The government must ensure departments have the right skills to manage higher capital spending, a think tank has said, amid warnings that staff cuts have contributed to consistent underspending of budgets over the last decade.
In a new report, the Institute for Government said a consistent pattern of underspending by previous governments indicated that departments may struggle to spend the money to implement major infrastructure projects.
The Conservative manifesto committed up to £100bn to reforms such as decarbonisation, further education and research and development. Detailed funding allocations are to be set out in the Budget on 11 March, and longer-term allocations are expected in a Spending Review later this year.
The previous May and Cameron governments underspent their capital budgets by between 3% and 6% every year between 2011-12 and 2018-19, according to the report. This was the case even when the Cameron government increased capital budgets in 2015-16, planning for a 16% increase up to 2020-21. In 2018-19, the last year for which figures are available, 4% of the total, or £2.8bn, went unspent.
One of the main reasons that money went unspent was that there were not been enough appropriately qualified staff to manage major projects, the IfG said.
“Departments lack the right staff. Reductions in civil service staff numbers have meant that some departments lack enough, or the right, staff such as project delivery specialists to write business cases, commercial staff to manage capital projects, or economists to assess bids in grant-giving competitions,” the report said.
The civil service headcount has climbed considerably in recent years as the government has ramped up preparations for Brexit. However, this comes after many warnings that previous cuts had led to the loss of many staff with much-needed expertise. Civil service chief executive John Manzoni said last year that when he joined the government in 2015, it “had atrophied most of the execution and delivery skills” it needed. He has attempted to address this by introducing “functions” to encourage the development of those skills within Whitehall HR structures, he said.
But the IfG warned that this must remain an area of focus if the government is to meet its infrastructure goals. “The government should ensure that departments, their delivery arms and local government have enough resources to manage higher capital spending,” it said.
Ensuring the right staff and skills were in place would help to reduce some of the other risks that can lead to underspending, the IfG said.
It also said money had gone unspent because of difficulties agreeing contracts, which had arisen when civil servants have tried to transfer excessive risk to construction companies.
On other occasions, underspends had arisen when construction projects were delayed due to the so-called “optimism bias” that has led officials to over-promise on timescales. This has been cited as the reason for failure in major projects including Crossrail and HS2.
Such problems could be mitigated, at least in part, by ensuring departments had the right skills in place to manage outsourcing contracts and improve forecasting.
Graham Atkins, senior researcher at the Institute for Government, said: “The Johnson government has ambitious promises to invest in infrastructure, but promises do not complete projects. Successive governments’ persistent underspending over the last decade suggests these plans will be difficult to implement.
“The government will need credible plans – realistic expectations about the time and cost it will take to complete projects, and appropriately qualified staff within departments – in order to spend capital budgets.”
Another problem the Treasury must tackle is squeezed resource budgets that mean money intended for capital investment has been used to plug other holes in day-to-day spending. “Such transfers were rare before 2013-14, but several departments have repeatedly carried out such transfers in recent years,” the report said.
Recent examples of where departments have recorded a major underspend include the Ministry of Justice, which has spent only 13% of the original capital budget for a project to build extra prison places that was expected to be completed this year. In 2015, the MoJ expected to build 10,000 new prison places by 2020, but it had only built 206 in 2019.
To prevent these problems arising again, the IfG said the Treasury must provide departments enough day-to-day spending, so they are not forced to transfer money from capital projects to public services.
But the report also warned that other potential hurdles could make it difficult to ramp up investment spending in the years to come. The government’s post-Brexit immigration policy may exacerbate potential shortages of engineers, project managers and builders in the construction industry, it warned. The policy, which was unveiled last week, included no visa route for lower-paid – what the Home Office called “unskilled” – work.