Councils welcome proposals for greater flexibilities in use of capital receipts but renew call for multi-year funding settlements

The Local Government Association (LGA) has welcomed Government proposals for greater flexibility in the use of capital receipts but warned this would make only a marginal difference to the financial plight facing most councils.

Under Government proposals, invest-to-save activity would be supported by increasing the flexibilities to use capital receipts and borrowing to finance the costs of transformation and efficiency projects.

There would also be greater flexibilities in the use of capital receipts, including the scope to use them to meet general budget pressures, and potential additional flexibilities where the proceeds related to the sale of investment properties.

The LGA said the flexible use of capital receipts scheme had run since 2016/17 and been extended until March 2030.

During 2016/17 to 2022/23, it found 108 individual local authorities used £918m of capital receipts for invest-to-save projects, just under 4% of the £24.3bn generated in that period.

“It is clearly a useful option for local authorities and has been important to a minority but it is not central to the operations of the majority nor the main use of receipts,” the LGA said in its response to the Government’s consultation on the scheme.

The LGA said the additional flexibilities proposed were useful but “should not be seen as a substitute for the requirement for a long-term plan to sufficiently fund local services through multi-year settlements”.

Council faced a funding gap of £4.0bn over two years and even with recent additional funding allocated “the remaining gap cannot be met by sales of assets.”

The availability of saleable assets varied across all councils, and so many would be unable to benefit from additional flexibilities.

Capital receipts should not be viewed as ‘free money’, the LGA said as they “can only be spent once [and] cannot be used to fund long term ongoing revenue pressures”.

The response concluded: “The ability to use capital resources to fund revenue costs must not be seen as a way out of the Government addressing other problems facing local government.”

Mark Smulian