Local Government Act 2003

Part 1 — Capital finance etc and accounts

Chapter 1 — Capital finance etc

Borrowing

Local loans

1

A local authority may borrow money—

• (a) for any purpose relevant to its functions under any enactment, or

• (b) for the purposes of the prudent management of its financial affairs.

Calculation of non-domestic rating multiplier

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• (1) A local authority may not borrow money if doing so would result in a breach of—

• (a) the limit for the time being determined by or for it under section 3, or

• (b) any limit for the time being applicable to it under section 4 , or

• (c) any limit for the time being applicable to it under section 12A.

• (2) The Secretary of State may, in relation to specific borrowing by a particular local authority, by direction disapply subsection (1)(b), so far as relating to any limit for the time being applicable under section 4(1).

• (3) A local authority may not, without the consent of the Treasury, borrow otherwise than in sterling.

• (4) This section applies to borrowing under any power for the time being available to a local authority under any enactment, whenever passed.

Charging orders: aggregation

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• (1) A local authority shall determine and keep under review how much money it can afford to borrow.

• (2) In the case of the following authorities, namely—

• (a) the Greater London Authority, and

• (b) a functional body,

the Mayor shall determine and keep under review how much money the authority can afford to borrow.

• (3) Before making any determination under subsection (2), the Mayor shall consult the London Assembly.

• (4) Before making a determination under subsection (2) for a functional body, the Mayor shall consult that body.

• (5) The Secretary of State may by regulations make provision about the performance of the duty under subsection (1) or (2).

• (6) Regulations under subsection (5) may, in particular—

• (a) make provision about—

• (i) when a determination under subsection (1) or (2) is to be made,

• (ii) how such a determination is to be made, and

• (iii) the period for which such a determination is to be made;

• (b) make provision about the monitoring of an amount determined under subsection (1) or (2);

• (c) make provision about factors to which regard may be had in making a determination under subsection (1) or (2) or in monitoring an amount determined under that subsection.

• (7) Regulations under subsection (5) may include provision requiring a person making a determination under subsection (1) or (2) to have regard to one or more specified codes of practice, whether issued by the Secretary of State or another.

• (8) A local authority’s function under subsection (1) shall be discharged only by the authority.

• (9) Section 38(1) of the Greater London Authority Act 1999 (c. 29) (delegation by Mayor) does not apply in relation to functions under subsection (2).

• (10) The power under subsection (7) is not to be read as limited to the specification of an existing document.

• (11) In this section—

• “functional body” has the same meaning as in the Greater London Authority Act 1999 (c. 29);

• “local authority” does not include the Greater London Authority or a functional body;

• “Mayor” means Mayor of London.

Imposition of borrowing limits

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• (1) The Secretary of State may for national economic reasons by regulations set limits in relation to the borrowing of money by local authorities.

• (2) The Secretary of State may by direction set limits in relation to the borrowing of money by a particular local authority for the purpose of ensuring that the authority does not borrow more than it can afford.

• (3) Different limits may be set under subsection (1) or (2) in relation to different kinds of borrowing.

• (4) A local authority subject to a limit set under subsection (1) may transfer any headroom it has in relation to the limit to another local authority subject to a corresponding limit.

• (5) The Secretary of State may by regulations make provision about the exercise of the right under subsection (4) and may, in particular, make provision about—

• (a) the circumstances in which a local authority is to be regarded as having headroom for the purposes of that subsection, and

• (b) the amount of headroom which it has for those purposes.

• (6) Where an amount is transferred under subsection (4), this Chapter shall have effect—

• (a) in relation to the transferor, as if the limit in relation to which the headroom exists were reduced by that amount, and

• (b) in relation to the transferee, as if the corresponding limit to which it is subject were increased by that amount.

Temporary borrowing

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• (1) Subject to subsection (2), any limit for the time being determined by or for a local authority under section 3, or applicable to it under section 4 or 12A, shall be treated for the purposes of this Chapter as increased by the amount of any payment which—

• (a) is due to the authority in the period to which the limit relates, but

• (b) has not yet been received by it.

• (2) In the case of a limit determined under section 3, or set under section 4(2) or 12A, subsection (1) shall not apply to any payment whose delayed receipt was taken into account in arriving at the limit.

Protection of lenders

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A person lending money to a local authority shall not be bound to enquire whether the authority has power to borrow the money and shall not be prejudiced by the absence of any such power.

Credit arrangements

“Credit arrangements”

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• (1) For the purposes of this Chapter, a local authority shall be taken to have entered into a credit arrangement where—

• (a) it enters into a transaction which gives rise to a liability on its part, and

• (b) the liability is a qualifying liability.

• (2) A transaction entered into by a local authority is to be taken for the purposes of subsection (1) as giving rise to a liability on the part of the authority if—

• (a) it falls in accordance with proper practices to be treated for the purposes of the authority’s accounts as giving rise to such a liability, or

• (b) it falls in accordance with regulations made by the Secretary of State to be treated as falling within paragraph (a).

• (3) The reference in subsection (1)(b) to a qualifying liability is to any liability other than—

• (a) a liability to repay money,

• (b) a liability in respect of which the date for performance is less than 12 months after the date on which the transaction giving rise to the liability is entered into, and

• (c) a liability of a description specified for the purposes of this provision by regulations made by the Secretary of State.

Control of credit arrangements

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• (1) A local authority may not enter into, or vary, a credit arrangement if doing so would result in a breach of—

• (a) the limit for the time being determined by or for it under section 3, or

• (b) any limit for the time being applicable to it under section 4 , or

• (c) any limit for the time being applicable to it under section 12A.

• (2) In applying those limits for the purposes of subsection (1)—

• (a) entry into a credit arrangement shall be treated as the borrowing of an amount of money equal to the cost of the arrangement, and

• (b) variation of a credit arrangement shall be treated as the borrowing of an amount of money equal to the cost of the variation.

• (3) The Secretary of State may by regulations make provision about the calculation for the purposes of subsection (2) of the cost of a credit arrangement or a variation and may, in particular, make provision about the treatment of options.

Capital receipts

“Capital receipt”

9

• (1) Subject to subsection (3), references in this Chapter to a capital receipt, in relation to a local authority, are to a sum received by the authority in respect of the disposal by it of an interest in a capital asset.

• (2) An asset is a capital asset for the purposes of subsection (1) if, at the time of the disposal, expenditure on the acquisition of the asset would be capital expenditure.

• (3) The Secretary of State may by regulations—

• (a) make provision for the whole of a sum received by a local authority in respect of the disposal by it of an interest in a capital asset, or such part of such a sum as may be determined under the regulations, to be treated as not being a capital receipt for the purposes of this Chapter;

• (b) make provision for the whole of a sum received by a local authority otherwise than in respect of the disposal by it of an interest in a capital asset, or such part of such a sum as may be determined under the regulations, to be treated as being a capital receipt for the purposes of this Chapter.

• (4) Where a sum becomes payable to a local authority before it is actually received by the authority, it shall be treated for the purposes of this section as received by the authority when it becomes payable to it.

Non-money receipts

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• (1) The Secretary of State may by regulations apply section 9 to cases where—

• (a) a local authority makes a disposal of the kind mentioned in subsection (1) of that section and the consideration for the disposal does not consist wholly of money payable to the authority, or

• (b) a local authority receives otherwise than in the form of money anything which, if received in that form, would be a capital receipt under that section.

• (2) Regulations under subsection (1) may, in particular—

• (a) make provision for a local authority to be treated as receiving a sum of such an amount as may be determined under the regulations;

• (b) make provision about when the deemed receipt is to be treated as taking place.

Use of capital receipts

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• (1) The Secretary of State may by regulations make provision about the use of capital receipts by a local authority.

• (2) Regulations under subsection (1) may, in particular—

• (a) make provision requiring an amount equal to the whole or any part of a capital receipt to be used only to meet—

• (i) capital expenditure, or

• (ii) debts or other liabilities;

• (b) make provision requiring an amount equal to the whole or any part of a capital receipt to be paid to the Secretary of State.

• (3) The power under subsection (1), so far as relating to provision of the kind mentioned in subsection (2)(b), shall only apply to receipts which a local authority derives from the disposal of an interest in housing land.

• (4) The reference in subsection (3) to housing land is to any land, house or other building in relation to which the local authority is, or has been, subject to the duty under section 74 of the Local Government and Housing Act 1989 (c. 42) (duty to keep Housing Revenue Account).

• (5) Regulations under subsection (1) may include provision authorising the Secretary of State to set off any amount which an authority in Wales is liable to pay to him under this section against any amount which he is liable to pay to it.

• (5A) Where the Secretary of State is liable to repay an amount that has been overpaid by a local housing authority in England under this section, the Secretary of State may set off against the amount of the repayment any amount that the authority is liable to pay the Secretary of State under—

• (a) this section, or

• (b) section 69 of the Housing and Planning Act 2016 (payments in respect of vacant higher value housing).

• (6) The Secretary of State and a local authority in England may enter into an agreement with the effect that a requirement imposed under subsection (2)(b) does not apply to, or is modified in its application to, capital receipts of the authority that are specified or described in the agreement.

Investment

Power to invest

12

A local authority may invest—

• (a) for any purpose relevant to its functions under any enactment, or

• (b) for the purposes of the prudent management of its financial affairs.

Miscellaneous

Security for money borrowed etc

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• (1) Except as provided by subsection (3), a local authority may not mortgage or charge any of its property as security for money which it has borrowed or which it otherwise owes.

• (2) Security given in breach of subsection (1) shall be unenforceable.

• (3) All money borrowed by a local authority (whether before or after the coming into force of this section), together with any interest on the money borrowed, shall be charged indifferently on all the revenues of the authority.

• (4) All securities created by a local authority shall rank equally without any priority.

• (5) The High Court may appoint a receiver on application by a person entitled to principal or interest due in respect of any borrowing by a local authority if the amount due remains unpaid for a period of two months after demand in writing.

• (6) The High Court may appoint a receiver under subsection (5) on such terms, and confer on him such powers, as it thinks fit.

• (7) The High Court may confer on a receiver appointed under subsection (5) any powers which the local authority has in relation to—

• (a) collecting, receiving or recovering the revenues of the local authority,

• (b) issuing levies or precepts, or

• (c) setting, collecting or recovering council tax.

• (8) No application under subsection (5) may be made unless the sum due in respect of the borrowing concerned amounts to not less than £10,000.

• (9) The Secretary of State may by order substitute a different sum for the one for the time being specified in subsection (8).

Information

14

A local authority shall supply the Secretary of State with such information relating to any of the matters dealt with in this Chapter, and at such time, as he may request.

Supplementary

Guidance

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• (1) In carrying out its functions under this Chapter, a local authority shall have regard—

• (a) to such guidance as the Secretary of State may issue, and

• (b) to such other guidance as the Secretary of State may by regulations specify for the purposes of this provision.

• (2) The power under subsection (1)(b) is not to be read as limited to the specification of existing guidance.

“Capital expenditure”

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• (1) Subject to subsection (2), references in this Chapter to capital expenditure, in relation to a local authority, are to expenditure of the authority which falls to be capitalised in accordance with proper practices.

• (2) The Secretary of State may—

• (a) by regulations provide that expenditure of local authorities shall be treated for the purposes of this Chapter as being, or as not being, capital expenditure;

• (b) by direction provide that expenditure of a particular local authority shall be treated for the purposes of this Chapter as being, or as not being, capital expenditure.

External funds

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• (1) For the purposes of this Chapter—

• (a) borrowing of money by a local authority for the purposes of an external fund shall be treated as not being borrowing by the authority;

• (b) the temporary use by a local authority of money forming part of an external fund, if not for a purpose of the fund, shall be treated as borrowing by the authority;

• (c) entry into a credit arrangement by a local authority for the purposes of an external fund shall be treated as not being entry into a credit arrangement by the authority;

• (d) a disposal by a local authority of—

• (i) an interest in an asset which, at the time of the disposal, is an asset of an external fund, or

• (ii) an investment held for the purposes of such a fund,

shall be treated as not being a disposal by the authority;

• (e) the making of an investment by a local authority for the purposes of an external fund shall be treated as not being the making of an investment by the authority;

• (f) expenditure incurred by a local authority in respect of payments out of an external fund shall be treated as not being expenditure of the authority.

• (2) In this section, references to an external fund, in relation to a local authority, are to—

• (a) a superannuation fund which the authority is required to keep by virtue of the Superannuation Act 1972 (c. 11), or

• (b) a trust fund of which the authority is a trustee.

Local authority companies etc

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• (1) The Secretary of State may, for the purposes of this Chapter, by regulations make provision for things done by or to a body mentioned in subsection (2) to be treated, in such cases and to such extent as the regulations may provide, as done by or to a local authority specified in, or determined in accordance with, the regulations.

• (2) Those bodies are—

• (a) a Passenger Transport Executive,

• (b) a company which, in accordance with Part 5 of the Local Government and Housing Act 1989 (c. 42) (companies in which local authorities have interests), is under the control, or for the time being subject to the influence, of a local authority or a Passenger Transport Executive, and

• (c) a trust to which the provisions of section 69 of that Act (companies subject to local authority influence) are applicable because of an order under section 72 of that Act (trusts influenced by local authorities).

• (3) A local authority to which regulations under this section apply and any body or bodies falling within subsection (2)(a) or (b) with which the regulations link the authority are referred to in this section as the members of a local authority group.

• (4) Regulations under this section may include—