Think tank cites need for capital investment in public sector’s ageing IT

A new report from the Institute for Government and auditor Grant Thornton has called for the next chancellor to rev up capital investments – with a particular focus on outdated technology

Think tank the Institute for Government has called for a renaissance in capital spending to ensure that hospitals, schools and prisons are properly maintained – with overdue updates to tech infrastructure picked out as a key area for investment.

The IfG said crumbling buildings, creaking IT and a lack of the right equipment will continue to “seriously hamper” public-service performance unless a new approach is taken.

Its latest report, published in conjunction with consultancy Grant Thornton UK, says the capital budgets of the Department of Health and Social Care, the Department for Education and the Ministry of Justice were all lower in 2015-16 than they were in 2007-8.

While the report acknowledges that capital spending has increased in recent years, it stresses that the plans that both the Conservatives and Labour are publicly signed up to imply further cuts over the course of the next parliament.

The IfG said there is a “compelling case” for the next multi-year spending review to provide a more “capital-intensive mix” of spending than in recent years.

It wants whoever is chancellor of the exchequer following this week’s general election to commit to five-year capital-spending plans for departments that would be reviewed after three years. The think tank said that where plans are politically uncontentious, and where it is easy to predict longer-term capital needs, the chancellor should provide even longer-term funding certainty.

The IfG said maintenance backlogs in the NHS, DfE and MoJ are at record highs and that the UK’s “historically and internationally low spending” on capital work had been the result of “active choices” made by ministers.

According to the report, DHSC and DfE used 4% of their capital budgets to plug holes in their day-to-day budgets in 2023-24, in both cases funding higher-than-planned pay settlements.

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Other problem areas include a preference among ministers for highly-visible infrastructure projects rather than routine maintenance, and a tendency for departments to spend disproportionate amounts of their capital budgets in the final month of the financial year.

More ministerial responsibility for bad capital decisions

Among its proposals, the IfG is calling for a new era of transparency for departmental capital spending plans. It said that each department’s settlement at future spending reviews should specify how the allocation compares to what the department estimated was required to maintain capital stock.

“If there is a shortfall, each department should set out publicly what the impact of this is expected to be and how it will prioritise the allocation of funding to mitigate the impacts,” the report said. “To counteract the political incentive to favour new build over maintenance, the Treasury should update its Managing Public Money guidance to make clear that accounting officers should ask for a ministerial direction if they believe that a decision not to maintain assets reflects poor value for public money in the longer term.”

The IfG is also calling for greater parliamentary scrutiny of departments’ capital spending, with permanent secretaries routinely quizzed by select committees on the adequacy of their capital-funding allocations and the reason for any underspends.

IfG chief economist Gemma Tetlow, who co-authored the report, said the government needed to end the short-sighted approach to capital spending that had proliferated in recent years.

“Capital plans for the NHS, prisons and schools have often only considered the next few years,” she said. “To make sure money is spent well on repairing and improving buildings, IT and other equipment, government departments need to develop and publish long-term estates and equipment plans, which set out the capital needs of public services over the next 10 to 20 years. This should be a top priority before the next multiyear spending review.”

Jim Dunton

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