Supplementary memorandum submitted by
Devon County Council
Devon County Council submitted written evidence
to the Committee on 24 April 2006. Dr Ian Harrison and Tony Matthews
attended the Committee on 24 May 2006 to provide oral evidence
on behalf of the County Council.
The County Council has been requested to supply
supplementary evidence on the following points:
1. Direct grants are allocated specifically
for transport in London. Would you like to see revenue for transport
services ring-fenced in the same way for county councils? If grants
were to be ring-fenced for metropolitan transport authorities
how would this affect county councils?
Devon County Council would prefer a system of
direct transport grants rather than supported capital borrowing,
removing the relationship between transport capital funding and
any revenue restrictions imposed on a local authority.
Ring fenced grants for revenue transport services
would make allocation of resources simpler, and protect the level
of funding from local political decision. Conversely, the presence
of a ring fenced resource may discourage the contribution of further
corporate resources to transport.
Devon County Council has consistently allocated
a revenue budget for highway maintenance at a level above the
highways element of the Formula Spending Share. The County Council
has taken the view that the FSS is insufficient to maintain Devon's
extensive highway network, and the formula does not reflect our
need.
Devon has also received the second highest level
of Rural Bus Subsidy Grant in England. Although RBSG is not ring
fenced, the full grant has been spent on subsidy of rural bus
services. RBSG has been has only been confirmed until March 2008.
The continuation of this funding in a rural County like Devon
is seen as being essential to delivering our Local Transport Plan
objectives.
Ring fencing of revenue for transport services
may be seen as being centrally driven initiative rather than a
local one, stifling local debate as to the priority of transport
within the context of the whole authority.
2. Does the authority feel that the LTP was
permitted to concentrate on areas felt to be important locally?
If not, why was there a feeling that the "National Shared
Priorities" were to dominate over other local objectives?
The Department states that the guidance encouraged local authorities
(and partners) to identify local priorities within their LTP—
what more steer did local authorities (and partners) need to develop
local priorities?
Devon County Council considers that the December
2004 Local Transport Guidance did encourage local authorities
to identify local objectives in addition to the four National
Shared Priorities. As indicated in Mr Matthews' evidence to the
Select Committee on 24 May 2006 in answer to Q231, the Devon Local
Transport Plan 2006-11 includes three local objectives:
— Improving Recreation, Leisure and
Tourism.
— Promoting Health and Well-Being.
— Improving Public Spaces.
These local objectives were identified through
our Local Transport Plan consultation programme including Panel
Hearings, Focus Groups, and on street interviews.
3. We would be grateful for an assessment
of the cost of the interaction between the local authorities and
the central Department for Transport, if this is possible.
It is estimated that the preparation and production
of the final Devon Local Transport Plan 2006-11 has cost Devon
County Council £115,000 between October 2005 and March 2006.
The production and printing costs were £25,000 for 1,000
copies, and internal staff costs are estimated at £90,000.
If the costs of preparing and producing the Provisional Plan are
taken into account, the total estimated cost is in excess of £200,000.
The Committee were also seeking information
regarding the scale of Major Scheme preparatory costs incurred
by local authorities:
Barnstaple Western Bypass is a Major Scheme currently
under construction. Devon County Council spent £2.177 million
on scheme preparation that is not recoverable, including site
investigations, river modelling, environmental surveys, PFI business
case, traffic studies, environmental statement, design, order,
and public inquiry costs.
The Major Scheme Business Case for Kingskerswell
Bypass is likely to be submitted in September 2006. Since taking
responsibility for the scheme from the Highway Agency in 1996
Devon County Council and Torbay Council have jointly spent £1.323
million. During 2005-06 £191,000 was spent on scheme preparation,
and during the current financial year a further £250,000
is planned to be spent.
Two Major Schemes in the Exeter Sub Region are
included in the SW Region's transport priorities, Exeter PUA Infrastructure
and East of Exeter Phase 2 Improvements. The Region has concluded
that there is a strong case for their inclusion in the Regional
Funding Allocation. The schemes are at a relatively early stage
of their preparation but £40,000 was spent during 2005-06
on initial option assessment and design.
4. Q268 The transport Minister Dr Ladyman
stated: "We can keep it under review, but actually the £5
million threshold is widely misunderstood. The £5 million
is not the maximum that a local authority can spend: it is the
threshold under which we are unlikely to consider giving additional
grant. If we increased it to £6 million local authorities
would actually be worse off because it would mean that they would
have to have a £6 million scheme before we would consider
giving them additional grant. Local authorities would be better
pressuring us to bring the level down rather than to bring it
up." What is your response to this statement? Have local
authorities misunderstood the issue?
The definition of a Major Scheme is clear in
the "Guidance to Local Authorities seeking DfT funding for
transport Major Schemes" published in April 2005:
"1.1.2 The minimum cost of a scheme
that the Department would consider funding as a Major Scheme has
traditionally been £5 million (gross). For the vast majority
of schemes this threshold will remain. However, the Department
does recognise that some small LTP areas may find it difficult
to fund schemes that are less than this amount through other sources.
We will therefore consider bids for schemes under £5 million
in certain circumstances. See section 1.3 for further information.
1.1.3 A local authority scheme does not automatically
need to be funded or approved by the Department as a Major Scheme
if the gross cost is greater than £5 million. Authorities
are free to use their block allocations to fund schemes, either
on their own, or alongside other sources of funding, without submitting
schemes for approval by the Department. In such cases it would
be for the local authority to ensure that the scheme was the best
value for money means of achieving its objectives."
The two issues for local authorities are:
justifying the costly preparatory work necessary
to prepare a Major Scheme Business Case, before submitting it
to the Department for approval, for a scheme in the £5 million
to £10 million range; and
funding a scheme in the £5 million to £10
million range from the current level of Integrated Transport Block
allocations without having a significant effect on the delivery
of Local Transport Plan programmes and achievement of overall
objectives and targets.
This was reflected in Dr Harrison's evidence
to the Select Committee on 24 May 2006 in answer to Q203. It is
considered that there is an argument to support the raising of
the threshold for Major Schemes to £10 million, provided
there is an associated increase in the level of Integrated Transport
Block funding to allow local authorities to fund schemes in the
£5 million to £10 million range.
5. It has been suggested that whole life
costing, good asset management and strategic transport planning
is not helped by having separate (revenue and capital) funding
streams. CIPFA, the public sector accountancy body, has suggested
that integration could be achieved by supporting capital schemes
through the revenue account, by paying the full cost of depreciation
plus an interest or opportunity cost of using capital. What would
be your view on this?
The point raised by CIPFA is a valid one. Local
authorities only divide financial responsibilities on a revenue/capital
basis because the funding arrangements encourage us to do so,
and a better solution would be a more integrated approach.
The separation of funding into revenue and capital
streams is partly a legacy of cash accounting within central government,
and partly an attempt to influence the outcome of investment decisions.
Since central government is now accounting on a resource basis,
our view is that controls should be structured around depreciation
concepts, rather than "capital" funding streams.
The separation of funding into revenue and capital
has a number of adverse consequences:
— Additional bureaucracy.
— Local authority choices are distorted
to fit within the funding streams available—the starting
totals for which were often determined on a largely arbitrary
basis.
— Option appraisals are often limited
to specific funding streams, which can ignore or downplay the
interactions between capital investment and ongoing revenue costs.
— Funding streams are not well-integrated—for
example there is no longer a direct link between the amount provided
in the RSG to finance borrowing and the amount of "supported
borrowing".
The Lyons Inquiry has suggested that the exercise
of influence through detailed control over multiple funding streams
confuses accountability, and there needs to be a more transparent
distinction between decisions made by local authorities and decisions
implemented by local authorities as agents of central government.
We would agree with that point of view.
Options for improvement would appear to be (stated
in order of preference):
1. The costs of capital investment are built
into costs of service provision via depreciation/capital charges,
and appropriate long term provision is made in the RSG to support
these costs.
2. Retention of separate funding for capital
investment, but solely by capital grant or a revenue grant that
meets the entire cost of borrowing (which would be identical in
effect to PFI credits, meaning that there would be no practical
distinction between the two).
3. If it is not possible to support 100%
of the borrowing cost, provide a fixed level of support over a
long term (at least 25 years) which is the same level irrespective
of whether the borrowing is PFI or conventional.
If option 1. above were to be adopted, the most
appropriate method of calculating asset value and depreciation
would need to be determined, to ensure that the true cost of maintaining
the transport asset was reflected.
7 July 2006
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