,633,734
Borrowing at 1 April	11,558,504	11,897,475	12,378,022	12,465,897	13,159,196
Other long term liabilities at 1 April	2,852,975	2,690,905	2,648,120	2,674,322	2,782,628
Total External Debt at 1 April	14,411,479	14,588,380	15,026,142	15,140,219	15,941,824
Borrowing at 31 March	11,816,384	12,332,169	12,465,804	13,159,196	13,332,573
Other long term liabilities at 31 March	2,790,631	2,645,977	2,680,311	2,782,628	3,079,982
Total External Debt at 31 March	14,607,015	14,978,146	15,146,115	15,941,824	16,412,555
Operational boundary for external debt at 31 March	16,684,872	16,779,418	16,982,303	17,519,099	18,415,584
Authorised limit for external debt at 31 March	17,749,541	17,787,296	17,733,442	19,083,076	20,064,032
Total External debt as a percentage of the Capital Financing Requirement at 31 March	96%	93%	94%	94%	93%

Source: Capital Returns (CRFinal)

Chart 3.1 – Prudential Indicators: 31^st March 2013 to 31^st March 2018

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 2018, local authorities held a total of £42.97 billion of assets, an increase of 2.0% (£848 million) on 31^st March 2017.

Table 3.5 – Value of Fixed Assets, 31^st March 2014 to 31^st March 2018

£thousands

	Value of fixed assets as at 31 March 2014	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	Value of fixed assets as at 31 March 2018
Operational Assets
Council dwellings	10,839,706	10,535,999	11,281,473	11,189,874	11,460,363
Other land and buildings	18,276,923	18,866,921	18,995,354	20,177,171	20,714,141
Vehicles, plant and machinery	1,003,162	1,178,814	1,197,642	1,145,829	1,063,300
Infrastructure assets	4,987,041	5,361,011	5,608,853	5,710,060	5,845,085
Community assets	161,728	169,971	184,156	177,537	183,634
Heritage assets	1,803,074	1,840,245	1,848,685	1,857,999	1,878,315
Total operational assets	37,071,634	37,952,961	39,116,163	40,258,470	41,144,838
Non-operational assets
Assets under construction	1,200,830	845,627	1,011,066	1,316,259	1,260,055
Surplus assets held for disposal	365,120	336,021	314,377	301,251	267,138
Investment properties	197,445	207,027	197,382	192,725	241,393
Total non-operational assets	1,763,395	1,388,675	1,522,825	1,810,235	1,768,586
Intangible Assets	23,913	52,306	48,437	51,435	55,078
Total Assets	38,858,942	39,393,942	40,687,425	42,120,140	42,968,502

Source: Capital Returns (CRFinal)