194.Section 111 brings the GLA and the four functional bodies within a slightly modified form of the local government capital finance system. This was established by Part IV of the Local Government and Housing Act 1989, and has effect with respect to the finances of most local authorities in England and Wales and a number of other public authorities, including police authorities and combined fire authorities. (Authorities and bodies covered by the system are referred to in Part IV as "local authorities").
195.Part IV regulates the use for capital purposes of borrowed money, credit and capital receipts. Capital purposes include, in particular, the acquisition of land, buildings or equipment, and the construction or improvement of buildings. Capital spending may also be funded from an authority’s revenue resources and from any grants they are issued for capital purposes. The two latter sources of finance are not regulated by Part IV itself. However, the use of revenue for capital purposes is subject to the same constraints that apply to an authority’s revenue spending generally; controls on the use of grants depend upon any conditions attached to the grants.
196.Part IV also requires amounts to be set aside out of capital receipts and revenue to meet credit liabilities and regulates the use of such amounts.
197.Section 43 of the Local Government and Housing Act 1989 (LGHA) confers on local authorities a power to borrow money for any purpose relevant to their functions. Other provisions of Part IV regulate the use of credit arrangements which, as defined, include leases, hire purchase contracts and any transaction under which credit is given by a deferral of payment.
198.A credit approval is needed as authority to charge expenditure to any account other than a revenue account. Thus, all expenditure of borrowed money requires the use of a credit approval. A credit approval is also required to be used if an authority meets capital expenditure out of amounts set aside as provision for credit liabilities.
199.Using a credit approval is also one of the ways in which an authority may provide the credit cover which is required when entering into credit arrangements (alternatively, the authority may provide credit cover by setting aside additional amounts out of revenue or capital receipts).
200.Credit approvals are issued by the Government. A basic credit approval has to be issued for a local authority before the beginning of every financial year. Supplementary credit approvals may be given during a financial year.
201.Sections 112 to 118 contain provisions on credit approvals. It is intended that the Government will have power to issue to the Authority and the functional bodies two new kinds of credit approval called aggregate credit approvals and additional credit approvals. The aggregate credit approval will, like the basic credit approval for other local authorities, be issued by the Secretary of State before the beginning of the financial year. An additional credit approval may be issued by the Secretary of State or any other Minister at any time during a financial year.
202.All such credit approvals are to be issued to the Mayor (different arrangements will apply in the first year before the Mayor is elected), but copies have to be sent to the functional bodies.
203.Sections 113 and 114 deal with aggregate credit approvals and additional credit approvals. The amount of an aggregate credit approval may be nil. But subject to that, an aggregate or additional credit approval may consist of any number of amounts. Each amount specified must be of one of four categories. By specifying category A or B amounts for a specified functional body or for the Authority, the Government will be allowing the specified body to incur credit for capital purposes. In the case of a category A amount, this will be for any such purposes. In the case of a category B amount, it will be for a specified capital purpose.
204.Category C and D amounts are not for the use of a specified body, but are for allocation by the Mayor in such proportions as he may see fit. An allocation will allow the body to which it is made to incur credit for such capital purposes as the Mayor decides.
205.In the case of a category C amount, the Mayor may state that it is for any purpose or for a particular purpose.
206.In the case of a category D amount, the Mayor may only state that it is for any purpose specified by the Government or for a particular purpose of that description. For example, if the Secretary of State specified that the amount was for "regeneration", the Mayor would be able to allocate it for regeneration or for a particular regeneration project.
207.Section 115 provides that the Mayor must notify all four functional bodies of every allocation made from a category C or D amount contained in a credit approval, whether it is made to one of them or to the Authority. In the case of category C and D amounts contained in the aggregate credit approval, the allocations to the functional bodies are to be notified as part of a capital spending plan for which provision is made in section 122.
208.Section 116 confers power on the Secretary of State to make regulations requiring an amortisation period to be specified in aggregate and additional credit approvals. This is a period during which the body using the approval (i.e. the body either specified in it or having an allocation from the Mayor) has to set aside amounts out of revenue which could be used to meet its debts.
209.But such regulations would not apply if a category B amount were specified in an aggregate or additional credit approval as authority for a specified body to use borrowed money for expenditure which is treated as being for capital purposes because a direction has been given under section 40(6) of the LGHA 1989. Section 90 provides that in such a case, the Minister giving the credit approval has a discretion whether or not to specify an amortisation period.
210.Section 117 sets out the criteria for issuing credit approvals. In determining the amounts of aggregate and additional credit approvals, the Secretary of State or other Minister is to have the same discretion to take account of such factors as appear to him to be appropriate as he has under Part IV of the LGHA 1989 in relation to basic and supplementary credit approvals. He may, in particular, have regard to grants, contributions and (subject to certain qualifications) capital receipts. But he may not take account of the ability of the Authority or a functional body to finance capital expenditure from revenue.
211.The effect of section 118 is that, having been specified for a category A or B amount or having received an allocation from a category C or D amount, the authority concerned (the Authority or a functional body) shall be treated as having received a credit approval under Part IV of the LGHA 1989.
212.Consequently, the authority conferred by aggregate and additional credit approvals (to charge capital expenditure to a non-revenue account or to enter into credit arrangements) and the effect of using them are the same as for basic and supplementary credit approvals. Thus, for example, a functional body for which a category A amount is specified may use it to charge capital expenditure to borrowing, to enter into a lease, or to make a transfer of credit approval to any other local authority under section 56(2) of the LGHA 1989. And when the approval is used, it increases the functional body's "credit ceiling" (this is a measure of the extent to which an authority still has to make provision for its debts and other credit liabilities).
213.Sections 119 to 121 make provision for capital receipts and mutual grants. The sums received by a local authority which are capital receipts are described in section 58 of the LGHA 1989. They include the proceeds of disposal of assets and investments and the repayment of capital grants and loans made for capital purposes. A part of a capital receipt received by a local authority may have to be set aside as provision to meet credit liabilities (but, at present, this is generally confined to receipts from disposals of houses). The balance of capital receipts after such deductions have been made is called the usable part of the authority's capital receipts, and that part is available for meeting capital expenditure.
214.Section 119 confers on the Secretary of State power to make regulations to confer on the Mayor power to direct the payment to the Authority by a functional body of part of the functional body's usable capital receipts. Amounts paid to the Mayor under such a direction could only be used to meet capital expenditure of another functional body or of the Authority.
215.The regulations may prescribe the maximum percentage of usable capital receipts that may be specified in such a direction, or the portion in respect of which a direction may be issued (for example, the amount by which the usable part of capital receipts has increased during a financial year). The regulations may also enable the Mayor to require the body which has the benefit of a redistribution to apply the amount paid to it towards meeting expenditure for capital purposes of a particular description.
216.Section 120 authorises the GLA to pay grants to a functional body towards meeting expenditure for capital purposes, and authorises the functional bodies, with the Mayor's consent, to pay grants towards meeting expenditure for capital purposes of another functional body or of the GLA. Such a grant may be used by the body to which it is paid for any expenditure of that sort incurred for the purposes of or in connection with its functions.
217.Section 121 authorises the GLA to pay grants to a functional body towards meeting any expenditure which is not for capital purposes, and authorises the functional bodies, with the Mayor's consent, to pay grants towards meeting any expenditure of another functional body or of the GLA which is not for capital purposes. Such a grant may be used by the body to which it is paid for any expenditure of that sort incurred for the purposes of or in connection with its functions.
218.These sections are intended to facilitate the efficient use of the resources of the GLA and the functional bodies as a whole by providing administrative means for overcoming the restriction that a local authority may not use its capital resources to meet expenditure which is not for capital purposes.
219.For example, a body which at any time has available capital grants or capital receipts and a pressing need to incur expenditure towards which it cannot apply such amounts (because it is not expenditure for capital purposes) could arrange with the Authority or another functional body to receive a grant it could use towards that expenditure in return for making a capital grant to the body concerned.
220.Section 122 makes provision about the preparation by the Mayor for each financial year of a capital spending plan for the functional bodies. The capital spending plan is to be in the four sections described in section 122. Section A is a statement of the resources each functional body will have for capital expenditure by virtue of capital grants (other than grants payable by the GLA) and usable capital receipts.
221.Section B is a statement of the resources each functional body will have for capital expenditure by virtue of any grant that the Mayor has decided that the Authority is to pay under section 120, category A and B amounts specified in the aggregate credit approval for the relevant financial year, and any amounts that the Mayor has decided to allocate out of category C and D amounts specified in the aggregate credit approval for that year.
222.Section C is a statement for each functional body of total expenditure for capital purposes that the Mayor expects the body to incur, and of the total credit cover that the Mayor expects the body to need for credit arrangements. Section D is a breakdown of this total capital spending showing how much the Mayor expects the body to meet out of capital grants; how much he expects it to meet out of the usable part of its capital receipts; how much he expects it to meet by using amounts specified in, or allocated from, the aggregate credit approval; and how much he expects it to meet out of revenue.
223.Section 123 lays down a timetable for the preparation of, and consultation on, a draft capital spending plan, and for the completion of the plan and disclosure of its contents. The Mayor must keep the capital spending plan available for public inspection for six years from the date it is published and must supply a copy of all or part of it, on request, for a reasonable fee.
224.Section 124 provides that in preparing the capital spending plan, the Mayor may take account of such factors as appear to him to be appropriate, and makes it clear that preparation includes deciding for each functional body the minimum amount of grant that the GLA is to pay under section 120, and the amounts to be allocated out of category C and D amounts specified in the aggregate credit approval. These amounts are to appear in section B of the plan (see section 122(4)).
225.Section 124(3) provides that the Mayor may in particular take account of how far a functional body has, in any previous financial year, met total capital spending specified in section C of the capital spending plan for that year according to the expected breakdown of that spending given in section D. The intention is that the Mayor may, but is not bound to, have regard to the extent to which a functional body has departed in previous years from the pattern of capital spending (amounts and means of funding) about which all of the functional bodies will have been consulted, and which will have been set down in sections C and D of the relevant plan for the benefit of the GLA and the functional bodies as a whole.
226.Section 125 confers on the Mayor power to require the functional bodies to provide information that he needs to decide how to exercise his powers and perform his functions under Chapter IV of Part III. If a functional body fails to supply information sought by the Mayor, the Mayor may make assumptions and estimates. The Mayor may rely on any information available to him, whether or not it is obtained from a functional body under this section.