The University of Southampton
University of Southampton Institutional Repository

The valuation of NHS hospitals under capital charging

The valuation of NHS hospitals under capital charging
The valuation of NHS hospitals under capital charging

Capital charging occurs when public or quasi-public providers of public services must explicitly pay for their capital through the mechanism of an annual charge based upon the value of assets used in service provision. The rationale is that no longer treating capital as a ‘free good’ will lead to improvements in productive efficiency. Attempts to make public sector financial management more closely approximate private sector models inevitably encounter the twin problems of measuring public sector output and valuing public sector capital. For asset valuation, use has been made in the National Health Service (NHS) of depreciated replacement cost (DRC), making the assumption that existing assets will be replaced on a like-for-like basis, rather than valuing with reference to the modern equivalent asset. Four interrelated technical problems with DRC in the NHS are distinguished, all suggesting overvaluation: it cannot safely be assumed that a building is worth the sum of its component parts; hospitals consist of different vintages of buildings, of markedly different suitabilities for current healthcare provision; the configuration of buildings on particular sites can dramatically affect rationalization possibilities; and there are profound difficulties within the DRC framework of determining what constitutes capital expenditure. Further complications arise from the fact that a growing proportion of hospital buildings is architecturally listed, and from the new policy commitment to expand the role of privately financed assets (which fall outside the capital charging system).

Capital charging, Depreciated replacement cost, Public sector asset valuation
0959-9916
261-273
Heald, David
078e1b35-f173-4f02-abad-1a2134453063
Scott, David A.
19b5fd34-9974-4ae4-8be0-27a693639e20
Heald, David
078e1b35-f173-4f02-abad-1a2134453063
Scott, David A.
19b5fd34-9974-4ae4-8be0-27a693639e20

Heald, David and Scott, David A. (1996) The valuation of NHS hospitals under capital charging. Journal of Property Research, 13 (4), 261-273. (doi:10.1080/095999196368817).

Record type: Article

Abstract

Capital charging occurs when public or quasi-public providers of public services must explicitly pay for their capital through the mechanism of an annual charge based upon the value of assets used in service provision. The rationale is that no longer treating capital as a ‘free good’ will lead to improvements in productive efficiency. Attempts to make public sector financial management more closely approximate private sector models inevitably encounter the twin problems of measuring public sector output and valuing public sector capital. For asset valuation, use has been made in the National Health Service (NHS) of depreciated replacement cost (DRC), making the assumption that existing assets will be replaced on a like-for-like basis, rather than valuing with reference to the modern equivalent asset. Four interrelated technical problems with DRC in the NHS are distinguished, all suggesting overvaluation: it cannot safely be assumed that a building is worth the sum of its component parts; hospitals consist of different vintages of buildings, of markedly different suitabilities for current healthcare provision; the configuration of buildings on particular sites can dramatically affect rationalization possibilities; and there are profound difficulties within the DRC framework of determining what constitutes capital expenditure. Further complications arise from the fact that a growing proportion of hospital buildings is architecturally listed, and from the new policy commitment to expand the role of privately financed assets (which fall outside the capital charging system).

This record has no associated files available for download.

More information

Published date: 1 January 1996
Keywords: Capital charging, Depreciated replacement cost, Public sector asset valuation

Identifiers

Local EPrints ID: 441440
URI: http://eprints.soton.ac.uk/id/eprint/441440
ISSN: 0959-9916
PURE UUID: 2e7afec2-e73b-41d1-a67c-537a99de1c33
ORCID for David A. Scott: ORCID iD orcid.org/0000-0001-6475-8046

Catalogue record

Date deposited: 12 Jun 2020 16:30
Last modified: 17 Mar 2024 04:02

Export record

Altmetrics

Contributors

Author: David Heald
Author: David A. Scott ORCID iD

Download statistics

Downloads from ePrints over the past year. Other digital versions may also be available to download e.g. from the publisher's website.

View more statistics

Atom RSS 1.0 RSS 2.0

Contact ePrints Soton: eprints@soton.ac.uk

ePrints Soton supports OAI 2.0 with a base URL of http://eprints.soton.ac.uk/cgi/oai2

This repository has been built using EPrints software, developed at the University of Southampton, but available to everyone to use.

We use cookies to ensure that we give you the best experience on our website. If you continue without changing your settings, we will assume that you are happy to receive cookies on the University of Southampton website.

×