08 October 2004
Local government experts have warned that the introduction of depreciation accounting across councils is unlikely to be swift, as the question of who will foot the bill for any additional costs has yet to be determined.
On the whole, however, reaction to the Office of the Deputy Prime Minister's commitment to account accurately for the depreciation of councils' assets, announced on October 5, has been positive.
Under local government minister Nick Raynsford's plan, councils will introduce an effective system of accounting for the depreciation of assets, such as buildings and vehicles, and government financial support for the maintenance of those assets will be directly linked to the cost of holding and maintaining them efficiently.
The move has been backed by CIPFA, which 'strongly recommended' the change, and the Local Government Association. But the LGA has raised concerns that the transition could leave some authorities out of pocket if it is not managed effectively.
Until now, the cost of maintaining council assets has largely been met through the ODPM-distributed revenue support grant, but with little consideration of the precise costs at individual authorities.
Work assessing the financial impact began this week when officials from the ODPM, CIPFA, the Audit Commission and the LGA convened the government-led Capital Programmes Working Party on October 6.
That group, chaired by Pam Williams, head of local government finance at the ODPM, will attempt to establish the cost of the new system, but it is not yet clear who would pay for cost increases and how.
Keith Beaumont, programme manager at the LGA and part of the working party, told Public Finance: 'We're supportive of the initiative, but there are some issues that need addressing.
'Are we talking about additional resources going into the system through the RSG, or will councils be expected to make up deficits for cash they previously received? If the overall cost is say, £200m, it is quite possible the government could extend its RSG support. If it runs into billions of pounds, then things become complicated.'
Raynsford acknowledged that there were big issues to resolve. 'Depreciation will not be introduced immediately. Critically, we need to be satisfied that charges are affordable before depreciation actually hits the bottom line,' he said. He suggested there could be a 'phased implementation'.
Maureen Wellen, CIPFA's assistant director for local government finance, reminded the sector of the need to switch to the new system.
She said: 'It is vital that practices are put in place that ensure the long-term sustainability of public assets in use, and encourage the consideration of future developments on their customers rather than their means of financing.'
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