Select Committee on Transport Seventh Report


3  The Department's management of expenditure

Uncertain cost of existing programmes

19.  The Nichols Report, published in March 2007[20] was commissioned to investigate a series of increases in the projected costs of individual road schemes. The projected total cost of the Highways Agency's "Targeted Programme of Improvements" rose by some 25% in 18 months to autumn 2006, with increases of up to 300% occurring on some schemes where construction had not yet been commenced. The Report recognised the high level of inflation in construction prices (around double the Retail Price Index) as a contributing factor, but recommended a number of measures designed to prevent the costs of Highway Agency schemes increasing.

20.  The Secretary of State and her Permanent Secretary were at pains to point out to us that the Nichols Report had not suggested that contracts were poorly managed by the Highways Agency once they had been let, but rather that the Agency had made a "poor estimation" of cost trends in the construction industry.[21] The Report also cited inadequate initial estimates, scope changes and time delays as contributory to the escalating cost projections.[22] The Secretary of State assured the Committee that many of the Report's recommendations had already been implemented, particularly in the areas of analytical capacity and governance changes at the Highways Agency.[23]

21.  The Secretary of State described a "major piece of work" currently being undertaken by the Department and the Highways Agency to ensure robust estimations of scheme costs across the roads programme.[24] It would, she told us, determine the amount that the Department is able to invest in roads in future years. When asked whether recent cost increases would result in road schemes being removed from the programme, the Secretary of State said:

what we need to do is have a rigorous look at the figures, be clear about what we can afford and what we cannot afford, and then make decisions on that basis. […]

I am clear that there are going to be tough decisions on roads ahead.[25]

22.  We are deeply concerned that budgetary pressure caused by increases in the projected cost of programmed road schemes could result in the postponement or cancellation of other much needed improvements. The implications of the Nichols Report must be fully considered by the Highways Agency and there should be a detailed response to its recommendations. The Secretary of State must make a statement to the House as soon as the Department's investigation of the consequences of the cost increases has been concluded.

Local transport funding

23.  The Transport Act 2000 requires most local transport authorities (county councils, unitary authorities and partnerships in metropolitan areas) in England (except London) to produce and maintain a Local Transport Plan (LTP). LTPs set out the authority's local transport strategies and policies, as well as an implementation programme. The Department uses LTPs to, amongst other things, inform decisions on capital funding for local authorities.

24.  LTP capital allocations are made up of three main funding streams:

Authorities also receive revenue funding for transport via the wider local government financial settlement. The main transport element of this is an allocation for routine highway maintenance. This is allocated on a formula basis taking into account road length, road condition and other factors.

25.  The Department has told us that the capital provision for local government comes in the form of either a grant or something which is effectively borrowing permissions, which is then reflected in the Revenue Support Grant. Authorities which are at the 'floor' on this arrangement receive only the minimum grant increases, and so do not receive extra funding for borrowing allocations. The aim of this arrangement is to ensure that the funding received by local authorities does not fluctuate significantly year-on-year, even where the funding formula suggests it should. Mr Devereux explained:

26.  A number of local authorities have expressed concern about the LTP funding arrangements. They claim that because the funds have been provided as 'supported borrowing' approvals and not grants, 'floor authorities' will be unable to fund the additional borrowing.[27]

27.  We believe the LTP funding arrangements are excessively complex and there is a deficiency of publicly available information from the Department to explain the arrangements and their implications. We are also concerned that some local authorities may be unable to fund the additional borrowing necessitated by these arrangements. We urge the Department to simplify the system and improve the quality and availability of information available to local authorities and others.

Performance against the efficiency targets

28.  The Department has three separate efficiency targets that were set in the Spending Review 2004, which covered the period 2005-08. We note that the Department achieved financial efficiency gains of £532 million by the end of 2006 and this figure rose to £743 million by the end of the second quarter of the 2007-08 financial year, most of which are cash-releasing savings.[28] The Department's target is to achieve £785 million savings by the end of the 2007-08 financial year. We congratulate the Department for delivering 95% of its Spending Review 2004 financial efficiency target, and trust that the target will be substantially over-achieved. We expect to see real improvements in services driven by the resources released by this achievement, though at present the Efficiency Technical Note only says that the savings "could" do so.[29]

29.  The Department's headcount reduction target was to achieve net workforce reductions of 650 between April 2004 and April 2008. By the end of September 2007, a reduction of only 379 had been achieved.[30] We are very concerned that the Department might fail to achieve its headcount reduction target. The pace of change does not appear to be sufficiently rapid. The Department has stated that the September 2007 headcount figures include a substantial number of seasonal casual staff who will be removed from the DVLA over the remainder of the year. It is to be expected that further reductions may be delivered by the continuing implementation of the Shared Services Centre agenda.


20   Nichols, Review of Highways Agency's Major Roads Programme, March 2007 Back

21   Qq 104 & 109 Back

22   Nichols Review, p. ii Back

23   Q105 Back

24   Q111 Back

25   Q113 Back

26   Q206 Back

27   We considered this subject in detail in our Twelfth Report of 2005-06, Local Transport Planning and Funding (HC 1120). Back

28   Department for Transport Autumn Performance Report 2007, Cm 7266, page 53 Back

29   "Efficiency Programme: technical note", p.3, available at www.dft.gov.uk/about/how/psa/. Back

30   Department for Transport Autumn Performance Report 2007, Cm 7266, page 53 Back


 
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