The Usable Capital Receipts Reserve Chris Taylor

2019/20 Statements of Accounts are starting to appear on local authority websites.

At Arlingclose, this is the time of year when we undertake the analysis of client Balance Sheets as a starting point for updating Liability Benchmarks.

Our Balance Sheet analysis looks at that statement of financial position from a Treasury Management perspective by breaking it down into the following components:

  • The Capital Financing Requirement (CFR)
  • Usable Reserves
  • Working Capital
  • Investments
  • External Borrowing
  • Other Long-Term Liabilities

Most of these can be forward projected to give an indication of the potential borrowing and investment requirements in the future.

The Usable Capital Receipts Reserve is one of the Usable Reserves that a local authority may have. In very general terms capital receipts arise from the sale of a capital asset and are to be used to finance capital expenditure. Having been generated they are held in the Usable Capital Receipts Reserve until they are applied.

Local authorities are required to account for capital receipts because of Statute applying to local government finance. Capital receipts can only be used for the specific purposes as set out in the related Statutory Instrument.

At this time of year when Balance Sheets are being produced does the retention of money in the Usable Capital Receipts Reserve represent the best use of resources?

To determine whether this is the case will depend on individual circumstances:

  • Does the local authority have a positive CFR?
  • Is there a balance in the Financial Instruments Adjustment Account?
  • Does the local authority have a Housing Revenue Account?
  • What future capital schemes are planned and how are they to be financed?

Producing a Statement of Accounts is not necessarily all about complying with Accounting Standards as it can also present an opportunity to review what you have on balance sheet and make changes which can unlock future revenue savings.

If you wish to discuss this in more detail please get in touch.