10 Financial Management and Valuation
10 Financial Management and Valuation
This chapter outlines the financial context within which we are required to maintain the Scottish trunk road network. We believe that adopting an asset management-based approach to these activities will deliver to our customers the maximum benefit for the available funding.
10.1 Scottish Government Spending Plans
Scottish Ministers undertake a detailed examination of portfolio budgets and set forward three-year spending plans through a process known as the spending review. The spending review in Scotland is normally undertaken every two or three years, scheduled around the timeframe of UK spending reviews.
The Scottish Budget Spending Review 2012-13 to 2014-15 (www.gov.scot/Publications/2011/10/04153155/0) and Draft Budget 2015-16 (www.gov.scot/Publications/2014/10/2706) provide details of how our spending plans will help deliver sustainable economic growth. Trunk road maintenance spending lies within the Scottish Government’s Infrastructure and Capital Investment Portfolio.
The asset investment models described in Section 5.4, allow us to predict our future maintenance requirements over a number of years for differing levels of funding or different road condition targets. These investment scenarios support the transport proposals considered as part of the Scottish Government spending review process, with a focus on the strategic objectives set out in the Government Economic Strategy. Through our asset management planning we continue to drive out efficiencies from existing activities, and look for innovative ways to deliver as much as possible for the public pound.
10.2 Historical and Budgeted Spend
Table 10.1 presents the historic levels of investment on trunk road maintenance and the current 2015/16 budget. In addition to road reconstruction and bridge strengthening and replacement, the maintenance budget delivers minor road improvements, as well as routine, cyclical and winter maintenance to maintain the safety, environment and amenity of the trunk road network. It includes road safety improvement programmes, information for road travellers and an emergency response facility to deal with emergencies and incidents on the network. It also includes the construction of the Forth Replacement Crossing (FRC) and our DBFO payment commitments. The DBFO row has been greyed out and is included for completeness, however justification of the DBFO financial requirements are outside the scope of this RAMP.
Budget Heading |
Annual Spend (£ millions) |
|||||
|---|---|---|---|---|---|---|
2010/11 |
2011/12 |
2012/13 |
2013/14 |
2014/15 |
2015/16 (draft) |
|
Structural repairs – roads |
52.0 |
32.0 |
25.5 |
45.0 |
38.3 |
34.5 |
Network strengthening – roads & bridges |
25.0 |
15.0 |
27.0 |
30.0 |
26.0 |
24.5 |
Routine, cyclic & winter maintenance AND Inspections & surveys |
69.4 |
68.0 |
68.5 |
70.5 |
74.0 |
71.6 |
Roads improvements[4] |
26.5 |
24.2 |
24.7 |
16.2 |
23.3 |
12.7 |
Other expenditure[5] |
6.0 |
6.4 |
5.4 |
9.8 |
10.2 |
10.2 |
FETA/Tay Bridge Authorities[6] |
16.5 |
24.2 |
18.0 |
11.2 |
9.0 |
12.3 |
DBFO payments |
48.0 |
62.0 |
74.5 |
76.8 |
84.7 |
84.7 |
Total |
243.4 |
231.8 |
243.6 |
259.5 |
265.5 |
250.5 |
Further breakdown of expenditure required to deliver the lifecycle activities for each major asset group is provided in the relevant Appendix.
10.3 Trunk Road Maintenance Backlog
In response to Audit Scotland’s recommendation to monitor and report maintenance backlog (Maintaining Scotland’s roads: A follow-up report), Transport Scotland has been calculating trunk road maintenance backlog figures annually since 2010. The maintenance backlog is defined as the level of investment required to bring the network up to the optimal level (defined as above the threshold requiring close monitoring).
Figure 10.1 shows that the overall trunk road maintenance backlog is increasing and remains challenging. The most recent December 2014 figures are £1.2bn backlog for the total asset, of which £513m is carriageways, £615m bridges and £75m ancillary asset[7].
Figure 10.1: Trunk Road Maintenance Backlog
Our predictions of long-term funding needs, presented in the Lifecycle Planning Chapter of the RAMP, are based on adopting appropriate levels of service that we believe best meet the needs of the trunk road network at this time.
In order to minimise the impact of reduced budgets we will continue to develop and implement our maintenance strategies for the major asset groups, and work with our supply chain to make best use of available resources. Implementation of these strategies, alongside other efficiency saving initiatives and asset management improvements set out in our RAMP will enable us to continue to manage trunk road carriageways in a safe and serviceable condition.
We are committed to work with Ministers on a long-term vision to tackle trunk road maintenance backlog.
All government departments are required to operate their finances using resource accounting with their accounts reflecting the value of the assets under their management. Asset valuation is the calculation of the current monetary value of an asset, in this case the trunk road network.
The gross replacement cost (GRC) is defined as the cost of rebuilding the asset from new. The depreciated replacement cost (DRC) is the value of the asset in its current condition, normally calculated as the GRC minus depreciation to take account of the condition of the network. It is a truer calculation of the value of the asset as it takes into account the fact that assets will not always require full reconstruction/replacement.
We have been party to a collaborative procurement contract for the calculation of asset value with the other three National Road Authorities in the UK since 1998. This ensures a level of consistency is achieved in respect to valuation methodology and provides us with an economy of scale and unity of direction in a range of common strategic interests. The methodology adopted complies with the International Financial Reporting Standards as expressed in the Financial Reporting Manual (FReM). The FReM requires all central government departments and their agencies to value their assets and include them in their annual accounts.
The asset value of the trunk road network is calculated annually using the Roads Asset Valuation System (RAVS). As of April 2015, the gross replacement cost of the trunk road network was £20.6bn, whilst the depreciated replacement cost was £17.4bn.