Public accountants have suggested as much as £244bn could be lost from the Government balance sheet after plans to re-evaluate the local road network were dropped, Transport Network can reveal.
The move has prompted consternation within the sector. Former president of the Local Government Technical Advisers Group, Phil Moore, said he was ‘bitterly disappointed’ with the decision.
After years of work developing a new system for assessing the value of UK local roads, a recent statement from the Chartered Institute of Public Finance and Accountancy (England, Northern Ireland and Wales) and the Local Authority (Scotland) Accounts Advisory Committee (LASAAC) Code Board revealed that the new valuation would not be taken forward.
This means the valuation of the road network - the UK’s most valuable asset – will still use the ‘historic cost’ estimate.
Transport Network understands this historic cost consists of the purchase costs to create/acquire the asset together with subsequent expenditure required to ensure it remains in useful condition.
The Gross Replacement Cost system would use information about the potential costs of replacing the asset in order to value it.
One insider said this would mean ‘depreciation comes into play with regards to accounting for the changing condition of the asset and the value to the authority of gaining economic benefits in using it’.
Another likened the situation to valuing the Houses of Parliament as the £2m it cost to build, rather than the estimated £4bn it will take to repair.
A CIPFA spokesman told Transport Network: ‘The Whole of Government Accounts for the year ended 31 March 2015 estimated that the difference could be at least £244bn.’
Around 50 local higher performing authorities have spent years working on the system insiders say, enabling them to have a sound and informed evidence base on which to renewing ageing assets.
Mr Moore said the decision undermines the Whole of Government Accounts process, adding he had spent ‘the last four years working with Cipfa, the DfT and other agency's to produce a workable system that many authorities have successfully implemented within their asset management systems; realising accurate figures to work with’.
‘How can you run a business without knowing the value of your assets? The cynic in me would say this is just politically inconvenient for the DfT Treasury as the new system will give a pound valuation of the depreciation value of the network,' he said.
‘Local authorities would be able to say this is the money we need to fill the gap. They have been banging the drum about local authorities not investing, now we have the tools to take to tell them how much we need to run their networks.’
Another senior figure in local government told Transport Network: 'This undermines the fundamental issue that sound and robust data is the single biggest value in agreeing when to repair critical roads, bridges and street lights. We all understand austerity but we need a sound understanding of the full cost linked to the value of roads to society as the universal service at the heart of our communities.'
In a statement the CIPFA/LASAAC board said it ‘decided that, currently and in particular in the absence of central support for key elements of the valuation, the benefits are outweighed by the costs of implementation for local authorities’.
It added: ‘The board determined that it will give further consideration to this issue only if provided with clear evidence that benefits outweigh costs for local authorities.
‘The board recognises the work undertaken by accounts preparers, auditors and highways engineers in preparing for the planned changes.’
In explanation to Transport Network, a CIPFA spokesman added: ‘A key part of the valuation uses centrally provided rates to estimate the Gross Replacement Cost for carriageways and structures. The Highways Network Asset Code requires these rates to be reviewed at least every five years. The current rates were produced in 2010 and therefore require updating.
'There is a meeting towards the end of March with CIPFA, the Department for Transport and HM Treasury to consider the next steps. A more detailed statement is expected to be issued by CIPFA/LASAAC following this meeting.’
A DfT spokesperson said: ‘We are working closely with the Treasury, CIPFA and those responsible for local highway issues on how we can contribute to the understanding of public sector UK’s finances whilst ensuring we get best value for money for the taxpayer.'