Apologies for being slow on the up-take here, but it looks like the Treasury are gearing up to remove funding for depreciation costs and capital charges from departmental budgets.

Sorry, that’s surely not fair. Referring to these two charges as “weak” incentives for organisations and departments to make efficient use of their assets, last month’s Operational Efficiency Programme report explained:

“Depreciation and cost of capital charges are non-cash ring-fenced costs in departmental budgets, the effect of this ring-fence is that savings may not be redeployed to other areas of spending without explicit HM Treasury approval; and although recorded in local authority accounts, in most cases depreciation charges do not directly impact on council tax levels, reducing the incentive effect of these charges.”

So it’s not so much that they will remove the funding for the charges they levy back to NHS trusts et al., but rather that they will let departments spend the income they get from those charges on whatever they want. Yes?

So tell me, why would that “provide a greater incentive on departments to reduce depreciation costs through better property management as any savings could be redeployed to fund other priorities”? Surely that would only add up if the removal of said ring fence was translated into a removal of resource for individual organisations? (If it was simply about letting departments spend their depreciation income on whatever they wanted, the incentive would be to generate more and more of it, no?)

As John Adsett commented last week: “it’s not a cut - just a negative adjustment!”