Budgeting Budgeting Strategy Capital Budgets
Definition of Capital Setting Capital Programmes Monitoring and Control of Capital Programmes Financing of Capital Private
Finance Initiative (PFI) Sources of Further Information
April 2008
Capital Expenditure Budgets
This section provides a definition of 'capital' and highlights key issues involved in developing a capital programme, also
providing an overview of the system of financing capital integral to the formulation of the programme.
Definition of Capital
Definition of capital in local authorities
The definition of capital in local government is considerably influenced by the legislative framework specific to local
government.
The Local Government Act 2003 requires expenditure to be charged to revenue unless an exemption can be found either in
the Act or in proper accounting practices.
The main exemption is that the expenditure is for capital purposes.
In broad terms, capital expenditure is incurred on the acquisition or creation of the tangible assets needed to provide
services, such as houses, schools and vehicles. Revenue expenditure is on the day-to-day operation of services, such as staff
costs and supplies and services.
Capital expenditure is largely defined by accounting practice and regulations, namely the Local Authorities (Capital Finance
and Accounting) (England) Regulations 2003 and subsequent amendments Local Authorities (Capital Finance and
Accounting) (Amendment) (England) Regulations 2004 and The Local Authorities (Capital Finance and Accounting)
(Amendment) (England) Regulations 2007.
To summarise, the expenditure can be defined as capital expenditure for the following purposes:
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the acquisition, reclamation, enhancement or laying out of land;
the acquisition, construction, preparation, enhancement or replacement of roads, buildings and other structures;
the acquisition, installation or replacement of movable or immovable plant, machinery and apparatus and vehicles
and vessels;
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the giving of a loan, grant or other financial assistance to any person towards expenditure incurred or to be incurred
by him on the matters which would be capital expenditure if incurred by the local authority;
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the acquisition of share capital or loan capital in any body corporate excluding investment in a money market fund
or the acquisition of loan capital in a multilateral development or a financial institution guaranteed by the
government;
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repayments of grants or other financial assistance given to the local authority for capital purposes;
expenditure incurred on the acquisition or preparation of a computer programme (including acquisition of rights to
use a programme) for the use for a period of at least one year (including the right to use such a programme);
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the payment of any levy by a local authority under Section 136 of the Leasehold Reform Housing and Urban
Development Act 1993.
In addition, the secretary of state is empowered to direct that other expenditure is to be treated as expenditure for capital
purposes.
In determining whether or not expenditure can be classified as capital the concept of enhancement is often a key feature.
Broadly, to provide enhancement works should lead to at least one of the following:
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to lengthen substantially the useful life of the asset;
to increase substantially the open market value of the asset, or;
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to increase substantially the extent to which the asset can or will be used for the purposes of or in connection with
the functions of the local authority concerned.
Examples of enhancements include re-roofing of buildings, structural maintenance of roads, installing new engines in
vehicles, and installation of central heating or double glazing and the widening of roads or strengthening of bridges.
In contrast, expenditure which purely maintains the useful life or open market value of an asset should be charged to
revenue.
Scottish local authorities
In Scotland, capital expenditure is defined as in section 39 of the Local Government in Scotland Act 2003, and in relation to
grants etc differs from England and Wales insofar as the following applies:
any planned advances, grants or other financial assistance which would, if incurred by the authority, be capital expenditure,
except where this goes to persons who will be using the assistance for their own benefit rather than to create, improve, or
enhance the value or lifespan of a public sector asset or to provide a public service. This means that the other party to the
planned transaction should be:
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another local authority;
a public authority or body;
a person who enters into a contract in order to provide the local authority with goods or services, and the local
authority considers that the provision of the goods or services under the contract will be thereby facilitated;
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a person or body who, not being a public body, has functions of a public nature or engages in activities of that
nature and the purpose or effect is to facilitate discharge by that person of those functions or that person’s
engagement in those activities.
For further guidance on the definition of capital see Introduction to Capital in TIS Capital.
Definition of capital in the NHS
Detailed definitions of capital expenditure are contained in the NHS Finance Manual. For discussion of capital expenditure in
the health service see Capital in TIS Health.
Setting Capital Programmes
Local authorities
The detailed capital programme, which is likely to cover a number of years, should be produced in line with the capital
strategy and adherence to the Prudential Code. These aim to strengthen the medium and long term planning undertaken by
authorities when assessing their asset needs and use.
The development of the programme must be a joint effort between officers from the finance department, technical
departments, and service departments.
Capital programmes are usually submitted for final approval by members in January/February prior to the authority's council
tax or precept being set.
Programmes include schemes that have already been approved but where spending is expected to continue into the
following financial years, and new schemes where spending will not commence until the following financial years.
Although member approval is usually only required for the new schemes, the schemes in progress are usually included in the
programme to provide an indication of the overall level of capital spending in future years. However, some authorities only
publish programmes of new schemes.
Scheme identification
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The initial stage in preparing a capital programme is the identification of schemes. In line with the authority's capital strategy
these should largely be identified as a result of a perceived need to meet council and service objectives.
However, many potential schemes are identified by members or officers as part of the regular process of operating services.
As problems or perceived needs for new developments in services arise from day-to-day operations, members or officers
may take the view that there is a requirement to initiate additional capital schemes. This approach to scheme identification is
largely reactive, and there is clearly a substantial element of subjective judgement in the process. Schemes identified in this
way should still be compared to corporate and service objectives.
The overarching planning document in relation to the capital programme is the capital strategy. All local authorities have
been required to produce a capital strategy since 2001, initially being subject to evaluation by regional government offices.
In accordance with government guidelines the capital strategy should consider all types of capital expenditure and it should:
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highlight the key priorities and targets for the council including the delivery of national PSA targets;
list key partners, and show how the council involves the local strategic partnership;
illustrate how the council is working corporately and with others to achieve key cross-cutting outcomes;
explain the approach to prioritising investment;
explain how the council monitors and evaluates progress and includes the role of members and corporate
management team in this process.
The capital strategy is intended to enhance the effective use of scarce capital resources. Therefore there are a number of
areas which should be covered. These are well illustrated by the primary criteria which were used by the government offices
to assess authorities capital strategies. The capital strategy should:
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provide clear strategic guidance about the council's capital objectives, priorities and spending plans and demonstrate
that these are directly linked to and consistent with key corporate and service objectives as outlined in the
authority's corporate documents (e.g. the community plan, housing strategies, education development plans, social
services strategies, local transport plan, cultural strategies and the asset management plan). It should identify
council wide cross-cutting activity and initiatives;
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describe the framework that the authority has put in place to ensure that the capital strategy is a corporate
document;
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identify all key aspects of capital expenditure within the authority and those areas where the authority is able to
apply significant influence on others through the use of its capital resources;
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explain the approach implemented in the prioritisation of capital project proposals;
explain how the revenue implications of capital investment are taken into account;
be informed by the outcomes of best value reviews, and of other relevant reviews and improvement/development
plans;
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identify how relevant stakeholders' and partners' views are sought and inform the working and development of the
capital strategy;
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identify key partners and describes partnership working.
In addition it is intended that the capital strategy addresses the management and monitoring of the council’s capital
programme, is developing cross-cutting activity and that the authority examines how it procures its capital. This last point
will include the council’s attitude to public/private partnerships and partnership work in general.
In line with best practice, authorities should be active in undertaking asset management planning to improve asset use. This
will establish the extent to which property and asset provision meets current and future service needs.
As this process develops it will be a major factor in identifying deficiencies in the property and asset portfolio and in
matching future service aspirations with property/asset requirements. Therefore it will give rise to potential capital schemes.
However, the asset management planning only covers property and therefore schemes identified need to go through the
prioritisation process outlined in the capital strategy to compare against non-property schemes.
Asset Management Guidelines were published by the Royal Institution of Chartered Surveyors (RICS) and the ODPM. For
further information on asset management planning see the ODPM Asset Management Index.
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Scheme Selection
Once the need for a scheme has been identified, officers will develop the scheme in detail. Most authorities require a
business case option appraisal. This will require that various options of meeting the identified objective are met: the cost of
the scheme over its life including the revenue costs and the capital expenditure required including the likely phasing and
potential financing of the schemes. Potential schemes will be subject to prioritisation within the service in consultation with
members. Clearly, the amount of work undertaken on design and development will be dependent upon the service priority.
Under the capital strategy most authorities will have a corporate group of officers (with potentially member involvement) to
consider priorities between services. This is a difficult task and many authorities have developed a scheme priority rating
system. If members are not involved at this stage the result of the group’s work will be provided to members who, of course,
have the final decision on the implementation of schemes.
Scheme priority ratings
There is no definitive system for prioritising between capital schemes. It is possible to develop some methodology for scoring
proposed projects against set criteria, alternatively the prioritisation process could assign projects to different class of
schemes, e.g. essential, priority or desirable.
Whatever type of system is used, the factors which need to be considered are likely to include:
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whether the council would fail to meet its statutory obligations if the proposed scheme did not proceed;
the level of external funding attached to the proposed scheme;
how the proposed scheme helps meet stated council objectives;
whether a failure to implement the scheme would result in a reduction in the council's stated level of service;
whether a high level of public support can be demonstrated;
whether the scheme involves a partnership with other bodies thereby bringing resources (not necessarily financial)
into the authority;
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whether the scheme links to other plans and reviews, in particular, whether the scheme helps address problems
identified in a best value review;
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whether it meets national government priorities;
whether the proposed scheme will result in future revenue savings.
This is not a definitive list as local circumstances will influence the factors to be considered.
The criteria used to classify projects, or the weighting given to each criterion to determine a score, should be agreed at the
start of the capital programme process. This may be approved by members but if not, agreement by representatives from all
services is important for the process to work.
Programme periods
The main factors determining the period covered by the capital programme are the policy objectives adopted by an authority
for the development of its services, and the expected time taken to complete the schemes which follow from those
objectives.
Large schemes, in particular, may take five or more years to complete. Once a large scheme has been included in the
approved capital programme, it can take the authority a number of years to advance to the stage where construction works
can commence.
Prior to construction, some or all of the following activities will need to be completed:
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public consultation exercise;
planning application and associated public inquiry;
negotiations to purchase the land required for the scheme;
compulsory purchase of the land required and associated public inquiry;
road closures and associated public inquiry;
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detailed design work;
preparation of bills of quantities;
tendering procedures.
Construction of a large project will often take a number of years, particularly where there are disputes with contractors or
sub-contractors, or where contractors get into financial difficulties.
For schemes which are not complex or unique in nature, for example the construction of a leisure centre, some authorities
may opt for an ‘off the peg’ type of approach which may minimise the length of time the project will take.
Programme contents
In effect, the contents of a programme encompass all of the information generated on each scheme during the selection
process. Typically the following data would be held on each scheme:
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Committee or cabinet portfolio, department and officer responsible for the scheme ;
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Priority rating;
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For schemes in progress, actual capital expenditure up to the end of the last financial year, revised estimates of
capital expenditure for the current financial year and future years, and a revised estimate of the total capital cost;
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For new schemes, total estimated capital costs scheduled over future years;
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Actuals and estimates in e. and f. above analysed into design and supervision, land acquisition, siteworks,
construction contract payments, ancillary services, equipment, furniture and fittings and other expenses;
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Estimates for the current and following financial years broken down into monthly or quarterly cash flows for
monitoring purposes;
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Estimated net revenue costs for the following financial year, and for a full year of operation, analysed into
employees, various running expenses, capital financing costs, and income;
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Grant contributions and revenue savings, e.g. energy conservation;
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Timetable for progressing the scheme through the various implementation stages, viz approval, site selection,
design, planning permission, land acquisition, bills of quantities, contract tenders, start on site, and completion, etc;
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Approvals under standing orders or financial regulations to tenders, etc.
In overall terms, the programme will include summaries of total capital costs for the current and following financial year on
all schemes, compared with the overall resources available to finance capital expenditure in each of those years. Some
organisations prefer to present their capital programmes on the basis of ‘themes’ rather than list individual projects e.g.
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Engineering / Infrastructure
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Property
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Business Infrastructure
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Fleet
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Other inc Minor Works / Health & Safety
Approval of capital programmes
Capital programmes must be approved by the full council after being considered by the cabinet and members responsible for
specific services. If the committee structure is retained these roles will be undertaken by a finance and service committees.
The organisation's standing orders and financial regulations will determine the process for accepting tenders for the actual
work.
Elected members
Members should approve the capital strategy and programme and take overall responsibility for ensuring the programme is
delivered within the resources available. They will also approve budget virements where appropriate. They will also need to
ensure that the capital programme reflects corporate and departmental priorities and objectives.
Departmental managers
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Managers of projects need to ensure projects are run within approved budgets and that the appropriate monitoring and
reporting processes are followed. They will need to submit reports on progress to the relevant committee(s) and ensure
liaison with architectural and engineering staff to gain an understanding of both financial and technical aspects of project
management. Liaison with finance staff will also be essential.
Finance staff
Finance will be responsible for the co-ordination of the capital budget preparation and compiling reports to the relevant
committee(s). Finance will also advise on prudential indicators and the ‘affordability’ of projects and programmes.
Committees
It is possible that some organisations will have capital management forums, possibly with joint member and officer
representation, which are empowered to amend capital programmes in light of slippage and/or cost under/over spends. This
may be the main forum for departments and support professionals to be represented and consideration of virements for
members’ approval. The ongoing maintenance and monitoring of the overall capital programme may be channelled through
this group. A clear audit trail will be required of the decision making process.
Monitoring and Control of Capital Programmes
Regular monitoring of individual capital schemes both in terms of cost and in terms of physical work against an approved
programme, is essential. This is particularly so in the case of major infrastructure projects where changes in progress often
effect other schemes in later years of the capital programme. The monitoring system should be able to show the likely effect
on all related schemes following a change in phasing of any individual scheme.
The major area of uncertainty in the monitoring of capital programmes is slippage, although cost increases can also need to
be monitored closely.
Unfortunately, it is the case that capital schemes will often not proceed exactly in accord with timetable. Changes in design
requirements, planning controls, compulsory purchase problems, and legal difficulties can all cause the start date of schemes
to slip. Once a scheme has started, problems with contractors, sub-contractors, and materials supplies often result in late
completion of the project. It is not unusual for slippage in both start and completion dates of a number of capital schemes to
result in an overall underspend on the capital programme.
A number of authorities have attempted to ameliorate the effect of slippage by approving programmes of capital expenditure
which exceed the level of expenditure which the authority wish, as a matter of internal policy, to incur. This approach is
based on the assumption that slippage will reduce the level of actual expenditure to the required level. The level of overprogramming of expenditure is determined by reference to past experience of overall capital underspending due to slippage.
Although over-programming can help to reduce overall underspending, it will not alter the fact that underspendings on
individual schemes may result in a failure to achieve the policy objectives of the authority. Furthermore, over-programming
cannot obviate the need to effectively control the level of capital spending, since there can be no guarantee that slippage will
occur in accordance with past experience.
Rather than using over-programming many authorities are moving towards greater flexibility in the capital programme
between years. Under the capital strategy authorities are establishing realistic programmes over a 3-5 year period. Although
in most instances the approval to spend will only be given to the programme year. However, if the monitoring process
identifies potential underspending in the year then, with member approval, schemes can be brought forward from future
years. Conversely, overspending may result in the deferment of schemes.
It is important that good practice for regular monitoring statements for the authority to be produced. These should be
reported to the management board and members as required.
Completed capital schemes
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Once a scheme has been in full operation for about a year there is a case for carrying out a review to establish the extent to
which the scheme met its service objectives and needs, was completed in accord with the planned timescale, and kept within
the required financial criteria including approved capital and revenue budgets. Reviews of this nature are often neglected for
a number of reasons. Firstly, reviews can be considered to be a waste of time given that retrospective action cannot be
taken to correct inadequacies unearthed by a review of a completed scheme. Secondly, staff time to undertake reviews is
limited. Thirdly, reviews can be seen as a way of apportioning blame where the outcome of a scheme is unsatisfactory.
However, provided that formal reviews are only carried out on a sample of completed projects selected in accord with known
principles, and provided that the purpose of the review is to identify areas where the capital programming and monitoring
process can be improved, then the problems which could arise from the review process can be avoided.
Possible areas requiring improvement which can be highlighted by formal reviews of a sample of completed and operational
capital schemes could include:
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insufficient attention paid to the service benefits which are expected to arise from individual schemes;
persistent under or over estimation of capital or revenue costs;
unrealistic timescaling of major schemes;
insufficient technical staff resources to progress schemes in accord with agreed timescales;
inadequate attention to factors which have a significant effect on the progress of schemes, and;
a lack of adequate financial and other information for monitoring the progress of schemes.
By inverting the above bullets, they can be used as a checklist against which to measure good practice. Additionally, an
examination of projects which have been successfully completed in time, within cost and which clearly meet user needs can
provide examples of good practice, e.g. regular consultation with client, which can be implemented with other projects.
Once each review has been completed a report should be produced for consideration by senior officers and members. Where
a review identifies areas of weakness, recommendations for improvement should be made and subsequently acted upon, if
approved.
Monitoring and control of a capital programme: local authority example
Each service head has to produce at least a three year capital plan for their area by July. This plan sets out the amount of
capital expenditure required, the availability of alternative resources, the aims of the council and the services which are
supported by this expenditure. The information then feeds into the medium term financial plan of the council.
Bids are then prioritised and need to state expected outcomes from the project against which the success of the scheme can
be evaluated. The service officer will also be expected to benchmark these expected results against comparable schemes or
other authorities.
In order to monitor the programme, the council has set up a new corporate capital monitoring group. This group meets
every 6–8 weeks and its objectives are to:
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be proactive in managing the capital programme;
identify issues relating to capital finance and report accordingly to corporate management team;
share best practice particularly in terms of commitment accounting and cash flow forecasting;
ensure that the organisation has information in a timely and appropriate manner to enable the effective
management of the council's resources;
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support the work of the risk management group by playing a key role in providing good project management and
identifying training needs;
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ensure a consistent approach is taken on the performance management of the capital programme.
The group identifies the high risk capital schemes and information on the progress of all capital programme of these schemes
is reported to this group by the relevant manager. The group then reports on any issues or high-risk schemes to CMT or, if
necessary, to cabinet.
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In addition, a separate capital monitoring report outlining the progress in financial terms on all schemes in the programme is
produced and presented to members at least three times a year by the corporate finance team. Details of progress on
individual schemes relevant to the particular area are also reported to each area assembly to increase the local scrutiny of
the council's performance.
At the end of each year, the actual outturn is reported to members. At the completion of a capital scheme, the relevant
officer will report to the corporate capital monitoring group. At the end of each year, the actual outturn is reported to
members against community plan objectives.
Overall performance measurement and benchmarking of services are reported annually in the best value performance plan
identifying areas of good practice as well as those where lessons can be learnt. The draft three year strategy for
management and monitoring of the capital programme is attached.
Strategy for Management and Monitoring of the Capital Programme
Production of programme
July
Action
Services put forward 5-year capital plans. These inform the medium term financial
plan which is agreed by corporate management team (CMT) and cabinet.
Proposals for capital projects from services put to area assemblies considered for
consultation.
August/September
Capital project bids collected by finance and scored under the evaluation scheme set
out in the policy led budgeting report.
November/February
Capital programme discussed and agreed by CMT, cabinet and council as part of
budget cycle.
Monitoring
Quarterly
Action
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Corporate capital monitoring group meetings (every 6–8 weeks).
Reports on progress of all high-risk schemes.
Undertakes specific monitoring of key high-risk schemes.
Reports by chair of group to CMT and cabinet on high risk schemes.
Financial capital monitoring report on all schemes produced after above
meeting for CMT and cabinet at least 3 times per year.
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Completed Schemes
Report from external funding team
Report by lead officer on completed schemes setting out the following information:
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Procurement process
Timeliness of scheme
Final cost of scheme against estimate
Quality of scheme against standard
Outputs of scheme compared to targets in bid
This report to be considered by the capital monitoring group and by exception CMT
and cabinet.
End of Year (June/July)
Summary capital outturn for previous year reported to CMT and Cabinet, which also
reports major variances.
Update report from External Funding Team.
Timescale – Strategy for Implementation
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Year 1
Set up first 5 year capital plans
Link to Medium Term Financial Plan
Determine implications of Prudential Code
Pilot method of consulting capital proposals with Area Governance framework
Revise bid forms and process to include additional information
Ensure quarterly regular monitoring of capital schemes is undertaken by
corporate Capital Monitoring Group
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Establish exception reports and summary reports for CMT, Cabinet and Area
Assemblies
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Establish format and frequency of completed scheme reports and method of
reporting to CMT and, Cabinet and Area Assemblies.
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Year 2
Establish and maintain new reporting processes introduced in Year 1
Review capital projects evaluation scheme in light of new Community Plan
Strategy priorities
Year 3
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Report approved capital projects to Area Assemblies in April/May
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Review and evaluate the strategy for management and monitoring of the
Capital Programme
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Determine any action required for next 3 years
Rewrite strategy for next 5 year period
Financing of Capital
Capital programmes and their financing in local authorities
All capital expenditure incurred in a year must be financed by either borrowing, capital receipts, grants or contributions, or
revenue contributions. In developing a capital programme an understanding of the financing is important.
Borrowing
Historically, the government has imposed control over local authority capital expenditure but this has been relaxed with the
introduction of the Prudential Code. Since 1 April 2004 the level of borrowing undertaken by an authority is not restricted by
government, but an authority can determine how much it can afford to borrow (subject to any national limits being
imposed). To do this under the Local Government Act 2003 authorities must have regard to the Prudential Code.
Under the code an authority must consider the impact on council tax levels, the percentage of future revenue committed to
repaying debt charges and various treasury management issues to determine appropriate levels of borrowing. This needs to
be compared with the demand for capital expenditure to be financed from borrowing.
One factor in the calculation of affordability will be the government support for the future revenue costs of borrowing.
Government does issue data for the level of borrowing for which they will provide support via the revenue grant system. In
considering capital programme/budgeting authorities will need to address their attitude to unsupported borrowing. Possible
attitudes may include:
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a policy of no unsupported borrowing;
unsupported borrowing will be used for projects which will generate revenue savings;
use of unsupported borrowing for the highest political priority on service(s) especially if the expenditure is on
services which traditionally do not receive much, if any, supported borrowing;
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use of unsupported borrowing for large projects only.
Whatever policy is adopted it must fit into the overall affordability as determined by the code.
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Capital receipts
A capital receipt is the income received from the disposal of a capital asset, the repayment of any loan, grant or other
financial assistance given for a capital purpose. The receipts can only be used to meet capital expenditure, debts or other
long term liabilities; therefore they can form an important part of the capital programme.
To qualify as a capital receipt the income must exceed £10,000 (de minimis level). Also, receipts from housing are subject to
government pooling arrangements and careful consideration of the receipts available to the authority must be made. Details
of the pooling are available in Part 4 of Local Authorities (Capital Finance and Accounting) (England) Regulations 2003.
In setting the programme it is important that the appropriate property professionals are involved in assessing the likely sale
income. Once a programme has been set with a given level of assumed income, it is equally important that the actual sales
are carefully monitored. By the nature of the property market, large discrepancies in valuations/sales and timing of sales can
vary significantly. If receipts are less than anticipated, consideration will need to be given by the corporate group responsible
for monitoring, whether or not expenditure needs to be delayed or whether additional borrowing can be incurred within the
Prudential Code.
Developer Contributions
Most Councils elicit contributions from developers towards the capital costs of infrastructure (roads, school extensions etc)
which will be needed to support the impact of their developments. These ‘developer contributions’ can be treated as funding
capital schemes although the legislative framework imposes time restrictions and limitations on the use of these
contributions. Nonetheless they are a relatively new and potentially valuable source of funding for what may be otherwise
unaffordable schemes.
Credit arrangements
Credit arrangements are forms of credit which do not involve the borrowing of money by an authority. They can include:
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leases of land, property and equipment;
contracts which provide for extended credit (in the sense that there is more than a full financial year's gap between
the giving of value to the authority and the payment for that value).
To assess whether or not a credit arrangement has been entered into, the appropriate accounting standard, usually SSAP 21
needs to be considered. Each transaction will need to be considered individually, but in very broad terms to leases if the
discounted value of the rents due are less than 90% of the market value of the property the lease is not a finance lease and
therefore not a credit arrangement.
Capital programmes and their financing in the NHS
There are several key features of capital programmes and their financing in the NHS.
The process of prioritising, managing and monitoring capital programmes is shared between national Department of Health
(DoH), Strategic Health Authority (SHA) and local (PCT or Trust) level. A system of delegated limits operates with smaller
schemes being approved at local level and larger schemes at SHA or DoH level.
Each scheme needs to be justified under a business case process.
Funding of schemes can come from a number of sources. However each Trust/PCT will have an external financing limit (EFL)
which limits its use of ’external sources of finance’. This effectively means that its borrowing under traditional methods is
restricted and helps explain why PFI has been used as an alternative method of funding NHS capital programmes. Further
information on capital financing in the health service is included in Capital in TIS Health.
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Private Finance Initiative (PFI)
PFI is effectively a form of credit arrangement, with the local authority entering into a contract with private contractors for
the provision of a service, e.g. a new school. However, these are not subject to the capital regulations regarding the use of
credit approvals if they can be deemed to be off balance sheet.
Details of accounting for PFI transactions and similar contracts can be found in the CIPFA Code of Practice on Local Authority
Accounting in the United Kingdom (SORP) – Appendix E.
PFI is simply another method of procuring assets and/or services, with the contractor in general being responsible for the
development and maintenance of the asset. However, it is unlikely that PFI is suitable for most of an authority's capital
expenditure.
For further information on PFI in local government see Private Finance Initiative: In Depth in TIS Capital. For further
information on PFI in the health service see Private Finance Initiative in TIS Health.
Sources of Further Information
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TIS Capital
TIS Capital - Private Finance Initiative: In Depth
TIS Capital - Introduction to Capital
TIS Health - Private Finance Initiative
TIS Health - Capital
Local Government Act 2003
Part 4 of Local Authorities (Capital Finance and Accounting) (England) Regulations 2003
Local Authorities (Capital Finance and Accounting) (Amendment) (England) Regulations 2004
The Local Authorities (Capital Finance and Accounting) (Amendment) (England) Regulations 2007
The Prudential Code for Capital Finance in Local Authorities (CIPFA, 2003)
Asset Management Guidelines (RICS/ODPM)
ODPM Asset Management Index
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