What will I learn

We are learning to understand how Local Authorities are financed.

Success Criteria

• Identify where LA get their money.

•Outline the difference between revenue and capital expenditure.

Financing Local Government • Local government receives most of its

income directly from the Scottish Government in the form of grants. Revenue support grant (80%)

• 20% is raised locally through council tax payments, fees and charges for the services they provide.

• Non-domestic rates- taxes on business in their area.

• At the moment there is a council tax freeze.

Thinking TaskWhy would the Government introduce a freeze on council

tax?

Who might be opposed to that and why?

Financing Local Government

• Introduction of PFI (Private Finance Initiative) and PPP (Public Private Partnership) has allowed councils to finance their own projects.

Expenditure• Given the wide range of services

provided by LG, it is not surprising that their annual expenditure is huge.

• APPROX. £7 BILLION A YEAR

• More than 1/3 of this total goes on Education alone.

Expenditure

• There are 2 types of expenditure which councils undertake and which have different sources of income.

• Capital Expenditure

• Revenue Expenditure

Capital Expenditure

• Is when a council uses money to finance the building of a new major asset e.g. school, leisure centre or council housing.

Capital Expenditure• The Finance Minister grants borrowing

permission for a certain amount of money to each council, which entitles the council to borrow from a bank/ other financial institution.

• Councils raise money themselves by selling off assets – including council owned land e.g. school playing fields.

Capital Expenditure• They get one off grants from the EU or

bodies such as National Lottery.

• A recent option for councils is to look to the private sector.

• This allowed for Capital projects to be financed in full by the private sector. Under this model a council may borrow money from financial institutions in the form of a long term loan or the lease of a new building.

• Labour Govt endorsed and expanded this idea calling it the Public Private Partnership (PPP).

Revenue Expenditure• It consists of the annual running costs

of the council. These can range from the wages of employees to telephone and heating bills, to the cost of photocopying books in schools, to repaying loans on Capital Expenditure.

Revenue ExpenditureThere are 4 main SOURCES of income for

Revenue Expenditure.Funds from Central GovtAbout 80% of council income comes from

central govt. in the form of a revenue support grant. The annual figure and breakdown by council area is determined by the Scottish Govt Minister for Finance.

Revenue ExpenditureNon-Domestic/ Business Rates

• These are paid by owners of shops, offices, factories etc.

• Set by Central govt and amount to 19% of LG income.

Revenue ExpenditureCouncil Tax

• This is paid by owners or tenants of residential property.

• There are 8 bands of this tax

• Accounts for 15% of total council income.

• ‘Pay up for Glasgow’ campaign.

Revenue ExpenditureCharges for services

• Councils can raise a small amount of their income from charges for services e.g. entry to a sports centre, school meals,etc

• Approx £340 million

Lesson Starter

1. Explain the difference between capital and revenue expenditure.

2. What is the role of COSLA?3. Write a list of ways that local authorities

and the SG have come into conflict.4. Write a list of ways that Las and the SG

have cooperated recently.