Strategies required for capital receipts flexibility

Councils wishing to take advantage of new flexibilities to spend capital receipts on revenue services will be required to outline their plans in a dedicated strategy document.

Chancellor George Osborne announced the new powers – which only apply to revenue spending aimed at improving efficiency –  in his Autumn Statement to be effective from April this year.

Shortly before Christmas, the Department for Communities and Local Government released guidance on the new flexibilities, which outlined details of the new strategies.

It said: “The guidance recommends that each authority should prepare a strategy that includes separate disclosure of the individual projects that will be funded or part funded through capital receipts flexibility and that the strategy is approved by full council or the equivalent.

“This strategy can be included as part of the annual budget documentation and approved by full council or the equivalent at the same time as the annual budget.”

As a minimum, the strategies should list each project on which capital receipts will be spent, along with a cost benefit analysis.

They should report the impact on the local authority’s prudential indicators for the forthcoming year and subsequent years.

From 2017-18 strategies will be required to review whether planning savings outlined in previous years are being realised.

The guidance also said that local authorities can only use capital receipts from the sale of property, plant and equipment received in the years in which this flexibility is offered, but not existing receipts.

It listed a range of projects which could generate qualifying expenditure including service sharing, reform feasibility work, freeing up land, digital investment, procurement aggregation, systems to tackle fraud, and setting up alternative delivery models.

Local authorities may not use their existing stock of capital receipts to finance the revenue costs of reform, the document said.

Stephen Sheen, managing partner of local government consultant Ichabod’s Industries, said: “The original proposals in the Autumn Statement have been improved by the replacement of the suggestion that authorities should submit competitive bids to be allowed to use the powers.

“But the biggest flaw of the proposals is that they still rely on authorities generating capital receipts that they can afford to divert to revenue rather than reinvesting in their asset base.

“It would have been more equitable for authorities to be allowed to carry forward costs as revenue deficits to be met from the future savings.”