Borrowing
Para 1 (1) of Schedule 3 of the Local Government (Scotland) Act 1975 defines the purposes for which local authorities may borrow. Following amendment by the Local Government in Scotland Act 2003, this essentially means that local authorities may only borrow for capital expenditure.
Prudential Borrowing
The amount of borrowing that a local authority can undertake is regulated by the Prudential Code under which authorities determine the maximum amount that they can afford to borrow based on a series of indicators such as afforability, prudence and sustainability. The affordability indicators are given statutory backing by the Local Government in Scotland Act 2003.
The Scottish Government provides an element of revenue funding ( loan charge support) to cover debt charges on borrowing for a notional amount of capital expenditure each year. This is known as supported borrowing. Any additional borrowing which local authorities choose to take out over and above this supported borrowing element is classed as self-financed borrowing.