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Friday, 23 November, 2001, 16:00 GMT
How not to spend 10bn
A teacher and pupils in a UK classroom
Teachers are still are asking for more funds
By BBC News Online's Ollie Stone-Lee

There is already talk of growing tension between the man who holds the purse strings and the ministers wrangling for cash.

Chancellor Gordon Brown may have abandoned the year-by-year tussle over public spending plans but next year, in his next comprehensive spending review, he will set the budgets for the next three years.

Underspending also has a less obvious effect - it corrodes our democratic processes

Prof Colin Talbot
University of Glamorgan
Yet despite the inevitable grappling as each minister goes in to bat for his department, billions of pounds of the money they won in the last spending round is being left unspent.

The Treasury's figures show underspending across the government of 6.25bn in the 2000-1 financial year (and 4.49bn the previous year) - and that only in what is supposed to be the relatively stable and planned part of public spending.

That problem has even affected the government's number one priority - schools. The Department of Education and Employment was left with 1.44bn unspent.

Even this year, it is estimated that if the government continues to spend at its current rate, there will be an 11bn undershoot, although the Treasury says it is just too early to make such forecasts.

Undershoot forecast

Cabinet Secretary Sir Richard Wilson acknowledged the problem when he went before a committee of MPs earlier this month.

Gordon Brown
Brown upped investment after his first two years
He said: "I think there has been a problem, and it is one which we are addressing because clearly there is a major scaling up required in order to get the investment in place and the programme's moving through a pretty steep curve over a relatively short period of time."

"I think the problems are ... that we are responsible to Parliament for ensuring that we get good value for money.

"I do not think you can just turn on the tap on money overnight without a very large management effort and a very large programme of work and projects, and that is really what a lot of this delivery is about."

Underspending 2000-1
Education: 1.44bn
Health: 510m
Environment, transport and regions: 920m
Source: Treasury
Downing Street's newly created Delivery Unit is now launching a "very big new effort" of a kind not seen before and he is confident it will prove successful.

His comments confirm what Colin Talbot, professor of public policy and management at the University of Glamorgan, says is one of the key reasons for the whole problem.

Civil servants have simply "lost the habit of spending" during a very long period when it just was not happening, Prof Talbot tells BBC News Online.

That is especially true of big capital projects, such as building schools and hospitals, where the use of public-private partnerships, involving drawn out talks over contracts, is seen as another cause of delay.

Government critics say the problem was aggravated by Labour's decision to stick to tight Conservative plans for its first two years in power.

Capital problem

The low spending history, says Prof Talbot, has made it difficult to get the right systems and people in place to manage the new capital investment.

"The fact that the Ministry of Defence, which uniquely amongst government departments has always needed an ongoing capacity for managing large projects, has managed to catch up with its spending plans tends to confirm this view."

But the public finances expert, who has given evidence to the Treasury Select Committee, says there are a series of other factors.

Richard Wilson, cabinet secretary
Wilson says a change of gear is needed
He says: "The strength of the economy made the labour market quite constricted - that means a massive recruitment problems in education and health."

Prof Talbot argues the level of underspending is a major worry, not least because of its corrosive effect on our democracy.

"During the last general election campaign the Tories were committed to reduce Labour spending by about 8bn, whilst the Liberal Democrats wanted to increase it by similar amounts," he says.

"At the time, the under spending in Labour's programmes was running at about 8.2bn, but this was hardly mentioned in the slanging match about whose plans were best."

For Lib Dem treasury spokesman Ed Davey the principle worry over the unspent cash is simple - there are so many areas where the money is needed to improve services for the public.

Control freak charge

And he sees the issue as a symptom of a wider failure at the heart of Labour thinking.

"In general terms it reflects their control freakery," Mr Davey tells BBC News Online.

"They have taken an approach to public spending where they give small amounts of ringed fenced money in little pots just to get a sound bite."

Tony Blair
Blair reportedly told ministers to get spending
He argues the money would be better spent by pushing it down to a local level, a lesson he detected the government was now learning, with more power now going to teacher and frontline healthcare staff.

Mr Davey accepts the Treasury argument using longer-term, more flexible plans, which means departments can carry over money from year to year, has also produced a picture of annual underspending.

That change, say the Treasury, has ended the practice seen under the old system departments desperately embarked on a spending splurge at the end of every year in case unspent money was clawed back.

Prof Talbot is less impressed by that argument, especially as overall spending plans have been altered at every Budget.

He says: "The reality of this supposed rational system has been overcome by the 'usual suspect' in public spending - politics."

Constipation clearing

Despite those concerns, Prof Talbot acknowledges there are signs the spending constipation is beginning to clear.

The Treasury goes further. A spokesman said departments were "picking up spending considerably".

And he rejected the claim that the decision to keep to tight spending plans for the first two years had caused problems, instead it had produced the sound financial basis needed to ratchet up investment.

With the public demand for real improvements in schools, hospitals and the UK's transport network stronger than ever, Tony Blair realises it is not enough merely to announce spending plans.

The money has to be spent -a message the prime minister is reported to have given key public services ministers at a recent private "summit".

Underspending might have gone un-noticed by most of the public, but Mr Blair knows failure to improve schools and hospitals will not follow suit.

The government's pre-Budget report will be on 27 Novewmber






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