Capital v. Revenue Expenditure

Local authorities, like the central government, have to spend money on capital projects as well as for current needs such as salaries of the people who provide the local services. Capital expenditure ought, from a strictly accounting point of view, to be financed from capital, since to raise sufficient cash from a rise in the rates to pay for the building of a new school, say, would oblige local householders to bear the entire cost of construction out of their current incomes - whereas the benefits from the expenditure will be enjoyed both by present and by future generations.

It is, therefore, normal for local authorities to borrow money for capital investment either on the money market or by issuing their own bonds or debentures, which members of the public subscribe for in order to get a good yield on their investment. The payments of interest, of course, are a charge against current revenue (income from rates), as also are the repayments of the amount borrowed which may be spread over a long or short period of years as the authority decides.

In contrast to the behaviour of the central government, local authorities seldom finance their current expenditure (sometimes called 'revenue expenditure') from borrowing.

Taxes on capital

For the sake of completeness we must briefly mention two direct taxes on capital, as distinguished from taxes on income, although private individuals are not likely to be burdened with these in the earlier years of their lives.

Rateable Value

The rateable value of a property is intended to represent the amount of annual rent that could be obtained for it in the market if it were let to a tenant, less the estimated cost of maintenance and repairs per year. The actual assessments of properties - the establishing of their rateable values - is normally made at intervals of five years by valuers employed by the Inland Revenue. Since the rateable value is intended to reflect the annual rent, it is meant to bear some relationship to the market value of the property, that is, the sale value of the house. Since properties in different towns, and... see: Rateable Value

Refunds, Personal And Business Finance 2017

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