Why indexation is back on the agenda for public sector finance teams
The re-emergence of indexation in public sector fixed asset accounting reflects a broader shift in financial reporting across local and central government, the NHS and other public sector organisations. Updated guidance from HM Treasury and CIPFA has repositioned indexation as a core part of how non-current assets are maintained at an appropriate value between full revaluations.
For finance teams, the issue is not whether indexation exists, but how it should be applied in practice, how it fits alongside professional valuations, and what it means for audit, depreciation, disclosures and year-end processes.
While detailed application guidance has been developed most clearly for local authority accounting, the principles are relevant more widely across the public sector, although implementation guidance does vary by sector.
What has changed in public sector asset valuation
The most significant change for 2025/26 is the move towards a five year cycle of revaluation, supported by annual indexation in the intervening years. This replaces the previous expectation of more frequent full asset valuations.
This change follows HM Treasury’s review of valuation requirements for property, plant and equipment in the public sector and is reflected in the Financial Reporting Manual. For local authorities, it is supported by the CIPFA/LASAAC Code and CIPFA Bulletin 22.
In practical terms, this means:
- Full revaluation on a quinquennial basis
- Annual indexation applied between full valuations
- Use of desktop revaluation where no suitable index exists
This is intended to reduce reliance on repeated full valuations, improve consistency, and support more timely financial reporting.
For finance teams managing fixed asset registers and depreciation, this shift has a direct impact on systems and processes. In practice, this is where tools such as Fixed Asset Management Software become important in supporting structured valuation cycles.
How indexation works in practice
Indexation adjusts the carrying amount of non-current assets to reflect changes in inflation or market conditions between professional valuations. It applies to fixed assets such as property, plant and equipment, not to current assets such as stock or receivables.
In practice, indexation ensures that public sector asset values in the UK remain aligned with current market and cost conditions within the balance sheet and financial statements.
This always involves applying an index to reflect movements in construction costs or market value during the intervening years between full valuations. Common data sources include BCIS indices, Valuation Office Agency data and other construction or property indices as well as the Consumer Price Index (CPI).
For example, a rolling programme may be used, where around 20% of the estate is fully revalued each year, with indexation applied to the remaining assets. This approach allows values to be maintained without requiring a full valuation of the entire estate each year.
Applying indexation effectively requires strong control over asset data, depreciation, and valuation history. Many organisations find that combining indexation with systems such as Asset Tracking Software helps maintain a reliable and auditable asset register.
Selecting the appropriate index
Selecting an appropriate index is one of the most important aspects of applying indexation. There is no prescribed index, so organisations must apply judgement based on the asset type, available market data, and valuation basis.
Finance teams are expected to use the best available index and document their decision-making process. Valuers must demonstrate why a chosen index is appropriate and why alternatives have been rejected.
This is particularly complex for assets valued on an existing use value basis, where the valuation basis does not always align directly with observable market indices.
RICS standards emphasise consistency, transparency and professional judgement in this area, and auditors will expect to see a clear rationale supporting the selected index.
In practice, maintaining multiple indices across asset categories can be challenging, particularly where organisations operate across multiple entities or reporting groups.
Audit expectations and practical considerations
Auditors assess compliance with public sector asset valuation standards during the audit process. Their focus is typically on whether indexation has been applied consistently, whether the selected index is appropriate, and whether the supporting documentation is sufficient.
Auditors will expect a clear link between the index used and the asset type, along with evidence that the process has been applied consistently across the asset base.
In recent years, many public sector organisations have experienced delays in the year-end process, often linked to the complexity and timing of asset valuations.
The move to indexation is intended to reduce reliance on repeated full valuations and support more timely financial reporting.
However, the quality of implementation remains critical. Organisations must determine whether the impact of indexation is material and reflect this appropriately within their financial statements.
From a practical perspective, organisations should consider:
- Whether their systems can support indexation alongside full revaluation
- How indices will be maintained and updated
- How consistency will be ensured across the reporting group
- How audit requirements will be met and evidenced
These challenges often sit alongside broader asset lifecycle management, including maintenance and operational tracking, which may be supported by solutions such as Equipment Maintenance Software.
Summary
The return of indexation represents a shift towards a more structured and practical approach to asset valuation in the public sector. By combining quinquennial revaluation with annual indexation, organisations can maintain accurate asset values while reducing cost and administrative burden.
The key to success is implementation. Selecting the right index, maintaining clear processes, and ensuring audit readiness will determine whether indexation delivers its intended benefits.
Frequently Asked Questions
What is CIPFA Bulletin 22 and why does it matter?
CIPFA Bulletin 22 provides practical guidance on applying indexation to non-investment asset values under the 2025/26 Code of Practice on Local Authority Accounting. It focuses on consistency, audit readiness and practical implementation.
Does this apply outside local authorities?
Yes. Yes. CIPFA guidance is not limited to local authorities and is relevant across the public sector. However, different organisations follow their own financial reporting frameworks, for example, HM Treasury’s Financial Reporting Manual for central government and the DHSC Group Accounting Manual for NHS bodies. The underlying principles of indexation and valuation are consistent, although detailed guidance and application vary by sector.
What is the main change for 2025/26?
The move to a five-year revaluation cycle for most non-current assets, supported by annual indexation, is the most significant change.
Can organisations still use a rolling valuation programme?
Yes. A rolling programme remains possible. In practice, this may involve valuing around 20% of assets each year and applying indexation to the remainder.
How should an index be selected?
Authorities should use the best available index and document their rationale. Valuers must apply professional judgement when selecting indices, as no single prescribed index exists.
What data sources are commonly used?
Common sources include BCIS indices, Valuation Office Agency data, and other construction or property indices, depending on the asset type.
What happens if no suitable index is available?
If no suitable index is available, assets may require desktop revaluation, typically within a three-year period, to ensure values remain aligned with market conditions.
What do auditors expect to see?
Auditors expect a clear rationale for the selected index, consistency in application, and well-documented processes supported by reliable data.