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LOCAL GOVERNMENT FINANCE SETTLEMENT: 2005-06, 2006-07 AND 2007-08

ANNEX 6: LOAN CHARGE SUPPORTED AND SUPPORTED BORROWING ALLOCATIONS 2005-06 TO 2007-08

Loan Charge On Local Authority Debt

1. Loan Charges are designed to support the interest payments on Local Authority debt, principal repayments and loans fund expenses. Loan charges amounts are calculated for:

i) actual relevant service debt incurred by councils prior to 1 ^st April 1999

ii) estimated relevant service debt incurred by councils from 1 ^st April 1999 to 31 ^st March 2004 under Section 94 of Local Government Scotland Act, 1973

iii) estimated debt incurred by councils against supported borrowing allocation from 1 ^st April 2004

iv) actual debt incurred by the police and fire services and the Strathclyde Passenger Transport Authority

2. For each category of debt the main components of loan charges are calculated as follows:

2005-06

Loan Charge Support for 2005-06 is as stated in Finance Circular 1/2003.

2006-07 and 2007-08

Loan charges for 2006-07 and 2007-08 are calculated (using a rebased 2005-06) as follows:

Interest Payments: A Scottish average pool interest rate is applied to the average debt. For 2006-07 and 2007-08, the interest rate is 6.13%. This interest rate is compiled from data supplied by PWLB (Public Works Loan Board), CIPFA (Chartered Institute of Public Finance and Accountancy) and HM Treasury.

Principal Repayments: For category i) redemptions are as reported. For categories ii) and iii) an average redemption rate is applied to average debt during the period. This rate is the average all-councils redemption rate for 2003-04. For iv) the rate used for each board is that board's average redemption rate for 2001-02 to 2003-04.

Loans Fund Expenses: An expenses rate is applied to average debt in the period. For 2006-07 to 2007-08, the expenses rate is 0.069%. This is the same rate as was previously used as updated data was not available.

3. In addition, Orkney Islands Council and Shetland Islands Council receive a notional element of loan charges to support their debt free (or previously debt free) status.

Loan Charges For Public Private Partnership Projects

4. In addition to the loan and leasing charges detailed above, loan charges are given to provide a 'level playing field' for Public private partnership projects (PPPs). The methodology for this is described in detail in Finance Circular 16/1997. The total Level Playing Field Support requirement for 2005-08 is as follows:

• 2005-06 59.955m
• 2006-07 61.429m
• 2007-08 61.429m

Total Loan And Leasing Charges Requirement

5. Basic loan and leasing charges requirement is the sum of loan charges across the Local Authority debt types listed in 1.(i) to 1.(iv) (including notional amounts for Orkney and Shetland). The calculated basic loan charges requirement for 2006-08 (excluding LPFS) is as follows:

• 2006-07 817.454m
• 2007-08 831.129m

6. These basic totals are then added to LPFS as given in paragraph 4, to give a total basic loan charge requirement (including LPFS) as follows:

• 2006-07 878.882m
• 2007-08 892.558m

7. These totals are then adjusted to ensure consistency with the previous early loan charge estimates built into the settlement calculations. Any excess (or shortfall) of support that exists compared to the earlier loan charge is apportioned across the 32 authorities, relative to each authority's share of the basic loan charge requirement (excluding LPFS) as given in part 8 and is provided as other revenue. For 2006-07 and 2007-08 headroom of 87m in 2006-07 and 85m in 2007-08 is included in the final totals. The final adjusted totals are shown below:

• 2006-07 966m
• 2007-08 978m

Supported Borrowing

8. For 2006-07 to 2007-08, as for 2004-05 and 2005-06, the total loan charge support to authorities includes an element which represents support, for the period of this settlement, for an assumed level of new capital debt taken out in each year.

9. The previous consent allocation formula has again been used to establish these allocations. As notified in Finance Circular 10/2002, these assumed 'notional' allocations would not have any control on authorities' actual levels of capital borrowing or investment.

10. The table below shows the supported borrowing allocations used to calculate the distribution of the supported borrowing loan charge support for 2006-07 and 2007-08.

Note: minor roundings discrepancy from the individual Local Authority split to the total. The amounts specified are correct to each Local Authority are actuals.

Other Revenue Support

11. The Loan Charge Support column also includes other revenue support stemming from the additional provision in the 2002 settlement. Local authorities are free to use this support for prudential borrowing or for other support of services if they so wish.

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