Part 1 of the Local Government Act 2003 introduced a legal framework within which local government may undertake capital expenditure. In Wales, the Welsh Ministers may regulate that activity by regulations. Such provision was made by the Local Authorities (Capital Finance and Accounting) (Wales) Regulations 2003 (S.I. 2003/3239 (W. 319)) (“the 2003 Regulations”).

These Regulations amend the 2003 Regulations and apply in relation to local authorities in Wales for financial years beginning on and after 1 April 2015.

Under proper accounting practices local authorities are required to measure assets and financial liabilities at fair value. Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date.

Where a loan is agreed at a value different from the fair value then the sum by which the amount lent exceeds fair value must be recognised in a local authority’s revenue account. Proper accounting practices stipulate that failure to recognise the difference in these amounts could result in a revenue account being qualified.

These Regulations remove the requirement for local authorities to recognise in a revenue account the difference between fair value and the agreed value of loans acquired by the Welsh local authorities with housing stock from the Public Works Loan Board (“PWLB”).

The Housing Revenue Account Subsidy (“HRAS”) system was originally established to enable the UK Government to identify the financial support needed by local authorities in England and Wales to manage their council housing. In April 2015 the eleven local authorities with housing stock in Wales entered into a buyout scheme and exited the HRAS system by way of PWLB loans. The HRAS buyout provides local authorities in Wales with new freedom to improve housing and build new homes. Once the relevant provisions of the Housing (Wales) Act 2014 come into force, the HRAS system will be abolished in relation to Wales.

The loans to which these Regulations apply were drawn down on 2 April 2015 for the purpose of the HRAS buyout. These Regulations do not apply to any other liabilities of a local authority.

In accordance with the amendment made by regulation 3, the interest payable on the PWLB loans must be recognised in a revenue account of a local authority on the day the authority becomes liable for that interest, or as soon as practicable.

The Welsh Ministers’ Regulatory Impact Assessment Code for Subordinate Legislation has been considered in relation to these Regulations. As a result, a regulatory impact assessment has not been prepared as to the likely costs and benefits of these Regulations.