Local government finance regime

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This subtopic provides an overview of the local authority finance regime in terms of management and accounting that must be adhered to.

Local authority investment

Local authorities in England and Wales have extensive powers to borrow money and to make investments. How they do this is largely determined by the Local Government Act 2003 (LGA 2003) and statutory instruments issued under its powers.

A local authority may invest:

  1. •

    for any purpose relevant to its functions under any enactment, or

  2. •

    for the purposes of the prudent management of its financial affairs

In exercising investment, local authorities must have regard to the guidance issued by the Secretary of State.

Capital finance

Capital finance differs from revenue finance as revenue expenditure has to be met from current income whereas capital expenditure can be met by borrowing or capital receipts, and the costs can be spread over the period in which the benefits of the expenditure are expected to accrue.

The Prudential System is a comparatively simple framework that encourages investment in capital assets, which local government needs to improve services and relies on for accounting

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