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Local Authority (Capital Finance and Accounting) (Scotland) Regulations 2016 [Draft]
Item 2 is consideration of an affirmative statutory instrument. I welcome John Swinney, the Deputy First Minister and Cabinet Secretary for Finance, Constitution and Economy; Hazel Black, head of local authority accounting at the Scottish Government’s local government finance and local taxation unit; and Colin Brown, a senior principal legal officer at the Scottish Government.
First, we will take evidence on the instrument and, under our next item, the cabinet secretary will move the motion to recommend that the instrument be approved. Mr Swinney, do you wish to make an opening statement?
Thank you, convener. I will make an opening statement on the regulations.
A local authority’s capital expenditure plans, its borrowing plans and the investment of its surplus money are all interrelated activities. All form part of a local authority’s integrated treasury management activities.
The Parliament passed the Local Government in Scotland Act 2003, which repealed the capital expenditure consent regime and replaced it with a duty for each local authority to determine and keep under review the maximum amount it can afford to allocate to capital expenditure. Provision was made for ministers to regulate in that respect.
The 2003 act provided for ministers, through regulation, to make revised statutory provision about how local authorities invest their money. Regulations, together with statutory guidance, enable local authorities to determine for themselves where surplus funds may be invested, but their governance arrangements are required to be set out in policy documents that each authority approves.
For both capital expenditure and the investment of money, the statutory provisions require local authorities to have regard to recognised codes—the Chartered Institute of Public Finance and Accountancy’s prudential code and the treasury management code. CIPFA is the professional accountancy body for public services.
In 2014, as part of the city deal agreement, local authorities asked for a review of the legislative provision for local authority borrowing and lending. They sought greater autonomy and responsibility for decisions on borrowing and on the repayment of that borrowing.
The Local Authority (Capital Finance and Accounting) (Scotland) Regulations 2016 are the result of work that has been undertaken with local authorities and other stakeholders. The regulations encompass borrowing for capital expenditure and borrowing as a function of a local authority’s integrated treasury management activities.
The regulations adopt the same approach as is taken to regulating local authority capital expenditure and local authority investments. Under that approach, a local authority will determine for itself the source of its borrowing but, in taking those decisions, it must have regard to recognised codes. A local authority must also formally determine before each financial year how much external debt it can afford and consider what action would be taken if that limit was exceeded or was likely to be exceeded.
A local authority is also to determine the period over which borrowing, recognised by an advance from the loans fund, is to be repaid to the loans fund, and what the amount of each repayment should be. The loans fund is to be administered in accordance with the regulations, proper accounting practices and prudent financial management. Guidance that will be issued if Parliament approves the regulations will set out what is considered prudent in terms of repayments to the loans fund. Guidance will also formally identify both the CIPFA prudential code and the CIPFA treasury management code as the recognised codes.
In summary, the regulations have been asked for—and will be welcomed by—local authorities. Together with the guidance that we will issue, they will complement and complete the statutory governance arrangements for local authority capital expenditure, borrowing and investments, all of which are interrelated activities. I am happy to answer the committee’s questions.
As there are no questions on the regulations, we move to item 3, which is formal consideration of the motion. I invite the cabinet secretary to move motion S4M-15459.
Motion moved,
That the Local Government and Regeneration Committee recommends that the Local Authority (Capital Finance and Accounting) (Scotland) Regulations 2016 [draft] be approved.—[John Swinney.]
Motion agreed to.
10:05 Meeting suspended.