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The Government makes a series of capital
announcements which enable local authorities to spend money
on capital investment. One of those announcements is in relation
to "supported borrowing", which gives authorities
permission to borrow money to spend on that capital investment.
Because an authority has borrowed money, it then has to
repay the interest and the amount borrowed over the life of
the loan. That annual cost must be charged to the revenue
account. The announcement is called "supported borrowing"
because, in principle, the Government undertakes to pay extra
revenue grant to recompense authorities for the extra revenue
costs it incurs as a result of this extra borrowing. However,
in the case of certain authorities, the total revenue cost
of this extra borrowing is more than the whole of the extra
revenue grant that the Government is prepared to give them.
This is referred to as being a "floor" authority.
In this situation there is a net additional cost incurred
by the authority.
The total amount that is raised from council tax is worked
out by taking the total revenue spending and deducting the
grant provided by Government. If the council's spending goes
up by more than the grant, the amount that has to be raised
from council tax has to go up. The authority could choose
not to take up the offer of supported borrowing and then not
spend on capital investment. That would avoid the cost falling
on the council tax payer but would also mean no additional
investment in capital projects.
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