Common financial aspects of all capital programmes
Capital grants and eligible expenditure
Treasury requirements make it clear that all designated capital allocations must be used for a capital purpose. The definition of what is capital is set out in accounting standards. Generally speaking, capital expenditure is expenditure that results in the acquisition, creation or long-term enhancement of an asset, and will normally result in an increase in value on a balance sheet.
Local authorities and schools have differing limits above which they capitalise expenditure, and record such purchases of assets on a balance sheet. Central government does not intervene in this area. The Department would regard purchases of an asset, or bundle of assets, with a value of £2000 or more as being a proper utilisation of a capital grant, even when such acquisitions are not recorded on a balance sheet because of a higher local capitalisation limit. For voluntary-aided schools there is a national threshold of £2000, specified in legislation, below which expenditure cannot be regarded as capital.
Determining whether expenditure is repair and maintenance, payable out of revenue, or capital expenditure, payable out of capital, is usually straightforward. For example, repainting is a revenue expense, and a new (or improved) building a capital cost. But at the margin,e.g. replacement of capital equipment or infrastructure such as a roof or boiler, or design or project management costs associated with a building project, classifying expenditure can be difficult. In such cases, where a school or LA is in doubt as to whether expenditure can be capitalised, schools and local authorities should seek professional advice and if appropriate, consult the district auditor, to make sure that proposed expenditure is being funded with the correct type of grant, capital or revenue.
The Single Capital Pot and ring fencing
The vast majority of schools capital programme funding paid to a local authority forms part of that authority's single capital pot, and can be used for any capital purpose.
However, where a capital grant is allocated for a named project or specific capital purpose, or where there is a specific ringfence surrounding a grant, then the capital grant must be used in accordance with those conditions. For example, funding agreed as part of the Targeted Capital Fund should be used for the projects within the submitted application.
Supported borrowing
Where an authority is allocated supported borrowing, it receives revenue funding over a long period of years to repay the loan. Where it chooses not to raise a loan on the strength of the revenue, then the revenue stream can be used for either a revenue or a capital purpose. Where an authority raises a loan on the strength of school capital allocations, then that loan must be used for a capital purpose. Capital cannot be used to repay the interest or capital element of a loan.
Other borrowing
Schools may not take out a loan for capital purposes unless they have the permission of the Secretary of State.
Control, audit and review
The Department expects each local authority to put in place robust systems to ensure that capital allocations are spent without undue delay, in accordance with allocation conditions, and comply with the principles of propriety, regularity and value for money. This includes managing the risks of fraud at all stages, through having an appropriate system of financial control, internal audit and review which extends to the ultimate recipient.
Local authorities and schools are expected to apply appropriate project management techniques and to use good procurement practice to ensure costs are controlled effectively.
The Department may also carry out its own reviews to determine progress made in improving school infrastructure, including through surveys or individual visits. Similar requirements also apply to other publicly funded schools such as non-maintained special schools, City Technology Colleges, Academies and VA schools.
Payment in advance of need
It is a principle of Government that, to safeguard the taxpayer and ensure best value for money, payment of grant should not be made in advance of need. The department recognises the difficulty in precisely forecasting capital expenditure on large capital projects, so some flexibility is granted. Accordingly, the Department requires that capital grant paid to local authorities and schools through the Standards Fund should be spent by recipients by the end of August following the end of the financial year in which it is paid out. Expenditure is monitored by the Department through the annual Standards Fund return. Where grant remains unspent, it is liable to be reclaimed by the Department. Grant paid to VA schools must be spent by the end of March of the relevant financial year, not August.
There are special rules in respect of some funds — for example Devolved Formula Capital where schools are allowed, within limits, to accumulate funds for a longer period to fund larger projects. This concession reflects the smaller degree of financial flexibility at school level.
VA schools cannot spend their capital grant on playing fields, or buildings on those fields; this is the responsibility of the local authority. LAs can use their capital funds for this purpose, or to help VA schools in any other way which they consider appropriate. Voluntary-aided schools receive grant at the rate of 90 per cent of eligible expenditure unless there are exceptional circumstances, in which case the grant can be increased up to 100 per cent.
Please see detailed guidance for any additional flexibilities offered for other programmes.
Related website
- Accounting Standards site (DCSF not responsible for content)
Related pages
- General aims and objectives
- Roles and responsibilities for key stakeholders
- Detailed guidance of each of the Schools Capital programmes
- Gateway for Parents and carers
- Gateway for Headteachers and Governors
- Gateway for Dioceses or other VA providers
- Gateway for Local authorities
Last updated: 29 January 2008
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