Glossary of Financial Terms

The following is an alphabetical list of accounting and other terms the reader may come across whilst reading the City Council’s Annual Report and Accounts or the Annual Budget. It includes some terms which are specific to the City Council e.g. “Corporate Resource Pool”, and others which are specific to local authority accounting e.g. “Receipts taken into account” as well as the more familiar accounting terms and concepts that are in general use.

Accounting Standards

The International Accounting Standards Body (ISAB) promulgates international financial reporting standards (IFRS). Guidance has been issued by the IASB applying many such accounting standards to local authority accounts. Auditors would expect this guidance to be complied with, and any departure must be disclosed in the published accounts.

Accounts and Audit Regulations 1996

In accordance with section 27(b) of the Audit Commission Act 1998 the Secretary of State may make provision with respect to the form, preparation, and certification of local authority accounts and statement of accounts. In accordance with this section the Accounts and Audit regulations issued in 1996 are to be regarded as a statutory proper practice and thus they determine the form and content of the City’s annual report.

Accruals basis

An accounting convention in which transactions are reflected in the accounts of the period in which they take place, as opposed to the period in which payments are made or received.

Added Years

A discretionary award increasing the value of pensions for retiring employees aged 50 or over subject to specific conditions. Employers must exercise this discretion in accordance with the national regulations and the City Council’s own policies.

Agency Services

An Agency arrangement is the provision of services by an organisation or an authority on behalf of another authority that is legally responsible for providing the service. The responsible authority reimburses the organisation providing the service in the first instance. Typically, cleansing and highways functions are often carried out by one tier of local authority on behalf of another. Local

Authorities can also act as agents of central government e.g. motorway maintenance.

Aggregate External Finance (AEF)

Central Government Support towards Total Standard Spending. It comprises RSG, NNDR and certain specific, supplementary and special grants.

Allocations

The debits made when the expenditure to be borne by each head is question of fact, so that no apportionments need to be made. The cost of telephones, for example, may be allocated to the users of various lines.

Annual Capital Guidelines (ACG)

The level of expenditure Government is prepared to support through the issue of borrowing approvals for local authority capital spending.

Apportionments

The expenditure debits made when any single item of expenditure is for the benefit of two or more service heads, so that its cost has to be apportioned to them in proportion to the apparent extent to which they benefit from the expenditure or contribute to its cost.

Appropriations

In the Consolidated Revenue Account an appropriation is a transfer to/from the City Council’s capital and revenue reserves. Thus transfers to/from DSO and HRA reserves are classified as appropriations. In addition appropriations include the reconciling transactions needed to convert expenditure to amounts that are required to be raised from Council Tax including transfers to and from the capital financing reserve.

Area Based Grants

A general grant allocated by central government directly to local authorities as additional revenue funding to support the delivery of local, regional and national priorities in their areas.

Area Cost Adjustment

An additional amount provided through the Standard Spending Assessment to compensate London and South East authorities for higher costs.

Asset Management Plan (AMP)

The corporate plan that details the overall proposals for how Newcastle City Council uses its assets.

Assets

Assets are items of worth, which are measurable in terms of money (value). Current assets are ones that may change in value on a day-to-day basis (e.g. cash, stocks, and work in progress). Fixed assets are those that yield benefit to the City Council and the services it provides for a period of more than one year.

Audit Commission

An independent body established by the 1982 Local Government Finance Act that is responsible for appointing external auditors to local authorities. It has a duty to ensure local authorities make proper arrangements to ensure economy, efficiency and effectiveness in their use of resources and has the power to undertake special “value for money” studies.

Balances

The total level of funds the City Council has accumulated over the years available to support revenue expenditure within the year (also known as reserves).

Benchmarking

The procedure whereby selected activities and processes are analysed and compared against similar processes and activities from other organisations to identify good / best practice.

Best Value Authorities

The authorities of types listed in the Local Government Act 1999 for England & Wales which will be subject to the statutory duty of best value.

Best Value Reviews

The reviews of their own functions to be made by Best Value authorities in England & Wales in order to make arrangements to secure continuous improvements in services. Often referred to colloquially as performance reviews or fundamental performance reviews.

Billing Authority

The local authority empowered to set and collect council taxes, and to manage the Collection Fund, on behalf of itself and local authorities in its area. Newcastle is a billing authority collecting council tax not only for itself, but also on behalf of Tyne & Wear Fire and Civil Authority, Northumbria Police, and five parish councils within its boundaries. The same authorities were called charging authorities under the community charge system.

Budget

A statement defining the Council’s policies over a specified period of time in terms of finance. The budget also includes statements about the use of other resources (e.g. numbers of staff) and about the method of financing expenditure.

Budget Requirement

This represents the estimate of the amount to be funded from revenue support grant, redistributed non-domestic rates and any additional grant, and from council tax income.

Capital Adjustment Account

The Account accumulates (on the debit side) the write down of the historical cost of fixed assets as they are consumed by depreciation and impairments or written off on disposal. It accumulates (on the credit side) the resources that have been set aside to finance capital expenditure. The same process applies to capital expenditure that is only capital by statutory definition (deferred charges). The balance on the Account represents timing differences between the amount of the historical cost of fixed assets that has been consumed and the amount that has been financed in accordance with statutory requirements.

Capital Asset Register

A subsidiary record that records the value of assets owned by the City Council.

Capital Charges

This is a charge to the revenue accounts of services and statutory trading accounts to reflect the cost of using assets. It is based upon depreciation (where applicable) which represents the cost of using the asset

Capital Contributions

Capital contributions from third parties, such as developers, provide the City Council with an additional source of capital funding.

Capital Expenditure

Section 40 of the Local Government and Housing Act 1989 defines “expenditure for capital purposes”. This includes expenditure incurred directly by the City Council on the acquisition or improvement of assets having a useful life spanning a number of years e.g. schools and houses or indirectly in the form of grants to other persons or bodies. Expenditure that does not fall within this definition must be charged to a revenue account.

Capital Financing Charges

The annual charge to the Revenue Account in respect of the minimum revenue provision and interest on money borrowed together with leasing rentals.

Capital Grants

Grants made by Government Departments and the European Union to the City Council to fund capital expenditure. In recent years the proportion of capital expenditure funded by capital grants has increased.

Capital Receipts

Proceeds from the sale of Council owned land and buildings or from the repayment of loans and advances. The major element of the City Council capital receipts is from the sale of council houses under the “Right to Buy” legislation. The City Council, in common with other local authorities is normally required to reserve 75% of its Council Housing capital receipts and 50% of other housing capital receipts to repay Central Government. The remaining capital receipts available to councils can only be used to fund new capital expenditure or repay capital debt

Capital Strategy

The City Council’s high level approach to prioritising capital investment.

Capitalised Current Expenditure

Expenditure, which would normally be classified as current expenditure but which, the local authority has been allowed to capitalise, with the permission of the Secretary of State (e.g. redundancy payments)

Capping

The Secretary of State has the power to “cap” the budgets of local authorities which he considers to be excessive or to represent an excessive increase over the previous year’s budget. Following the Local Government Act 1999 these powers are now held in reserve.

Cash basis

An accounting convention in which transactions are recorded in the period in which payment is made or received as opposed to the period in which the transaction took place (accruals basis). Capital expenditure and receipts were, for many years, recorded on a cash basis but are now accounted on an accruals basis.

Cash Limit

The total amount of cash available for expenditure on any item. Where the City applies cash limits to elements within its budget, this means that if

inflation rises faster than expected, the quantity of the service provided falls so that spending remains within the cash limit.

Charges

The sums debited to users under contracts and service level agreements; for example a fixed charge per week per employee for payroll services, and the debits required by systems of standard costing or accruals accounting.

CIPFA

The Chartered Institute of Public Finance and Accountancy. This is the professional body for accountants working in the public sector. The Institute provides financial and statistical information for local authority and other public sector bodies and advises central government and other bodies on local authority and public finance matters.

Collection Fund

A statutory fund maintained by the City Council, which is used to record local taxes and non domestic rates collected, along with payments to precepting authorities, the national pool of non domestic rates and the City’s own general fund.

Community Assets

Community assets are assets that the City Council intends to hold in perpetuity, that have no determinable useful life and which may, in addition have restrictions on their disposal (e.g. parks and historic buildings). Community assets are only subject to depreciation in exceptional cases.

Comprehensive Spending Review (CSR)

The Governments three year forecast of planned expenditure, including overall provision for local authorities.

Consistency

The consistency concept requires that there should be consistency of accounting treatment of like items within each accounting period and from one period to the next.

Consolidated Balance Sheet

The Consolidated Balance Sheet reports at the end of the financial year (31st March) the balances and reserves at the City’s disposal, its long term indebtedness, and the fixed and net current assets employed in its operations, together with summarised information on fixed assets held.

Consolidated Revenue Account

The Consolidated Revenue Account reports the net cost for the year of the functions for which the City Council is responsible and shows how that cost has been financed from general government grants and income from local taxpayers.

Contingent Liabilities

A contingent liability is one where a material loss (cost) to the City Council is not included in the accounts because it cannot be accurately estimated, or because the event is not considered sufficiently certain to arise. Contingent liabilities are disclosed as notes to the balance sheet.

Contingencies

Money set aside in the budget as a reserve to meet the cost of unforeseen items of expenditure, or shortfalls in income and to provide for inflation, where this is not included in individual budgets because their precise value cannot be determined in advance.

Corporate Management Activities

Corporate Management Activities which arise specifically because the City Council is an elected multi-purpose authority, and are thus over and above those which would be needed to manage all the various services if they were run by single purpose authorities.

Corporate Resource Pool (CRP)

The Corporate Resource Pool is a City Council fund. It has been created principally from unused capital receipts and contributions from revenue. It has a number of functions; it provides a source of capital resources to meet corporate needs and it is used to top up service committee capital resources issued by government to reflect local rather than national priorities. The CRP also provides a short-term loan facility to help service committees spread the cost of redundancy payments or help finance revenue saving projects. It acts as lender of last resort, providing bridging capital finance where a Committee’s own resources (such as capital receipts) may be delayed.

Cost Drivers

The activities or other in any process that make the biggest differences to the relative unit costs of the various outputs.

Council Tax

Council tax was introduced on 1st April 1993. It replaced Community charge as the local tax directly supporting local authority expenditure. Council tax is basically a hybrid between Domestic Rates and Community Charge. There is only one bill per household; it has two elements, the property element and the personal element. The level of charge is determined by the capital value of

the property. The personal element consists of discounts and exemptions depending on the circumstances of the person in possession of the property, or the individual occupants.

Council Tax at Standard Spend (CTSS)

The amount of Council Tax that authorities would need to raise if they spent at their Standard Spending Assessment.

Council Tax Bands

These range from A-H and are based upon April 1991 valuations.

Council Taxbase

The total number of Band D equivalent properties upon which the Council Tax can be levied.

Council Tax Benefit

Council Tax Benefit is an income related social security benefit designed to help people on low income pay their council tax.

Credit Arrangements

Credit arrangements are forms of credit which do not involve the borrowing of money by a local authority e.g. leases of land (including buildings) or other property and contracts which provide for external credit (in the sense that there is more than a full financial year gap between the giving of value to the authority and the payments for that value).

Credit Cover

Resources which need to be found to meet the initial cost of a credit arrangement (e.g. the capital value of payments made under a lease). Credit cover can be provided by setting aside as PCL usable capital receipts, or by revenue account sums or by using a credit approval.

Creditors

Amounts owed by the City Council for goods and services provided where payment has not been made at the end of the financial year (31st March).

Current Assets

Current assets are those assets whose value varies on a daily basis and they include items such as cash, debtors and work in progress.

Debits

The collective term for accounting entries representing expenditure, and therefore comprising charges, apportionments and allocations.

Debt Management Expenses

Debt management expenses represent the cost of administering the City’s borrowing and therefore this item includes the staffing and other costs of the Treasury Management section.

Deferred Credits

Deferred credits represent capital income still to be received when disposal have taken place and deferred payments have been agreed e.g. the principal outstanding from sales of council houses. In addition deferred credits include capital grants and contributions used to finance deferred charges (e.g. capital grants) that have not yet been written off to revenue.

Deferred Liabilities

Deferred liabilities consist of liabilities which by arrangement are payable beyond the next year at some point in the future or paid off by an annual sum over a period of time. Examples include debt taken from former councils where the loan management rests with another local authority and outstanding finance lease obligations.

Defined Activities

Areas of work where the City Council is exposed to direct competition with the private sector under the provisions of the Local Government Planning and Land Act 1980 and the Local Government Act 1988.

Depreciation

The measure of wearing out, consumption, or other reduction in the useful economic life of a fixed asset, whether arising from usage, the passage of time or obsolescence through technological or other changes.

Direct Revenue Financing

The contribution from the revenue budget to support capital expenditure.

District Audit

Auditors employed directly by the Audit Commission and appointed by the City Council to carry out an independent examination of its activities and accounts.

Emoluments

Payments received in cash and benefits for employment.

Estimates

Estimates are the amounts that the Council expects to spend, or receive as income during an accounting period. The term is also used to describe

detailed budgets, which are either being prepared for the following year, or have been approved for the current year.

Original Estimates– the estimates for a financial year approved by the City Council before the start of the financial year.

Revised Estimates– an updated revision of the estimates for a financial year usually prepared about halfway through the financial year.

Exceptional Item

An item that is material in terms of the Council’s overall expenditure and not expected to recur frequently or regularly. Exceptional items can include large scale redundancies, expenditure in respect of emergencies and costs of industrial action.

Expenditure

Amounts paid by the City Council for goods received or services rendered of either a capital or revenue nature. This does not necessarily involve a cash payment – expenditure is deemed to have been incurred once the goods or services have been received, even if they have not yet been paid for (in which case the supplier is a creditor of the City Council).

Fees and Charges

Income arising from the provision of services, e.g. for the use of recreational facilities, the supply of school meals, the collection of trade refuse.

Finance Leases

A finance lease usually involves payment by a lessee of the full cost of the asset together with a return on the finance provided by the lessor. IAS 17 requires that finance leases should be capitalised by the lessee.

Finance Settlement

The annual announcement of the level of resources for local authorities. The provisional settlement is usually announced in November/December and is followed by the final settlement in January/February.

Financial Accounting and Management Information System (FAMIS)

The City Council’s computerised financial information system.

Financial Regulations

Financial Regulations are a written code of procedures approved by the City Council intended to provide a framework for proper financial management. They set out rules on accounting, audit and administrative procedures and budgeting systems.

General Fund

The main fund into which Council Tax, Government grant and other income are paid and from which is met the day-to-day cost of providing services. Spending on the provision of housing, however, must be charged to a separate Housing Revenue Account.

General Health Indicators

Indicators reflecting the general health or competence of authorities.

Gross Budget Requirement

The total amount of Council expenditure that needs to be financed.

Housing Benefit

An allowance to persons on low incomes (or none) to meet, in whole or part, their rent. Benefit is allowed or paid by the City Council but central government refunds part of the cost of the benefits and of the running costs of the service. Benefit paid to the Council’s own tenants is known as rent rebate and that paid to private sector tenants as rent allowance.

Housing Benefit Subsidy

This represents reimbursement to the City Council for rent rebates granted to council house tenants in respect of statutory housing benefit entitlement.

Housing Deficit Subsidy

This represents reimbursement by the government for the shortfall of notional rent and other income against expenditure deemed to have been incurred for management and maintenance, charges for capital and rent rebates.

Housing Revenue Account (HRA)

The Housing Revenue Account reflects a statutory obligation to account separately for City Council housing provision, as defined in particular by Schedule 4 of the Local Government and Housing Act 1989. It shows the major elements of housing revenue expenditure – maintenance, administration, rent rebates – and capital financing costs, and how rents, subsidy and other income meet these costs.

The Housing Revenue Account is ring-fenced, preventing the subsidisation of rents from the general income of the City Council.

IFRS

International Financial Reporting Standards

Income

Amounts due to the City Council for goods supplied or services rendered of either a capital or a revenue nature. This does not necessarily involve a cash payment – income is deemed to have been earned once the goods or services have been supplied even if payment has not been received (in which case the recipient is a debtor to the City Council).

Infrastructure Assets

Infrastructure assets are inalienable assets (e.g. highways, footpaths, flood defences) i.e. there is no prospect of sale or alternative use. Accordingly current value is not appropriate and such assets are recorded at historic cost. Like most other assets infrastructure is depreciated.

Interest on Revenue Balances

This represents the money earned from the investment of surplus revenue.

Internal Audit

Internal Audit are staff employed by the City Council to carry out a continuous and independent appraisal of all functions of the authority to ensure, amongst other things, the correctness of all income and expenditure and the integrity of its financial systems.

Investment Properties

Interest in land and/or buildings:

a. in respect of which construction work and development have been completed, and

b. is held for its investment potential, any rental income being negotiated at arms length.

Joint Ventures

Any contract between 2 or more organisations under which they bind themselves to contribute separate services, work or funding for a shared overall purpose.

Joint Working

Arrangements between different bodies to share work needed by each e.g. the joint working programme between the Contributions Agency, Inland Revenue and DSS for data sharing and cross checking.

Leasing

The method of financing the provision of various capital assets to discharge the City Council functions outside normal borrowing procedures but within the criteria laid down in the Local Authorities (Capital Finance) Regulations. There are a number of different types of lease available but finance and operating leases are the ones most commonly used.

Liabilities

Sums due to individuals or organisations that will have to be paid at some time in the future. Current liabilities are usually payable within one year of the balance sheet date.

Local Management of Schools (LMS)

The underlying principle of local management of schools (LMS) is that spending decisions are best taken by those who are closest to the service. This involves virtually every aspect of running schools including staff appointments, the use of premises and marketing of the school. As part of the scheme of delegation the City Council maintains a formula to distribute the aggregated schools budget to each school. Unspent budgets that have been delegated remain at the disposal of the school even though they are still reserves held by the Council.

Local Performance Indicators

PIs selected by single authorities, usually to measure progress over time.

Local Public Service Agreements (LPSA)

A government initiative designed to improve local services. It involves councils signing up to a package of improvement targets that will directly benefit local communities. Participating councils are offered a reduction in red tape to enable them to better reach their targets, and financial incentives to help them deliver real improvements in services over three years. A grant is on offer to help councils meet their targets and, if successful, they will be given a special cash reward.

Materiality

An item is material if its omission, non-disclosure or misstatement in financial statements could be expected to lead to a distortion of the view given by the financial statements.

Minimum Revenue Provision (MRP)

MRP is the annual amount that councils must put aside to repay capital debt. Councils have the flexibility to repay more than the MRP in order to reduce their levels of capital debt.

National Non-Domestic Rates (NNDR)

Non-Domestic Rates are organised on a national basis. Local businesses are required to pay, subject to transitional arrangements, an amount calculated by applying a sum specified by central government to the rateable value of their property. The rate poundage generally rises in line with the Retail Price Index, unless HM Treasury specifies an alternative. The City Council is responsible for collecting and paying over this amount to the NNDR pool administered by central government. The government redistributes sums paid into the pool on the basis of a fixed amount per head of population. All non-domestic properties have been revalued for the latest Rating List that came into force on 1st April 2000. The Inland Revenue Valuation Office carries out the valuations.

Neighbourhood Renewal Fund

A government initiative introduced from 2001-2002 to assist local authorities in deprived areas to deliver better outcomes for their most deprived communities.

Net Book Value

This is the amount at which fixed assets are included in the balance sheet i.e. their historical cost or current value less the cumulative amounts provided for depreciation.

Net Budget Requirement

The amount of Council spending needed to be financed, following the receipts of specific grants and use of balances/reserves, to be met from Revenue Support Grant, National Non-Domestic Rates and Council Tax.

Net Current Expenditure

Essentially spending on services. It is defined as expenditure on employees and running expenses net of sales, fees and charges, internal recharges, other non-grant income (such as receipts from other authorities) but gross of specific grants and interest receipts.

Net Current Replacement Cost

The cost of replacing or recreating a particular asset in its existing condition and in its existing use i.e. the cost of its replacement or of the nearest equivalent asset adjusted to reflect the current condition of the existing asset.

Net Realisable Value

The open market value of the asset in its existing use (or open market value in the case of non-operational assets) less the expenses to be incurred in realising the asset.

Non-Operational Assets

Non-operational assets are those held by the City Council not directly occupied, used or consumed in the delivery of services (e.g. land awaiting development, commercial property, investment property, surplus assets, capital works in progress).

Objective Analysis

This is an analysis of expenditure according to type of output i.e. service or function on which it is incurred.

Operating Lease

An operating lease involves the lessee paying a rental for the hire of an asset for a period of time that is normally substantially less than its useful economic life. Operating leases do not come within the government’s capital control system. Ownership of the asset must remain with the lessor for a lease to be classified as an operating lease. Most City Council leases are operating leases and cover items such as computer equipment, office equipment and furniture.

Operational Assets

Operational Assets are those held, occupied, used or consumed by the City Council in the direct delivery of the services for which it is responsible, whether statutory or discretionary. Assets owned by the Council but used by another organisation are classified as non-operational assets.

Passenger Transport Authority Levy

The Tyne and Wear Passenger Transport Authority (PTA) is not a precepting body. Instead it makes a levy on the five metropolitan district councils, including the City Council, in proportion to their resident population. On this basis Newcastle’s share is 25% of PTA net costs and the payment to the PTA is classified City Council expenditure.

Performance Indicators

The Citizens Charter places a requirement for local authorities to implement systems of performance measurement. Under the Local Government Act 1992 the Audit Commission has a duty to specify a list of indicators against which every local authority is obliged to report annually. These indicators include many non-financial measures e.g. average class sizes, number of planning appeals as well as financial indicators such net expenditure per resident and the net costs of collecting council tax for each home.

Performance Reviews

The reviews of their own functions made by Best Value Authorities.

Performance Standards

The standards to be met by Best Value authorities in England & Wales, measured against statutory PIs.

Post Balance Sheet Events

Those events, both favourable and unfavourable, that occur between the balance sheet date and the date on which the statement of accounts is signed by the responsible financial officer.

Precepts

A precept is an amount of Council Tax collected by the City Council and paid to other bodies. The major precepting bodies are Northumbria Police Authority and Tyne and Wear Fire and Civil Defence Authority.

Parish precepts are charged separately and only on the area of the Parish Council concerned – Blakelaw and North Fenham, Brunswick, Dinnington, Hazlerigg, North Gosforth and Woolsington.

Parish precepts are treated in the accounts as City Council expenditure.

Price Base

The pay and price levels used for calculating estimates, forecasts and policy options

November prices – pay and price levels known and quantifiable in November of a particular year.

Outturn prices – the actual prices at the time the money was spent rather than those prevailing when budgets were set.

Estimated outturn prices – the price level which it is estimated will prevail at the time the money is to be spent. Thus a budget with a cash limit is at estimated outturn prices.

Prior Year Adjustments

Prior year adjustments are those material adjustments applicable to prior years, arising from changes in accounting policies or from the correction of fundamental errors. They do not include normal recurring corrections or adjustments of accounting estimates made in prior years.

Private Finance Initiatives

Private Finance Initiatives (PFI’s) are public authority/private sector partnerships designed to procure new major capital investment resources for local authorities. They are intended to form a substantial and genuine additional source of funding to local authorities rather than merely being a replacement for existing funding.

Provisions

A provision represents an earmarking of City Council funds to cover future expenditure. Unlike a reserve a provision counts as revenue expenditure in the year in which the earmarking takes place.

Provision for Credit Liabilities (PCL)

As a consequence of the Local Government and Housing Act 1989 the City Council is required to set up a Provision for Credit Liabilities. It is not a normal provision in the accepted sense of the word.

The PCL is credited with sums set aside from revenue, the minimum revenue provision, any additional amounts determined by the City Council plus the reserved proportion of capital receipts.

The PCL is debited with repayment of loan, repayments of credit arrangements or for capital expenditure where credit approval exists.

Prudence

Requires that revenue is not anticipated until realisation can be assessed with reasonable certainty. Provision is made for all known liabilities whether the amount is certain or can only be estimated in the light of information available.

Public Works Loans Board (PWLB)

The Public Works Loans Board is a quasi-central government agency whose purpose is to provide loans to local authorities. These loans are generally on terms more favourable than those are available from other sources such as banks. Interest rates are only slightly higher than those at which the government can itself borrow. It has been the City Council’s main source of longer term borrowing from the government for many years. In recent years the government has reduced the quota available to the City and other local authorities and brought interest rates closer to those obtainable in the money market.

Recharges

The collective term for accounting entries representing transfers of (or to cover) costs initially debited elsewhere. They therefore comprise apportionments and charges.

Recoupment

Inter-authority charges which arise when the children living in local authority area are educated in another local authority area.

Regional Performance Indicators

PIs selected by groups of authorities, such as benchmarking clubs. The “core” cities group consists of Birmingham, Bristol, Leeds, Liverpool, Manchester, Newcastle, Sheffield and Nottingham.

Related Party

The definition of a related party is dependent upon the situation, although key indicators of related parties are if:

One party has direct or indirect control of the other party,

One party has influence over the financial and operating policies of the other party to an extent that the other party might be inhibited from pursuing at all times its own separate interests.

Reserves

A reserve is a method for earmarking City Council funds to cover future expenditure. Reserves can be specifically earmarked or kept for general purposes. Revenue reserves result from one-off events which have allowed monies to be set aside, budgeted surpluses, or decisions causing anticipated expenditure to have been postponed or cancelled. Reserves of this nature are available and can be spent or earmarked at the discretion of the City Council.

Unspent budgets in the case of LMS schools (i.e. LMS reserves) are available to meet revenue expenditure if the Governors agree.

Capital reserves brought into being by capital accounting arrangements (namely the fixed asset restatement account and the capital financing account) cannot be used to meet current expenditure.

Revenue Balances

These are the accumulated surpluses on the General Fund. They can be applied to reduce Council borrowing, reduce the Council Tax Levy or retained with a view to applying them in future years.

Revenue Contributions to Capital (RCCO)

This is a method of financing capital expenditure directly from revenue, as distinct from borrowing, grant, or contributions from third parties. There is no direct government control capital expenditure financed from revenue, although this way of financing capital expenditure is effectively controlled through the City’s council tax capping criteria. This method of financing will not effect the level of credit approvals and is now one of the few elements of flexibility in financing capital expenditure.

Revenue Expenditure

Such expenditure is incurred on the day-to-day running of the City Council; the costs principally include employee expenses, capital financing charges and general running costs.

Revenue Expenditure Funded from Capital under Statute

Expenditure which may be properly incurred, but which does not result in an asset owned by the Council, e.g. improvement grants.

Revenue Formula Grant (RFG)

The Revenue Formula Grant is a general grant paid by the government towards local services. Its basic objective is to give authorities sufficient grant to put them in a position where they can provide a similar standard of service for the same level of Council Tax. Section E1 gives the current position with regard to this.

Section 137 Expenditure

Section 137 of the Local Government Act 1972 empowers the City Council, subject to various conditions and limits, to incur expenditure which, in its opinion, is in the interests of the City or any part of it, or all or some of its inhabitants, but for which no specific statutory power exists. The City Council is required to account separately for any such expenditure.

Service Level Agreements (SLAs)

Agreements between operational units, which state the price and specifications of the support service by one to another.

Settlement

“Local Government Finance Settlement” is the annual determination made in a Local Government Finance Report by affirmative resolution of the House of Commons in respect of the following year of:

The provision for local authority expenditure;

The amount of central government support for that expenditure;

How the support will be distributed;

And the support for certain other local government bodies.

Single Capital Pot

The single capital pot was introduced in 2002-2003 and is the means by which general capital resources in the form of Basic Credit Approvals (BCA) are allocated.

Sinking Fund

A sinking fund is a created when a borrower sets aside a sum of money annually to repay a debt in full at the end of a specified period. The fund increases each year by the amount set aside plus accumulated interest. Debt in respect of the former Tyne and Wear County Council is being redeemed by the City Council over a 20-year period based on a 10% sinking fund.

Single Status

A national agreement introduced by the National Joint Council (NJC) for Local Government Services in 1997. It introduced a requirement for all councils to develop pay structures free from gender inequality. It also included a provision for councils to negotiate their own local terms and conditions agreements.

Slippage

Where a revenue scheme, or more typically, a capital scheme does not progress at the expected rate physically, or financially it has “slipped”. Slippage can also mean the spending commitment in one financial year arising as a result of delays in schemes budgeted for in the previous year.

Specific Grants

These are government grants to the City Council in aid of particular services e.g. Magistrates Courts Grant, Probation Services Grant.

Standards Fund

A collection of specific grants for schools and local education authorities to achieve improvements in education standards set out in agreed targets.

Statements of Recommended Practice (SORPs)

Statements agreed by the Accounting Standards Board (established by the major accounting bodies) setting out the current best accounting practice. The SORPs are now subject to the Code of Practice on Local Authority Accounting.

Statutory Performance Indicators

PIs selected by government departments, the Audit or Accounts Commission.

Subjective Analysis

This is an analysis of income or expenditure according to type. Such expenditure headings include salaries and wages, premises, transport, supplies and services and support services. On the income side headings include government grants, fees and charges, sales and interest.

Superannuation Fund

An employees’ pension fund maintained by an authority, or in the case of the Tyne and Wear Pension Fund by a group of authorities, in order to make pension payments on retirement of participants. It is financed from contributions from the employing authority, the employees and investment income.

Third Party Payments

Payments made to external providers or an internal service unit for a service e.g. care for the elderly.

Total Standard Spending (TSS)

The total amount of spending by local government as a whole which the Government will support through grants.

Trading Undertakings

The functions undertaken by the Direct Service Organisation are the main trading activity of the City Council. In addition, however, there are certain other activities carried out by the City Council, which are classified in government and other returns as “trading undertakings”. These activities could, in theory, be performed by the private sector and include management of Industrial and Corporate Estates, Retail Markets and the City Hall. They are local authority services that are, or are generally intended to be, financed mainly from charges levied on the users of the service.

Transfer Payments

Payments made to individuals where no goods or services are received in return.

Trust Funds

From time to time the City Council receives donations from private individuals or companies on condition that they are used for specified purposes. Depending on the terms of the trust agreement either whole or part of the donation itself is used for the purpose specified or it is invested and the interest is so used. The purposes to which the funds are applied include education scholarships and prizes, assisting new business (Richard Thompson, Sir Thomas White and Thomas Davison Bequests) and general charitable works.

If the initial purpose of the donation is no longer appropriate or the beneficiaries no longer exist an application can be made to the Charity Commissioners to vary the terms of the Trust.

Ultra-Vires

The City Council is empowered to do only those things authorised by statute. If it does anything not authorised by statute that action is said to be ultra-vires (i.e. beyond the powers of) and may be legally challenged. If the cost of the activity is greater than the amount allowed under S.137, as amended, in any year it would probably be acting unlawfully.

Virement

This is the permission to spend more on one budget head when this is matched by a corresponding reduction in some other budget head i.e. a switch of resources between budget heads. To ensure proper administration virement must be properly authorised either by an appropriate Committee or by officers under delegated powers.