The Local Authorities (Capital Finance) Regulations 1990

Explanatory Note

(This note is not part of the Regulations)

These Regulations, which are made under Part IV of the Local Government and Housing Act 1989 (“the Act”), are concerned with the new capital finance system for local authorities which operates from 1st April 1990. The new system replaces the controls on capital expenditure contained in Part VIII of the Local Government, Planning and Land Act 1980. The Regulations apply to England and Wales and are to come into force on 1st April 1990.

Part II of the Regulations makes minor amendments to the definition of expenditure for capital purposes provided in section 40 of the Act.

Part III of the Regulations relates to the requirement in section 41(1) of the Act for all expenditure incurred by a local authority to be charged to a revenue account. Section 42 excludes certain expenditure from this requirement. Regulation 4 makes a minor amendment to one of the categories of expenditure which are excluded.

Part IV of the Regulations makes provision with respect to credit arrangements, which under the Act comprise leases and certain contracts where consideration is to be given by a local authority after they have received consideration under the contract in question. Regulation 6 has the effect of making various types of leases and contracts which would otherwise be credit arrangements not credit arrangements.

Sections 50(2) and 51(4) of the Act require that a local authority must have available an amount of credit cover on entering into or varying a credit arrangement. Such an amount may be obtained by using a credit approval (as described in the following paragraph) or by setting aside an amount as provision for credit liabilities. An amount which is set aside may then only be used for certain purposes, set out in section 64 of the Act. The Act also provides, in section 44(1), for a limit (the “aggregate credit limit”) on the total amount of borrowing and outstanding liabilities under credit arrangements which a local authority may have at any time. Regulations 7 and 8 make special provision in the case of leases for calculating the amount which is required as credit cover and which is subject to the aggregate credit limit.

Part V of the Regulations lists the grants which, under section 57 of the Act, are to result in the reduction or extinguishment of credit approvals issued to an authority. Credit approvals, which are issued by the Secretary of State or any other Minister to local authorities under sections 53 and 54 of the Act, enable an authority to enter into or vary credit arrangements and not to charge expenditure to a revenue account.

Part VI of the Regulations relates to capital receipts. Section 58 of the Act provides for certain sums received by authorities to be capital receipts. Regulations 11 to 13 provide for further sums to be treated as capital receipts and for certain sums not to be capital receipts. Section 59 of the Act requires local authorities to set aside part of each capital receipt (“the reserved part”) as provision for credit liabilities. Schedule 1 to the Regulations specifies the amount of the reserved part in the case of different types of capital receipts and disposals. Subsections (8) and (9) of section 59 set out how the amount of a capital receipt is to be treated as reduced for the purposes of that section. Regulations 15 to 19 (and Schedule 2 to the Regulations) make provision for reductions in five further cases. Section 61 of, and Part II of Schedule 3 to, the Act provide for consideration which is not wholly in money paid to an authority to be treated in broadly the same way as capital receipts. Regulation 20 describes the ways in which calculation of the amount set aside is to differ in the case of consideration not wholly in money.

Part VII of the Regulations makes provision in respect of a local authority’s credit ceiling, which is one of the components of the aggregate credit limit. Schedule 3 to the Regulations lists certain modifications of the credit ceiling. By virtue of regulation 22, no account is to be taken of certain credit arrangements in determining an authority’s credit ceiling on or after 1st April 1990.

Part VIII of the Regulations concerns minimum revenue provision, which is the minimum amount to be set aside by a local authority as provision for credit liabilities in any financial year from their revenue account or accounts. Schedule 4 to the Regulations provides for certain adjustments to the credit ceiling which affect the amount of minimum revenue provision. Regulations 25 and 26 and Schedule 5 to the Regulations describe how the amount of minimum revenue provision is to be calculated.

Part IX of the Regulations makes provision for the application of Part IV of the Act to borrowing by authorities where the liability has been statutorily transferred to another authority.