Capital Grants
The Scottish Government provides grants to local authorities for capital expenditure. it provides two types of Capital Grant.
Specific Capital Grants
Also called Specific Purpose Grants, these grants are provided to Local Authorities to fund individual specific activities and as such the funds are ring-fenced for use on these activities only. The terms and conditions of each grant are laid out separately in the offer letters for these grants.
General Capital Grant
The General Capital Grant was introduced on 1 April 2008. It is the result of aggregating the funding from a number of former Specific Capital Grants to provide a single grant over which the authorities may exercise a greater degree of control by determining how these resources are used to meet their assessment of local priorities. The terms and conditions relating to this grant are laid out in the General Capital Grant offer letters issued to individual councils at the start of each year, and at such times as changes are made during the course of a year.
In general terms the grant can only be used to fund capital expenditure of the authority, although in certain limited circumstances it may be used to make grants to fund capital expenditure undertaken by third parties. The details of these conditions are laid out in the offer letter.
Finance Circulars
Details of the value of both general and specific capital grants for each local authority are issued in the finance circulars relating to the Local Government Finance Settlement. They provide updated information as specific grants are allocated or new monies are added.
A breakdown by category of the capital support provided by the Scottish Government to local authorities in 2008-09 can be found at Annex D of Finance Circular 6/2009. This provides a breakdown of the support to capital between General Capital Grant, Specific Purpose Grants and Supported Borrowing.
An estimate of the capital support provided by the Scottish Government to local authorities in 2009-10 can be found at Annex E of Finance Circular 6/2009. This provides a breakdown of the support to capital between General Capital Grant, Specific Purpose Grants and Supported Borrowing.
The value of the General Capital Grant and certain Specific Capital Grants for 2008-09 and 2009-10 have changed since they were first published in Finance Circular No. 1/2008 (Annex F and G). An audit trail showing changes in the grant funding from Finance Circular 1/2008 to 6/2009 can be found at Local Government Support for Capital.
In 2007-08 Capital Grants paid by the Scottish Government to Local Authorities were paid outwith the core settlement by a number of policy areas. An estimate of the value of the capital grants to be paid to local authorities in 2007-08 was published in Finance Circular 6/2006 dated 13 December 2006.
Information on the actual payments of capital grants to local authorities for 2007-08 has been collated from information provided by the relevant policy areas. The detail of this breakdown can be found at Capital Grant distribution 2007-08.
Accounting Treatment
As with any grant received from the Scottish Government it is important that the monies are applied to projects or works which are consistent with the grant terms and conditions. Capital grants from the Scottish Government may allow for the grant to be used on expenditure that would not be classed as capital under local authority accounting practices. However, in such cases, it is important that the grants are still accounted for in accordance with proper accounting practice.
Whilst the Scottish Government may define a grant as capital under Treasury rules, it is important that the council should account for it in accordance with the Code of Practice on Local Authority Accounting in the UK (the SORP). Applying the Code, the council will receive the grant as either a capital grant (where the application of the grant results in an asset on the local authority's balance sheet) or revenue grant (where the expenditure does not result in an asset on the local authority's balance sheet, or give rise to future economic benefits).
Therefore, where the grant does not result in an asset on the balance sheet of the local authority, both the expenditure and the grant should be treated as revenue for accounting purposes (unless it gives rise to future economic benefits and can be classed as capital under the SORP). General Capital Grant used to support third party capital expenditure should be matched, on the same Income & Expenditure service line, to the grant or direct expenditure paid by the authority.
Where part of the expenditure results in a local authority asset, costs should be apportioned between the council and the third party and each accounted for as described above. In such cases local authorities should discuss the approach with their auditors.