Guidance

Uses of local authority spending and financing data returns

Updated 9 December 2022

Applies to England

Introduction

This guide explains how the data received from local authorities is used by the Department for Levelling Up, Housing and Communities (DLUHC), Office for Local Government (Oflog), HM Treasury (HMT), the Office for Budget Responsibility (OBR) and the Office for National Statistics (ONS).

It demonstrates why the timely and accurate supply of these data matters to government functions such as management of public finances and the economy.

Overview

Much of the financial data provided to DLUHC is needed for management of the local government finance system. For example, DLUHC uses the data to:

• monitor local authorities’ borrowing and spending and inform assessment of pressures and financial risk
• to inform baselines for local government financial settlements
• to inform other funding, and compensation under the Bellwin scheme

Other government departments also use the data where they have particular interest in services, including where they are the lead policy department, such as Department of Health and Social Care which carries out detailed review of public health grant and expenditure.

Local government expenditure represents about a fifth of all public expenditure. The data that local authorities provide does not just affect the funding from central government. It also affects the Chancellor’s Budget statement, the monthly Public Sector Finances and quarterly estimates of Gross Domestic Product (GDP) and even the monthly decisions on interest rates.

For example, as part of the OBR’s forecast of UK total managed expenditure, local authority self-financed expenditure is typically the second largest type of current Annual Managed Expenditure (behind social security spending), and one of the largest sources of capital Annual Managed Expenditure.

HMT and OBR use the data to:

• set fiscal and local government financial policy, determining tax levels and spending plans
• forecast self-financed local authority spending as part of the whole UK public expenditure forecast at fiscal events, and to monitor income and expenditure in outturn
• monitor local authorities borrowing and spending in relation to the Public Works Loan Board
• report on public spending to ministers and to the public

ONS uses the data as key inputs to:

• produce statistics on the UK’s fiscal position
• compile the UK national accounts, which are a major input to the monetary policy
• facilitate international comparisons of data relating to government finance and debt statistics
• analyse the measurement of UK government output and productivity

Oflog aims to provide authoritative and accessible data and analysis about the performance of local government and support its improvement. Local government finance data are used to provide contextual financial information to give a sense of how a local authority operates.

More details on the uses of these data by HMT, OBR and ONS use of data is set out below.

HM Treasury and Office for Budget Responsibility

Forecasting and monitoring income and expenditure

Fiscal policy determines levels of taxation and public spending and is part of the macroeconomic framework designed to help ensure a stable economy.

Measuring the fiscal rules on a public-sector basis (rather than, say, central government or general government (central plus local government)) is an important part of the fiscal framework for 2 reasons:

1. The liabilities of local government (or public corporations) would ultimately be borne by the taxpayer, so it makes sense to consider the public sector as a whole.
2. Any analysis of the economic impact of fiscal policy needs to consider the full scope of government activity.

More specifically, in the UK the sub-sectors that make up the public sector are closely integrated. A lot of local government’s funding comes from central government. There is a choice about whether services are provided by central or local government. Most borrowing by local government is from central government, which in turn borrows from the financial markets.

Furthermore, taxes raised by local government affect central government’s ability to tax (and vice versa) because the public’s willingness to pay taxes is limited. Similarly, the level of public sector borrowing has much the same effect on the market whether the borrowing is by central government or local government.

A further issue is the International Monetary Fund’s (IMF) Code of Good Practices in Fiscal Transparency, with which the government has made steps to comply. This makes clear that countries should aim to publish public finance aggregates on the position of central and local government combined. Moreover, the code makes clear that information needs to be of high quality and timely.

Local authority spending, split between current and capital, is an important component of the monthly and quarterly published data that monitors the fiscal position, and which receive significant public attention. It is also an important element of the forecasting of spending, which matters when considering how much money can be spent, how much should be raised in taxation and how much borrowed.

Local authority self-financed expenditure (LASFE) has an impact on the fiscal situation, so we need to know whether the expenditure is for current or capital purposes, and whether it is financed by taxation, or by capital receipts or borrowing.

Forecasts of LASFE inform how much is available in total in the government’s spending reviews to allocate to departments to spend. Since LASFE is part of total public spending, its size is an indicator of the overall size of the public sector, and the split of responsibilities between central and local government, which can inform policy debate.

Information on local authority spending, financing, and borrowing outturn and plans is published by HMT and the OBR at the time of the Budget and the Spring Statement.

Reporting

HMT prepares statistical reports to inform Parliament and other interested users about public spending. The main publication is the annual Public Expenditure Statistical Analyses (PESA). It contains tables showing public spending by function (education, health, social protection, etc), which follow definitions set by the UN and thus allow international comparisons to be made.

This means there are certain minimum reporting requirements which need to be maintained e.g. expenditure on social protection must be split between categories such as ‘old age’, ‘family and children’ and ‘unemployment’. Functional analyses bring together spending by central and local government, by English departments and by the devolved administrations in Scotland, Wales, and Northern Ireland. Accurate reporting allows us to make comparisons of total UK spending on distinct functions and sub-functions irrespective of the way in which spending is organised.

The functional numbers also underpin reporting against some government expenditure targets, for example those relating to total health and total education spending.

Local authority expenditure return data is a key input into the PESA analysis of total public spending set out by the country or region for which the spending is made. It is combined with departmental spending data. We can then work out public spending per head in different regions on distinct functions. This analysis informs the government’s regional policy agenda.

Office for National Statistics

The ONS are the UK’s National Statistics Institute and its largest independent producer of official statistics and are responsible for producing statistics on the UK’s fiscal position.

UK Public Sector Finances and the UK National Accounts

The local government finance data published and received from DLUHC are used by ONS to measure the UK’s fiscal position and the UK economy, and feed into various high-profile publications. Publications include our monthly Public Sector Finances publication and Country and Regional Public Sector Finances publication, quarterly National Accounts (including GDP) and annual National Accounts (the Blue Book).

The monthly Public Sector Finances publication is a joint publication with HM Treasury and is a flagship publication for ONS. Monthly local government data feeds directly into Public Sector Finances, and key indicators produced using these data include Local Government and Public Sector Net Borrowing (often known as the public sector deficit), Local Government and Public Sector Net Debt and Local Government and Public Sector Expenditure.

These data are also used to measure the UK economy. Estimates of Total Service Expenditure are used to calculate the National Accounts statistic called Local Government Final Consumption Expenditure. This is broken down by functions of government (according to the international Classifications of Functions of Government (COFOG) classification) and feeds into Local Government and General Government Final Consumption Expenditure, and Gross Domestic Product (GDP).

The allocation of expenditure to various categories such as pay and procurement, and functions such as transport and education, has an important effect on the measurement of government output and productivity.

These measures are used by departments such as HM Treasury and the OBR as important indicators for informing monetary policy and forecasting fiscal requirements such as the levels of taxes and borrowing set in the budget.

International comparisons

Government finance statistics and public sector debt statistics, alongside the wider national accounts, are used for comparisons between countries.

To facilitate comparability, the UK is committed to transmitting data to the Organisation for Economic Co-operation and Development and the International Monetary Fund, whose combined datasets provide a valuable tool for international comparisons of fiscal performance and, consequently, for setting fiscal policy.