Consent to Borrow
Para 1 (1) of Schedule 3 of the Local Government (Scotland) Act 1975 (the 1975 Act) effectively restricts local authorities to borrowing only for capital expenditure. Under Para 1 (2), Scottish Ministers may provide consent for local authorities to borrow for expenditure not covered by Para 1 (1), where they are satisfied that the expenditure should be met by borrowing.
Borrowing for third party capital projects
Grants or loans made by local authorities to support third party capital projects is not capital expenditure for the local authority and as such a local authority may not borrow money to finance such grants or loans.
Community Groups
In recognition that community groups often complement and/or provide local services Scottish Ministers agreed a scheme to allow local authorities to apply for a consent to borrow to finance grants to community groups for capital projects. To be successful the application must demonstrate that the grant will be to a properly constituted community group for works that, if incurred by the authority itself, would be classed as capital expenditure under the local authority accounting code of practice i.e. would have resulted in an asset on the balance sheet of the authority.
There is no financial limit placed on the amounts which Scottish Ministers may consent under this scheme. Applications which meet scheme conditions are likely to be successful. Guidance on applying for consent to borrow can be found in Finance Circular 3/2009. The application form included as an Annex to this document is also available separately here.
Local authorities who wish to borrow to finance a grant or loan to a third party in support of a capital project (which is not a community group) should apply directly to Scottish Ministers submitting their business case.
Details of the consents issued under the community groups scheme and any other consents for third party capital projects can be found by following the "Borrowing for third party capital projects" link below.
Borrowing for Revenue costs
Equal Pay
Scottish Ministers offered a scheme in 2009-10 which allowed local authorities to apply for a consent to borrow to meet the costs of equal pay back pay. Applications had to demonstrate the local authority's need to borrow to meet these costs. Full details of the scheme and guidance on applications were issued as Finance Circular 11/2009. Details of the consents issued under the scheme can be found by following the "Equal Pay" link below.
A similar scheme is in place for 2010-11, issued as Local Government Finance Circular 11/2010.
Teacher's Early Retirement Costs
In March 2010 Scottish Ministers introduced a scheme to allow local authorities to borrow to help them manage the cost of early retirement of teachers. The scheme placed limits on the costs to which the borrowing could be used. Full details of the scheme were issued under Finance Circular 7/2010. This scheme is now closed. Details of the consents issued under this scheme can be found by following the "Other revenue costs" link below.
Other Revenue Costs
Local authorities who consider that borrowing is necessary to help manage an exceptional financial difficulty should apply directly to Scottish Ministers submitting their business case.
To be successful an application must normally meet all of the following three conditions:
a. the expenditure for which consent s requested is unavoidable (for example because it relates to statutory duties or contractual or other commitments);
b. the authority could not meet the expenditure out of revenue resources without there being an unacceptably adverse impact on those who use or pay for its services; and
c. there is no alternative way of ensuring that the expenditure could be met.
Scottish Ministers have formalised this process by the issue of a general consent to borrow scheme, issued under Finance Circular 13/2010.
Details of Borrowing consents issued: