Introduction
Local Authorities have four main ways of financing capital expenditure
- borrowing (and other forms of credit), within limits set by central government
- capital grants
- "usable" capital receipts; and
- revenue
The amount of capital expenditure which an authority can finance by borrowing (or other forms of credit) is effectively limited by the credit approvals issued to it.
- Basic Credit Approvals allow expenditure not to be charged to revenue accounts, and hence to be financed by borrowing if necessary. They are mainly issued by the Secretary of State for Environment, Transport and the Regions, before the start of each financial year.
- Supplementary Credit Approvals allow particular kinds of capital expenditure not to be charged to revenue accounts, and hence to be financed by borrowing if necessary. They are issued by the government department responsible for the service concerned.
The total amount of Basic Credit Approvals is determined as part of departmental multi-year spending plans. An authority's share of the total depends upon:
- its relative need for capital expenditure, as measured by the total of its "Annual Capital Guidelines" for the blocks of services for which it is responsible; and
- its relative ability to finance capital expenditure from its usable receipts, as measured by its "receipts taken into account"; and
- for 1999/2000, part of the resources awarded to it under the Capital Challenge scheme (which are not subject to Receipts Taken Into Account)
By taking some account of an authority's usable capital receipts, a greater share of the Basic Credit Approvals goes to authorities with the least receipts from which to meet their needs for capital spending.
For 1999/2000, part of the resources for successful Capital Challenge schemes are being issued through Basic Credit Approvals and part through Supplementary Credit Approvals.
Definitions
Basic Credit ApprovalAn authority's Basic Credit Approval is -
- the total of its Annual Capital Guidelines for the blocks of services for which it is responsible less
- its capital "receipts taken into account"
- Capital Challenge allocation
The total of basic Credit Approvals derives from the amount of public provision for capital expenditure determined annually
Annual Capital Guidelines
Annual Capital Guidelines are central government's assessments of authorities' relative needs for capital exepditure on most of the main local authority services. The total for Annual Capital Guidelines for 1999/2000 is £1,182m. This is the sum of the public spending provision of £907m and the £275m of capital receipts to be taken into account.
The totals of Annual Capital Guidelines for each block of services are allocated among authorities, and announced, by the relevant government departments:
- Housing (by DTLR)
- Transport (by DTLR)
- Education (by DfEE)
- Personal Social Services (by DoH)
- Environmental, Protective and Cultural Services (by DTLR)
Capital Receipts Taken Into Account
Capital "receipts taken into account" are central government's assessment of authorities' relative abilities to finance capital expenditure from their usable receipts. The total of "receipts taken into account" for 1999/2000 is £275m. Authorities are excpected to be able to finance this amount of their capital spending needs from receipts. This amount is added to the public spending provision to give the total available for allocation as Annual Capital Guidelines.
The total of capital "receipts taken into account" is allocated among authorities by the DTLR. Broadly, each authority's share of this total depends on its own estimates of :
- usable receipts brought forward to 1 April 1998 plus
- usable receipts received (or expected to be received) in 1998/99
Capital Challenge
As in 1998/99, allocations to those authorities that successfully bid for resources under the Capital Challenge Pilot will be issued largely through Basic Credit approvals in 1999/2000 (with the balance issued as Supplementary Credit Approvals). The total amount available in 1999/2000 for Capital Challenge allocations is £142m. Capital Challenge BCa allocations are not subject to the Receipts Taken Into Account (RTIAs) process. They are included, however, in the BCA figure for individual authorities, where appropriate.
Published on December 1998
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