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Friday, 12 July, 2002, 14:09 GMT 15:09 UK
The Treasury's guilty secret

As he gears up for the latest public spending round, there have never been more demands on Chancellor Gordon Brown's wallet.

But, and it may seem odd, many of the ministers lining up for a handout from the Chancellor seem unable to spend the money they already have.

Big underspenders
Education 1.4bn
Welfare to work 0.83bn
Transport and regions - 0.53bn
Scotland 0.44bn
Trade and Industry 0.4bn

Treasury figures from 2000

The phenomenon of "underspend" has grown to haunt Labour as it battles to improve Britain's ailing public services.

But departments which once howled in protest at government cuts have, perhaps not surprisingly, remained silent on the issue.

It is not a subject the government is keen on discussing, either.

The figures are buried away in an obscure corner of the Treasury's website.

But the message is clear - unless officials learn how to spend soon, Labour's election promises on the public services could start to sound hollow.

Under control

Latest available figures show underspending across the government of 6.25bn in the 2000-1 financial year (and 4.49bn the previous year).

The money left unspent by the education department in 2000/01 would have paid for 50,000 extra teachers, according to some estimates.

While the 700m not spent by the health department is said to be enough to build 10 hospitals or fund 70,000 heart by-pass operations.

The figures for this year are not in yet, but some commentators believe they could be as high as 11bn.

Ministers insist the problem is under control.

Rooting out causes

And Colin Talbot, professor of public, policy and management at Glamorgan university, said: "I think they have got it a bit under control.

Gordon Brown
Mr Brown: Right time for spending spree?
"It is still running at a very high level. They are still having major problems."

Underspending has been the cause of much soul-searching in Whitehall in recent years.

Various causes - from the recruitment crisis in the NHS to the ingrained belt-tightening culture in the public sector - have been blamed.

These have certainly had an effect.

'Severely eroded'

After decades of cuts and money-saving initiatives, many civil servants have got out of the spending habit - or never acquired in the first place.


People are told you can have a new hospital under a PFI deal or you don't get a new hospital

Professor Colin Talbot
A study by the Institute of Fiscal Studies, published last year, pointed to 25 years of underinvestment in Britain's public services.

The legacy of that, Professor Talbot concluded, is that the capacity of public bodies to manage large investment projects has been "severely eroded".

Only the ministry of defence, he noted, has kept up a steady flow of big capital projects and, tellingly, is one of the few departments to avoid underspend.

Complex contracts

The main culprit, according to Professor Talbot, is Labour's enthusiasm for the Private Finance Initiative (PFI).

PFI was dreamt up by the Conservatives in the 1980s as a way of paying for big public works without raising taxes.

New roads, prisons and hospitals are paid for by private contractors and leased back to the government over 30 years or more.

Labour has embraced the idea with enthusiasm.

Government departments and local councils are encouraged to get into bed with private companies at every opportunity.

But the complexity of PFI contracts - and the rigorous criteria imposed on them by the Treasury - mean they can be frustratingly slow to get off the ground.

Minimal outlay

For a big PFI project, such as the part-privatisation of London's underground, lawyers can literally spend years poring over the details before work gets underway.

"It can be a very slow process.

"And in a lot of cases people are told you can have a new hospital under a PFI deal or you don't get a new hospital," Professor Talbot comments.

Critics argue that PFI projects cost far more in the long run.

But in the short term at least, big capital projects can get underway with a minimal outlay, adding further to the impression of underspending.

'Tinkering' temptation

Another factor is the way Labour has "revolutionised" the rules on public spending.

Once, big capital projects such as roads and hospitals were paid for in one lump sum.

The cash had to be spent in the same year it was allocated or it would be lost.

Now spending is allowed to spill over into the following year's budget.

The decision to replace the annual public spending round with a three-yearly Spending Review has also had an effect.

The idea was to provide greater stability and better platform for financial planning.

But Gordon Brown has proved unable to resist tinkering with his spending plans.

Worsening economy

He has altered overall spending plans at every budget - and most of these changes have been increases in public spending.

The result is that officials have often been left with more cash than they had budgeted for.

In the early years of the government, Gordon Brown was able to use some of the surplus to pay off debt, reducing the need for future tax rises.

But with a worsening economic climate and pressure being piled on ministers to deliver on public services, the time has never been more ripe for a spending spree.

The government's plans for future spending are published on 15 July

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16 Jan 02 | UK Politics
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