Annex D
Capital spending and financingThis annex contains information on capital spending and how it is financed relating to Chapter 4. It is divided into the following sections:
• Information from the 2001-02 Capital Outturn Returns (COR) section D1 • Provision for credit liabilities (PCL) 1998-99 to 2001-02 section D2 • Changes to English local government capital finance systems section D3 Section D1 gives 2001-02 capital expenditure and receipts information from the Capital Outturn Returns (COR) for all service groups within the main service blocks. Information on acquisition of share or loan capital is not included in Total Capital Expenditure and Disposal of Investments is not included in Total Capital Receipts.
Definitions of Column Headings in Section D1
(Capital Outturn Summaries)Acquisition of land and existing buildings and works (including any road charges) - payments against the service for which the land is required for use rather than that appropriate to the powers used for acquisition; interest on purchase money is excluded, except where it is in connection with Slum Clearance Subsidy.
New construction and conversion - capital payments include the wages and salaries (including the employer's share of national insurance and pension contributions) of employees engaged on direct labour schemes, and the cost of architectural, engineering and other services (including the authority's own professional staff) connection with these works and other overheads (including accommodation). Payments on demolition and site clearance with the erection of bridges is also included, as well as civil engineering works (eg for the provision, laying or replacement of water mains and sewers, the laying or improvement of roads, the preparation of playing fields and hard playing areas).
Vehicles - acquisition, renewal or replacement of vehicles and vessels (including ships and aircraft) and the acquisition of assets by Direct Labour and Service Organisations.
Plant machinery and equipment - acquisition, renewal or replacement of plant, machinery and equipment, including furniture and fittings, and the installation of street lighting, road signs, traffic signals and related equipment, where the payment for these can be identified separately. Also includes the acquisition of assets by Direct Labour and Service Organisations.
Total payments on fixed assets - includes salaries of professional staff charged to the capital account.
Capital grants and advances - all grants and advances made for capital purposes, such as those for housing and industrial purposes.
Credit cover for credit arrangements (leases and other) - the estimated credit cover required for the entering into or variation of credit arrangements, which occurred during the year; existing credit arrangements are excluded.
Sales of fixed assets - amounts received by an authority in respect of the sale of any interest in a fixed asset, if at the time of the sale, expenditure on the acquisition of that asset would have counted as expenditure for capital purposes. Also includes receipts from the sale of assets to other authorities.
Repayments of capital grants and advances - repayments of grants, advances and other financial assistance of a capital nature. Includes repayments of renovation grants, repayments of principal (regular and premature) of loans to private persons and repayments of sums left outstanding (regular and premature) on the sale of council dwellings, where the purchase was financed by a mortgage. Also includes repayments of principal of loans to Housing Associations other than those required by the use of Housing Association Grant. Receipts from health authorities are excluded.
Disposal of leased assets - cash sums received by way of premiums on the disposal, grant or assignment of leases and other capital interests.
Table D1a: Capital outturn (COR) summary - all services - 2001-02
Table D1b: Capital outturn (COR) summary - all services - 2001-02
Table D1c: Capital outturn (COR) summary - all services - 2001-02
Table D2: Provision for credit liabilities (PCL) 1998-99 to 2001-02
D3 Changes to English local government capital finance systems
Between the mid-nineteenth century and 1972, local government capital finance remained much the same with only minor amendments to its detail. Capital projects were financed by government grants, revenue, sales of capital assets or loans. Central control operated only on the loans. A local authority needed a sanction in order to use a loan, first giving approval for the project itself and secondly authorising the use of a loan. Loans were available from a variety of sources; the Public Works Loan Board (PWLB) was a major source.
1933 Local Government Act. Consolidated the legislation of the previous 50 years. Set out the type of expenditure which could be financed by borrowing (effectively anything a Minister considered proper) and detailed types of borrowing open to local authorities.
1945 The Local Authorities Loans Act. Virtually all borrowing had to come from the PWLB until 1952.
1955 The PWLB became lender of last resort.
1963 Controls were imposed on temporary borrowing. Access to the PWLB was relaxed. The Local Government (Financial Provisions) Act allowed authorities to borrow by issuing bonds.
1970 Capital expenditure was dealt with in three classes. Those in the Key Sector, covering the great majority of services, continued to require specific loan sanction; the Subsidiary Sector had general consent to borrow; and the Locally Determined Sector had block borrowing approval.
1972 The Local Government Act consolidated all previous legislation into one act but made no significant changes to the system.
1976 The Layfield Committee on Local Government Finance concluded that current arrangements were not conducive to proper planning, management and control of local authorities' capital programmes.
1981 New system set up under the Local Government, Planning and Land Act 1980. Capital expenditure was defined and controlled through annual capital expenditure allocations. Expenditure was monitored quarterly from 1978. Limits on capital expenditure were set partly by reference to a prescribed proportion of an authority's capital receipts.
1986 The government published a Green Paper, Paying for Local Government, which considered ways of improving the system.
1990 Part IV of the Local Government and Housing Act 1989 introduced the broad framework of the present capital finance system. Detailed provisions were set out in regulations. The main effect was to control capital expenditure funded by borrowing (and all other forms of credit) through the issue of credit approvals. The spending of capital receipts was regulated by the requirement for authorities to set aside part of their receipts as provision for credit liabilities.
1995 The Local Authorities (Companies) Order 1995 extended the system to the finances of companies controlled or influenced by local authorities.
1997 The Local Authorities (Capital Finance) Regulations 1997 consolidated the changes to the system made since 1990 and contained new provisions to encourage the use of the Private Finance Initiative.
1998 The Capital Finance Regulations were amended for most non-housing capital receipts, from 1 September 1998 removing the requirement for authorities to set aside part of the receipts.
2000 In 1998, the White Paper Modern Local Government - In Touch with the People announced a review of the capital finance system. A consultation paper Modernising Local Government Finance: A Green Paper was issued in September 2000. It suggests replacing the existing credit approval system for controlling capital expenditure with a prudential approach to determine what is affordable.
2002 In December 2001, the White Paper Strong Local Leadership - Quality Public Services put forward proposals for a new prudential capital finance system, which would mean the end of credit approvals. On 2 April 2002, the Government abolished the Receipts Taken Into Account (RTIAs) mechanism, which was used to distribute local authorities' Basic Credit Approval allocations under the Single Capital Pot.
2003 The Local Government Bill 2003 received Royal Assent on 18 September. The Act puts in place the broad legislative framework for the new prudential regime for borrowing by local authorities, which will be supplemented by the Prudential Code developed and published by CIPFA and secondary legislation. This new system replaces that set out in Part IV of the Local Government and Housing Act 1989.
Published 12 November 2003
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