3 Monitoring risks to budget reductions
12. We asked the Department about the risk that reductions
to national and local road maintenance budgets will result in
a backlog of maintenance and higher costs in the future.[24]
At the national level, the Department accepted that achieving
20% budget reductions through efficiency savings will be challenging,
but it expects to deliver the same outcomes for a lower budget
through a combination of better procurement, lowering the specifications
for road standards and by replacing routine maintenance with less
frequent but more intensive work.[25]
At a local level, the Department drew on evidence from CIPFA
that asset management and procurement could be improved, but conceded
that the source of all the savings was not yet fully identified.[26]
Local authorities have already lost these funds from their
budgets which mean that if the efficiency savings prove unrealistic
they will either need to fund the shortfall themselves or alternatively
roads will deteriorate.[27]
13. The Department told us that it did not believe
that the cuts to road maintenance budgets would create a backlog
of maintenance work or degradation to the road network. However
it did recognise the need to monitor this risk closely using road
condition survey data and conceded that there "may be moments
when the standards look as if they are dropping".[28]
The Department maintained that all the individual decisions
were selected on the basis that they would have no impact on the
economy. However, the Department was unable to give a clear answer
when we asked them about the overall impact of all of their budget
reductions on the economy.[29]
The Department was also unable to provide an estimate of
the future volume or cost of claims for vehicle damage against
the Department due to poor roads. Yet it did disclose to us that
over the last four financial years the Highway's Agency had spent
over £2.5 million to settle claims, for personal injury as
well as vehicle damage, and that this expenditure had fluctuated
significantly between the years.[30]
14. Inflation has been running higher than was forecast
at the time of the Spending Review. The Department's assessment
in May 2011 suggested that the impact of higher than previously
expected inflation would be equivalent to a further real terms
reduction in budgets between 1% and 4% (the Departmental cash
budget has been fixed and agreed with the Treasury so if inflation
is higher than expected, the overall budget will be going down
by more in real terms). The Department is particularly exposed
to inflation as it directly affects some significant areas of
its spend, such as the Network Rail grant, which is linked to
the RPI index of inflation.[31]
We asked the Department about these risks and they said it now
believes there will only be a 1% overall impact on its budget
over the Spending Review period to 2014-15, which would amount
to £120 million annually.[32]
When we asked specifically about the Network Rail grant
the Department told us that it estimated that each 1% increase
in inflation results in approximately £35 million additional
annual expenditure.[33]
15. We were keen to learn where the Department would
find further savings of £120 million or more to cope with
higher than originally expected inflation. The Department told
us that it would not use the resources announced in the Autumn
Statement to fund any shortfalls as this was earmarked for new
investment. The Department was unable to provide any detail on
what exactly it would do to find further savings and it therefore
remains unclear exactly how it would finance a shortfall in its
budgets.[34] The
Department did however tell us that it is continually seeking
to identify new efficiency savings - for example it expects new
savings on its 'managed motorways' schemes by spacing out gantries,
which road signs are mounted on above the motorway, every 800
metres or 1km rather than every 500 metres .[35]
24 Qq 20-23 Back
25
Qq 20, 120-121, 129, 137 Back
26
Q 34 Back
27
Q 50 Back
28
Qq 21-22, 32-33 Back
29
Qq 20-40 Back
30
Qq 35-40; Ev 19 Back
31
Qq 80, 83, 85-90; C&AG's Report, para 3.8 Back
32
Qq 90-96 Back
33
Qq 82, 86, 91 Back
34
Q 97 Back
35
Qq 92-102 Back
|
