The House of Commons Public Accounts Committee, which acts as a watchdog on government spending, has criticised the Department for Transport for not having “a full understanding of the likely impact of budget reductions, particularly on road maintenance”.

Committee chair Margaret Hodge said: “The Department doesn’t fully understand what impact its cuts to road maintenance will have on the state of the UK’s roads. My Committee is concerned that short-term budget cutting could prove counter-productive, costing more in the long-term as a result of increased vehicle damage and the higher cost of repairing the more severe road damage.”

The full report, Reducing costs in the Department for Transport, is available on Parliament’s website but the main conclusions and recommendations are reproduced below.

Conclusions and recommendations

1.  The Department has planned earlier than other departments, but it has still to articulate a comprehensive long-term strategy against which to judge the relative economic and social impacts of its decisions in the 2010 Spending Review and the 2011 Autumn Statement. Longer term planning is essential for making sound investment decisions and prioritising resources, and is particularly important where the majority of spending is for long-term capital investment. We do acknowledge that the Department is now improving it long-term planning. The Department should finalise and publish its strategy so that taxpayers can see how individual decisions relate to the Department's overarching long-term objectives, and how investment choices between alternative forms of transport are made.

2.  There are weaknesses in the Department's oversight of spending through third parties and a risk that it will get worse with the Department's administrative budget being cut by a third. 68% of the Department's budget is spent by other organisations and it is therefore essential that the Department is satisfied that these third parties are providing value for money. We welcome steps taken by the Department to improve its assurance over funding for Transport for London, but the Department's intelligence on spending in other areas is weaker. For example, it does not know where over £200 million of planned efficiency savings through Local Authorities will come from, and whether those cuts will lead to higher expenditure in the medium to longer term. The Department's own resources for oversight will also become more stretched with the 33% reductions to its own administrative budget. The Department should set out consistent principles for oversight of all third party spending which enable it to identify where there is scope for reducing costs further.

3.  The Department provides over £3 billion each year to Network Rail and underwrites its debt of over £25 billion yet cannot provide assurance that the taxpayer gets value for money. Despite being the largest area of its budget the Department's understanding of cost and benefits is weakest in rail. Both the McNulty report and our recent report on the Office of Rail Regulation have shown that significant potential efficiencies could be secured. We are concerned that while contracts across Government were renegotiated as part of spending reduction plans, Network Rail's funding settlement to 2013-14 was left unchanged. The Department should put in place new oversight arrangements with the powers to interrogate information on Network Rail's efficiency and to make changes to its funding at short notice, and should set out what more it will do to hold Network Rail accountable for delivering efficiency improvements.

4.  It is unacceptable that Network Rail is not directly accountable to Parliament and not subject to National Audit Office scrutiny. Network Rail spends billions of pounds of public money each year, , its debt of over £25 billion is underwritten by the taxpayer and international accounting conventions show that it should be considered as part of the public sector. Yet the Department continues to hide behind the Office for National Statistics classification of Network Rail as a private company which keeps Network Rail's debt off the public balance sheet and its spending from direct NAO scrutiny. We also note that an additional £950 million borrowing through Network Rail formed part of the Government's plans in the Autumn Statement, further undermining the Department's argument that it is an "essentially private sector" company. As we have previously recommended the Department should provide the Comptroller and Auditor General with full access to Network Rail so that Parliament can scrutinise Network Rail's value for money.

5.  The Department does not have a full understanding of the likely impact of reducing road maintenance budgets. The Department aims to make cost savings through better procurement, reducing road maintenance standards and replacing routine maintenance with less frequent but more intensive work. But the overall costs will not reduce in the long term if deterioration of the road network results in higher costs repairs in future, and there are more claims on the Department and local authorities for vehicle damage. For example, we are concerned that the Department has not estimated the costs of meeting potential extra claims. The Department should monitor road conditions closely with a view to avoiding increased future costs; and it should publish regular assessments which detail where it sees particular risks and how it plans to mitigate them.

6.  The Department has inadequate contingency plans for how it will deal with potential threats to its plans for cost reduction. The Department faces a range of risks to delivering its plans. For example, each 1% increase in inflation results in an approximately £35 million increase in the financing requirement for Network Rail. We are concerned that the Department's inflation forecasts may prove to be too optimistic and that it could not provide specific details of how it would respond to a budget shortfall, should one occur. The Department should develop contingency plans for how it will respond to a range of potential risk scenarios, including fluctuating inflation and failure of parts of the business to deliver their share of efficiency savings.

Got a story? Email news@theconstructionindex.co.uk