<i>IoS</i> Investigation: Where does all our money go?

Mismanagement of public programmes has cost the taxpayer more than &pound;22bn in recent years

Brian Brady,Jonathan Owen
Sunday 10 January 2010 01:00

It is a story of shocking extravagance and waste, carried out under the noses of the people we pay to keep an eye on how public money is spent. It is about Parliament's failure to maintain any rigorous controls on spending while hundreds of MPs and civil servants fritter away taxpayers' money behind the scenes – or use it to feather their own nests.

But this is not just about the questionable MPs' expenses claims that have preoccupied the nation for the best part of a year. While the flipping and the duck houses, the bell towers and the enormous televisions have shone a spotlight on some spectacular squandering by our parliamentarians, much of the real waste remains in the dark.

The entire bill for expenses paid out to our 646 MPs – the vast majority of which are legitimate claims – amounted to £93m last year. But a trawl of some of the biggest Whitehall spending programmes shows they are running more than £20bn over their original budgets. The overspend is enough to pay for 100 new hospitals, more than 100,000 extra teachers or nurses – or £330 for every man, woman and child in the country.

Last month, while some 80 MPs attracted national opprobrium for contesting demands for them to pay back expenses claims worth less than £1m, an official watchdog condemned the Ministry of Defence for adding more than £1bn to the bill for its 15 biggest equipment contracts last year alone.

The depressing fact is that, despite a series of efficiency drives and promised staff culls, from the Gershon review to the latest pre-Budget report, the Government has failed to get control of Whitehall waste. Over the next three weeks, The Independent on Sunday will detail the extent of waste within Whitehall departments: the spiralling costs of flagship schemes, the millions paid out to mandarins and external "consultants" – some of whom used to work for the Government – at a rate of thousands of pounds a day, and the many examples of overpayments for gold-plated schemes which are often ruled unfit for their original purpose.

The three-part series, posing the simple question, "Where has all the money gone?", begins with an in-depth look at the worst examples of overspending at the heart of Government.

Mismanagement of enormous government projects has cost the taxpayer more than £22bn over the past few years, as civil servants failed to meet their responsibility to deliver programmes on time and on budget.

Days after the Ministry of Defence was condemned for adding more than £1bn to the bill for its 15 biggest equipment contracts last year alone, it has emerged that every other high-spending department has lost control of at least one iconic project.

In the first part of a wide-ranging IoS investigation into government waste, an analysis has revealed that a series of Whitehall departments are continuing to overspend by millions of pounds every year. At a time when the public finances are at their tightest for generations, and the Chancellor is preparing to rein in spending to help manage the national debt, departments including Health, Transport, Work & Pensions and the Ministry of Justice are failing to control the costs and timescales of a host of critical capital projects. Some 76 current or recently completed schemes for buildings and roads, the London Olympics, new military equipment and computer networks have exceeded their original budgets – and the total overspend amounts to more than twice the value of the original contracts.

Critics last night offered a range of explanations for the ongoing failures – from institutional incompetence to a high turnover of ministers, which has meant the individual responsible for making procurement decisions is rarely around to face the flak when the project busts deadlines and financial targets. Furthermore, it is often difficult to identify who has ultimate responsibility for a project, as many do not have a named individual with overall responsibility for delivering it on time and on budget.

Some departments have also tied themselves into unequal contracts that opponents claim levy high charges because the Government is seen as a "soft touch". Some private finance initiative (PFI) deals impose charges as high as £300 for replacing an electrical socket or almost £500 for fitting a new lock.

Professor Christine Harland, a government spending expert at the University of Bath's management school, said: "It's become clear over the past 15 years that improvements in how different government departments are making sure they're getting value for money has been very variable. We haven't been consistent across different government departments in improving capability in this commercial area."

Many of the projects are computer schemes, such as the national programme for information technology (NPfIT), the hugely ambitious attempt to centralise NHS systems. The Department of Health claims the £2.3bn original cost was supposed to cover the first three years of the project, but the latest total estimate has now reached £12.7bn. The cost of the Libra project, designed to link all magistrates' courts in England and Wales, has ballooned from the £146m originally quoted to £487m.

MPs on the Public Accounts Committee last month revealed that the bill for the C-Nomis system, to provide a single database of offenders that could be accessed by staff at prisons and the National Probation Service, had more than doubled from £234m to £513m. A report from the watchdog committee last month warned that the venture was veering "out of control" – and amounted to a "prime example of how not to develop a project".

The TaxPayers' Alliance (TPA) pressure group has calculated from the Government's own figures that, even allowing for those projects that come in at or under budget, the total net overrun on 240 large-scale capital projects is more than £19bn, which equates to over £750 for every household in Britain. Almost a third of the projects went over budget, averaging 38 per cent above expected costs. Almost a quarter of the schemes came in under budget. TPA policy analyst John O'Connell said: "Too many projects are coming in late and over budget and this failure is costing the taxpayer billions, endangering essential services.

This can mean doctors having to work in outdated hospitals or soldiers on the front line having to use inadequate equipment, despite the taxpayer having paid handsomely for new facilities or kit."

The point was underlined last week, when the National Audit Office (NAO) found that the MoD had "a multi-billion pound budgetary black hole which it is trying to fix with a 'save now, pay later' approach". NAO chief Amyas Morse said the current cost of 15 major military projects has risen by £3.6bn, compared with the expected costs when the investment decisions were taken. The projects also slipped a further 96 months behind schedule over the past year due to the MoD's poor project management and lack of realism.

The NAO report identified key failings, including shortcomings on project management and the department's failure to act as an intelligent customer. The longest delay was to the Terrier armoured combat engineer vehicle, which ran 27 months behind schedule because test prototypes were delivered late and then failed reliability tests. The troubled Nimrod maritime reconnaissance aircraft, meanwhile, saw costs increase by £102m over the year.

Professor Trevor Taylor, research fellow in defence management at the Royal United Services Institute (RUSI), said: "The system does press people in industry to make unrealistically low offers and it presses people in the Ministry of Defence to make quite high demands.

"This is the so-called conspiracy of optimism and the result is projects do often take longer than expected and often cost more. What happens is that because you can't afford everything you want to buy this year you slow down projects, and when you slow them down the cost increases."

Ten of the most overspent major government projects

Project: NHS national IT programme

Budget £2.3bn

Current cost £12.6bn

Percentage overspent 450 per cent. Established in October 2002, under Alan Milburn, scheme to link 30,000 GPs in England to nearly 300 hospitals has been derided for huge costs and technical problems.

Project: 2012 Olympics

Budget £2.4bn

Current cost £9.3bn

Percentage overspent 289 per cent

The euphoria that greeted the decision to award London the 2012 Games has largely given way to concerns over spiralling costs.

Project: Astute Class submarine

Budget £2.5bn

Current cost £3.8bn

Percentage overspent 48 per cent

The order for three of next-generation nuclear fleet submarines for the Royal Navy was announced in 1997 and subsequently increased to four. Only one has yet arrived.

Project: Type 45 destroyer

Budget £5.4bn

Current cost £6.4bn

Percentage overspent 18 per cent

Highly impressive replacements for the Type 42 class, but dogged by delays and cost overruns.

Project: Nimrod MK4

Budget £2.8bn

Current cost £3.6bn

Percentage overspent 28 per cent

A fixed-price order for 21 Nimrod 2000 aircraft was placed in 1996, with an in-service date of 2003. The project was reviewed in May 2006.

Project: Ministry of Justice Libra case management system

Budget £146m

Current cost £487m

Percentage overspent 234 per cent

Contract to provide a IT system for magistrates' courts was awarded in 1998. MPs told it would be completed by October 2007 or, in a "worst-case scenario", March 2008. It wasn't.

Project: Ministry of Justice's P-Nomis offender management system

Budget £234m

Current cost £513m

Percentage overspent 119 per cent

A National Audit Office analysis concluded that "the value for money achieved by the project was poor".

Project: Pensions Transformation programme for DWP

Budget £429m

Current cost £598m

Percentage overspent 39 per cent

An NAO report subsequently criticised the delays and overspend.

Project: Central payment system for the DWP

Budget £90m

Current cost £178m

Percentage overspent 98 per cent

Now expected to be delivered in December next year, five years after its planned completion date of October 2006.

Project: A46 Improvement

Budget £157m

Current cost £220m

Percentage overspent 40.1 per cent

Jonathan Owen

Source: Taxpayers' Alliance

Next week: The greedy management consultants

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