Cabinet member responds to roads petition


The Necessary Resources

Funding for the maintenance of the highway asset comes in two forms revenue and capital. The council’s medium term financial strategy assumes that the revenue support grant received from central government will disappear and in terms of its revenue budgets, the council will have to depend on its own revenue income, such as council tax and business rates.

In regard to road maintenance our revenue budgets are only utilised to deliver reactive/make safe repairs, emergency maintenance functions and forms of maintenance that do not enhance the value of life of the highway asset (examples of revenue funded maintenance include grass cutting, street cleaning and drainage clearance). All works that are intended to enhance the value or life of the highway asset (such as programmed pothole repairs, road surface treatments and resurfacing, bridge strengthening and the installation of new drainage systems) are funded from capital budgets.

Capital funds are provided to the council through central government grants for roads or via council borrowing. In terms of local government accounting requirements the council is free to invest its revenue funding in any form of works on or to the highway asset. However, there are two criteria that have to be met for highways expenditure to be met from capital budgets (capitalised). Those criteria are:

1. It is probable that the future economic benefits or service potential associated with the item will flow to the authority; and

2. The cost of the item can be measured reliably.

In order to capitalise any works to the highway asset the council must evidence that those works provide enhancement in a way that it is probable that future economic benefits or service potential associated with the expenditure will flow to the council. As such expenditure that extends the useful life or increases the level of performance of an asset (or increases the fair value of the asset in some other way) would be capital.

For expenditure to be classed as capital the council must demonstrate that any intervention is part of a system of work that will either:

• Increase the useful life of the asset;
• Increase the value of the asset; or
• Both of the above.

The council must ensure through its asset management regimes that the comparisons between asset life as a result of its systems of work and the asset live that was anticipated, and recorded in the accounts for depreciation purposes, is a realistic one.

Whilst it is commonly understood that ‘wholesale’ replacement of the highway and/or parts of the underlying layers of the carriageway (say) do result in the rejuvenation of the asset, and as a consequence such works can be capitalised, codes of practice are not prescriptive as to the scale of activity that can be counted as capital expenditure. What is important is that capital works are part of a whole system that extends the life or value of the asset.

Works that simply maintain asset value and/or life are typically initiated as a reaction to a failure that results in a significant loss of functionality or has rendered that component of the asset (locally) unsafe. Where the council is driven to simply correct the failure on safety grounds its intervention cannot be funded from capital as, by definition, the assets value or life has simply been restored to its rightful place on its deterioration curve.

In the absence of a need to react to an emerging defect on safety grounds, we have the opportunity to deliver designed solutions that not only makes any defect safe but also prevents early or acute deterioration. Such responses can (at least in part) be funded from our capital budgets, but by virtue of being a designed solution may take longer to deliver.

Having longer to respond to a level of defectiveness in the asset, on the grounds that it does not currently present a significant hazard to users is not in itself legitimise the use of capital funding for its treatment. It is important that the solution specified does, as part of a whole system, enhance asset value and life to a place that is ‘above’ the expected deterioration curve.

Understand the split between capital and revenue works is important as it is the council’s revenue budgets that will be under increasing pressure as the demand all council services funded from the council’s revenue budgets increases and the available revenue budget declines.

Through the use of sound asset management practices will constrain the demand for responsive activities (that can only be funded by our revenue budgets) to a level that the residents of Herefordshire can afford. Through this approach we will constrain and potentially reduce the demand for reactive maintenance activity. Through the proper application of asset management will avoid an (potentially forced) escalation in our revenue budgets through the demand for responsive activities.

Going forward the capital maintenance grants from central government are composed of three components, they are:

• The Formula Grant Allocation;
• The Incentive Fund;
• The Challenge Fund.

The formula grant allocation is largely dependent on the extent of the asset. This element was increased in 2014, but we will see it decline over time.

The shortfall in the decline in the formula allocation will (largely) be taken up by the Incentive Fund. This element will be awarded on the basis of each highway authority’s proven ability as an efficient and effective asset manager.

There are 3 bands of performance, band 1 will only receive 90% of its allocation under this fund in 2016/17 and see this diminish to 0% by 2020/21, band 2 will receive 100% of its allocation under this fund in 2016/17 and see this diminish to 30% by 2020/21; and band 3 will receive 100% funding throughout.

As a result of Herefordshire’s exemplary approach to the development and deployment of asset management we have attained and are sustaining band 3 status. So we are receiving all of our incentive fund allocation from Government.

The final element is the challenge fund, this is a bid process that was first run in December 2014, and the second tranche will be held earlier this year. The council’s bid to the first tranche did not succeed, but our bid to the second tranche did, which our success having been announced on 1 August 2017. It is this money (£5 Million, the maximum that could be awarded through this tranche) that, together with £3 Million from our own capital programme, that is enabling our current extensive works to the A4103, A438 (west of Hereford) and the A465 (South West of Hereford).

Further, the council has already made a major investment in the highway asset (an additional £20 Million for carriageways in 2014/15 and 2015/16) and in street lighting and after having developed its business cases for each, proving that they provide value for money and their successful delivery will meet the council’s objectives through our asset management strategy. In taking forward our asset management strategy, we will realise the return on these considerable investments and use the experience of these investments to verify and secure the return on all future investment of funds in the asset. Asset management provides the council with the tools to continue to be able to do this well.

We are currently considering further investment in roads and bridges through our own capital programme and we will continue to bid for government funds at all opportunities.

Whilst we are doing all we can to maintain all funding for the County’s roads and ‘bring all available resources to bear’ and use systems of works that will curtail, so far as is able, the demand for expensive reactive work, given the fact that our highways are an aged asset, it will take a substantial and sustained investment in roads to return the entire network into the condition that many would like to see it. As such we will continue to have to prioritise our works towards those activities that will achieve the best results for Herefordshire over the whole life of the asset. By taking a preventative approach, wherever we can, we will get a better return on our investment. This as a timely treatment with a lower cost solution will extend the life of a road, and it’s far better that we do that for a good number of roads, than invest in the expensive repair of a few roads that have ‘fallen apart’ only to see the good number fall apart for want of that timely preventative treatment. Prevention will be better than cure.

What does this mean for Richard’s Castle?

Castle Road, Woodhouse Lane and Orchard Rise have all been assessed as part of our regular road condition surveys and are all routinely inspected for safety defects in accordance with our highway maintenance plan. Based on their current condition, these particular roads are prioritised for preventative maintenance as follows:

·         Woodhouse Lane: has a low priority score of 0.2
·         Orchard Rise: has a priority score of 1
·         Castle Road: has a priority score of 25

Putting this in context, and considering the county as a whole, currently our highest priority schemes are scoring 67 at present and we are hoping to tackle those schemes that score over 50 in the coming year’s annual plan. The works to resurface Castle Road, Woodhouse Lane and Orchard Rise is estimated at c£195,000.

Both the Head of Highways and Community Services and I will welcome a meeting with the petitioners to provide any further explanation that may be required and to set out how the Community Commissioning Model might be utilised by the Parish to invest in the condition of these roads that are clearly a matter of local concern.

Yours sincerely

Cllr Barry Durkin
Cabinet Member – Transport & Roads

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