The Local Authorities (Capital Finance and Accounting) (Wales) (Amendment) Regulations 2004

Explanatory Note

(This note is not part of the Regulations)

Part I of the Local Government Act 2003 (“the 2003 Act”) allows the National Assembly for Wales to make provision for a new system of local government capital finance to replace the scheme which existed under Part IV of the Local Government and Housing Act 1989. The National Assembly for Wales used the powers under the 2003 Act to make the Local Authorities (Capital Finance and Accounting) (Wales) Regulations 2003 (“the 2003 Regulations”) which introduced a new system of local government capital finance. These Regulations are made under largely the same powers and make amendments to the 2003 Regulations.

Regulation 2 makes amendments to various regulations in the 2003 Regulations. Regulation 2(2) inserts into Regulation 1 (Name, commencement, application and interpretation) of the 2003 Regulations a definition of “charter trustees” and a definition of “CIPFA” (the Chartered Institute of Public Finance and Accountancy) to put the identity of that organisation beyond doubt. A definition of “community council” is also inserted into Regulation 1 to make it clear that town councils in Wales are included in the term “community council”. Regulation 2 (Code of practice) of the 2003 Regulations is amended by Regulation 2(3) to make it clear that references to the Prudential Code for Capital Finance in Local Authorities issued by CIPFA may include a reissued version as well as a version that may be amended from time to time.

Regulation 2(4) amends Regulation 3 (Liabilities that do not arise from capital expenditure) of the 2003 Regulations so that liabilities that do not arise from capital expenditure, as set out in Regulation 3 of the 2003 Regulations, are those credit arrangements entered into after 31st March 2004 (in accordance with the Local Government Act 2003). Those entered into before 1st April 2004 under section 48 of the Local Government and Housing Act 1989 but not resourced by capital receipts or by direct revenue financing in accordance with section 50(3)(a) of the Local Government and Housing Act 1989 will continue to be credit arrangements until ceased or varied.

Regulation 2(5) inserts into the 2003 Regulations a new Regulation 5A (Varied transactions) which clarifies that when a lease transaction is varied and that variation requires a fixed asset to be recognised on a local authority’s balance sheet, in accordance with Regulation 5 of the 2003 Regulations, that lease transaction becomes a qualifying credit arrangement.

Regulation 2(6) amends Regulation 6 (Repayment of loan etc to a local authority) of the 2003 Regulations by insertion of a new paragraph (3) so that repayments in accordance with sub-paragraphs (1)(a) and (b) are not treated as capital receipts if received by a community council or charter trustees in respect of a loan, grant or other financial assistance made by them.

Regulation 2(7) amends Regulation 9 (Capital receipts not exceeding £10,000) by applying paragraphs (1) and (3) to community councils and charter trustees.

Regulation 2(8) inserts a new regulation 9B (Operating and finance leases) into the 2003 Regulations. This new Regulation provides that where a local authority (which terms includes community councils and charter trustees) leases an asset to a third party, whether by finance or operating lease, the amounts received by the local authority as part of the arrangement shall not be treated as a capital receipt if proper practice requires that they should be credited to a revenue account.

Regulation 2(9) amends Regulation 18 (Use of capital receipts) of the 2003 Regulations by the insertion of an additional purpose for which a capital receipt may be used. The additional purpose inserted as sub-paragraph (d) of paragraph (2) is the paying of a premium in relation to any amount borrowed. Regulation 18 is also extended in its application to community councils and charter trustees.

Regulation 2(10) amends Regulation 19 of the 2003 Regulations in the same way that Regulation 2(3) amends Regulation 2 of the 2003 Regulations.

Regulation 2(11) amends Regulation 20 (Expenditure to be capital expenditure) of the 2003 Regulations by extending the categories of expenditure of a local authority which must be treated as being capital expenditure in so far as it is not capital expenditure by virtue of section 16(1) of the Local Government Act 2003. Regulation 2(11) also excludes investments (for the purposes of prudent financial management in accordance with section 12(b) of the Local Government Act 2003 which are in an official list maintained by a competent State of the European Economic Area) from being treated as capital expenditure by further amending Regulation 20.

Regulation 2(11) also specifies that where a loan, grant or other financial assistance is given by a community council or charter trustees it shall not be treated as capital expenditure.

Regulation 2(12) amends Regulation 21 (Duty to make Minimum Revenue Provision) of the 2003 Regulations by the insertion of a new paragraph (2). The effect of this amendment is that from 1st April 2004 a community council or charter trustees may charge to a revenue account any amount in respect of the financing of capital expenditure in a financial year to which such an amount relates.

Regulation 2(13) amends Regulation 22 of the 2003 Regulations to provide for the calculation of an additional amount of minimum revenue provision in specified circumstances. This amendment allows amortisation to continue in the specified circumstances as if section 136(2) of the Local Authorities (Capital Finance) Regulations 1997 still applied.

Regulation 2(15) amends Regulation 25 (Proper Practices) of the 2003 Regulations in the same way that Regulation 2(3) amends Regulation 2 of the 2003 Regulations and also requires community councils in Wales which, are required to prepare a statement of accounts in accordance with the Audit and Account Regulations 1996, to comply with Regulations 25.