Capital Charging as a VFM Tool in Public Services

Abstract

The essence of capital charging is very simple: namely, that the costs of capital facilities should be rendered explicit. Such transparency is intended to introduce new discipline to decisions about the acquisition, use and disposal of publicly financed assets. Implementation of capital charging in New Zealand and the United Kingdom in the 1990s has focused attention on practical issues, notably the valuation basis and the relationship of funding and capital charging systems. Capital charging will be extended to the UK central government sector in 2001–02, the year in which Resource (i.e. accruals) Budgeting becomes operational. This article relates experience to date to the specific circumstances of asset‐intensive areas of central government and of public services beyond the central government boundary. Capital charging should be seen as a VFM tool, the use of which will be conditioned both by the size and nature of asset holdings and by the context established by other New Public Management reforms, such as purchaser/provider separation.