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Capital Finance

Capital Finance . Capital funding – how it works. Borrowing to pay for capital schemes operates under what is known as “prudential borrowing regime” (Local Govt. Act 2003)

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Capital Finance

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  1. Capital Finance

  2. Capital funding – how it works Borrowing to pay for capital schemes operates under what is known as “prudential borrowing regime” (Local Govt. Act 2003) Under PBR, councils decide how much they can afford to pay, taking into account how much they need to repay (impact on council taxpayers) Borrowing agreements must accord with Cipfa (Chartered Institute of Public Finance and Accountancy) code Money may be borrowed from various sources

  3. Prudential funding Govt. has reserve power to impose “ceilings” limiting how much can be spent System encourages responsibility – how much can we (& taxpayers) afford? Allows councils greater freedom to decide priorities Viable alternative to PFI Could be self-financing (eg adding facility to leisure centre that pays for itself)

  4. The Private Finance Initiative - PFI Private consortium pays upfront for project in a contract with council Building/facility is leased back to council Costs paid off by council over period of between 20-30 years (plus interest) after which council retains ownership

  5. PFI ii • Delays or bad management usually penalised • Interest payments can mean costs rise above actual costs • PFI contracts often include arrangements for company to maintain and manage asset over relevant period

  6. PFI – advantages/disadvantages Good: • Risks taken by private contractor • Enables council to get scheme built more quickly Less good: • Risk of contractors underbidding for contracts and then folding • Interest costs hike up eventual overall bill • Council ends up after agreement period with relatively old asset

  7. Public Works Loan Board Executive arm of the Treasury Independent, unpaid statutory body Enables councils to borrow money more cheaply than if they went to the City or banking institutions Board approves loans only if satisfied loans can be repaid Collects the repayments, which include interest (usually lower than elsewhere) Money drawn from National Loans Fund Overseen by 12 commissioners appointed by the Crown Each holds office for four years

  8. Capital receipts Sale of assets, eg land, buildings, housing One-off money: once spent, it’s gone! Some money from any sale must be “pooled” – given to the government, which redistributes it How much is pooled varies according to how much is raised

  9. Capital receipts ii Since 2004, Govt has set limits on how much can be used for projects – “usable” sum Some of the money from sale must be “pooled” – given to Government and then redistributed Can prove controversial (eg playing fields, allotments to developers)

  10. Other capital sources Money from income raised by rents, fees and charges (eg leisure centres; library charges; fees for planning applications; parking; school meals) Councils raised £10.8billion from charges in 2006-07 – equal to £210 per person Income from fees/charges usually relatively small when compared with other sources

  11. Other capital grants Central govt - through national schemes, such as Single Regeneration Budget, Sure Start European Union – via structural funds (usually to deprived/disadvantaged regions) –Objective One and Objective Two status National Lottery

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