Undervalued assets outcry

Public-sector financial experts and MPs have expressed deep concern about the accounting practices used in the sale of the Royal dockyards at Devonport and Rosyth to their operators.

Public Accounts Committee members were ‘deeply sceptical’ whether the taxpayer would benefit from the purchase of the yard by Devonport Management and Babcock Rosyth Defence. MPs were concerned that DML at Devonport obtained agreement from the Ministry of Defence to take ‘the dockyard assets into their balance sheet at a value of #33m higher than the consideration paid’.

The fixed assets were sold to DML for #40m but the fixed-asset value was agreed at #73m. The committee said this could lead to improvements in the labour rates for refit work being ‘outweighed by the higher depreciation and profit elements in refit prices’.

The committee’s report, published last week, said: ‘One reason given to us by the department was that such an accounting treatment would enable the new owners to fund their future capital expenditure through higher depreciation, yet by the department’s own assessment the company over-estimated the capital spending requirement’.

One public-sector specialist said the deal meant the shipyards were effectively sold at a knock-down price. ‘The problem with this comes as the government would be paying twice by giving the assets away at a less than market value. When you come to buy ships from that yard you would be paying a price which included that asset value,’ he said.

Committee chairman David Davis said: ‘The department points to potential savings but they are shrouded in uncertainty, whereas the future liabilities are all too real. The department has failed again to get to grips with major works projects and deliver them to cost and to time.’