IoS Investigation: Where does all our money go?

Mismanagement of public programmes has cost the taxpayer more than £22bn in recent years

By Brian Brady and Jonathan Owen

Sunday, 10 January 2010

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

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

http://www.independent.co.uk/news/uk/politics/iiosi-investigation-where-does-all-our-money-go-1863276.html
January 17, 2010

Consultants 'fleece' the public purse

By Jonathan Owen and Brian Brady

In the second of a three-part series, the IoS looks at how Government has spent
a cool £20bn on management advisers

Famously described by Robert Townsend, former chairman of Avis, as "people who borrow your
watch to tell you what time it is and then walk off with it", the army of management consultants
employed to help to run the UK has come at the staggering estimated cost of £20bn in the past
10 years. Some consultants are being paid daily rates in excess of £3,000.

If the sums spent on IT programmes is added, the figure spirals to £70bn - sufficient to pay for
hundreds of new hospitals. Instead, the main result appears to be the growth of an industry
benefiting from lucrative contracts, according to David Craig, a former management consultant
and author of Plundering the Public Sector.

Now all political parties are competing to plug the yawning financial chasm in the public budgets.
Gordon Brown has promised to slash consultancy bills by half while the Tories have pledged to
cut expenditure on consulting and advertising spending if they form the next government. Last
night, the shadow Cabinet Office minister Francis Maude accused the Government of fuelling "a
culture of waste" by frittering away millions on "incompetent projects".

An analysis by The Independent on Sunday has revealed the extent of the Government's
profligacy. Among the big spenders are the Department of Health, whose expenditure on
consultants totalled £125m last year. The most recent figures for defence chiefs' spending was
£107m for 2007-08. The Department for Children, Schools and Families (DCSF) claims £59m
went on consultants last year, but the figure rises to £70m if £11m cited for advice from "external
experts" is included. The Department for International Development spent £21m on consultancy
in 2009 - yet this excludes expenditure relating to developing countries.

One department, Defra, parted with more than £1bn for consultants and "professional services"
between 2002 and 2007 - £187m of which went to management consultants. And the Home
Office got through £662m on consultants in the past five years. The Department for Culture,
Media and Sport is among the most parsimonious, spending £1.22m on consultants last year.
That figure reaches almost £6m when IT costs and "professional services" are included.

The scale of spending is staggering, claims Mr Craig. "All too often, greedy management
consultants are completely fleecing government departments because of the incompetence and
inexperience of the people they are dealing with." He believes typical mark-ups for consultants
can be more than 800 per cent. "Take a basic consultant on a salary of around £30,000. You sell
that consultant to government for £6,000 a week - the equivalent of £250,000 a year. Nobody in
the public sector ever asks why you are charging so much, but it is a back of a fag packet
calculation; any idiot can do it. It becomes immoral when you're taking money from public
services."

"Risk-averse" civil servants are a big part of the problem, according to Edward Leigh MP, chair of
the Commons Public Accounts Committee. He accused them of being "always willing to pass the
buck to the consultants instead of making decisions themselves", adding: "More civil servants
have got to have courage to say 'no minister, we can't afford to do this', not 'yes minister'."

The civil service union, the Public and Commercial Services Union, defended its members'
record. "It is scandalous that nearly 100,000 civil and public servants have been cut while billions
of pounds has been wasted on consultants, often doing the same work as civil servants, but at
10 times the cost," a spokesman said.
The consulting industry said the bill is much smaller. It estimates the government consultancy
business was worth £2bn last year. In 2006, the National Audit Office said almost £3bn a year
was spent on external expertise. Alan Leaman, chief executive of the Management
Consultancies Association, insisted the industry provided good value. "What you are buying is
access to specialist skills, knowledge, understanding and experience." However, he conceded: "I
think the biggest challenge for the industry is the ability to say 'no, although you're asking us to
do that and we'd make money from doing it, we wouldn't recommend it'."

http://www.independent.co.uk/news/uk/politics/consultants­fleece­the­public­purse­1870213.html

January 24, 2010

IoS Special Investigation: How Government

squanders billions
Jonathan Owen and Brian Brady reveal the staggering cost of PFIs - some
£300bn - in the third and final part of our investigation into Whitehall waste

On the face of it, it does not sound like a good deal: decide what you want, find someone to
supply it, then sign a contract that binds you into a legal straitjacket for decades, during which
you pay them 37 times what the item is worth.

Such a deal makes even less financial sense in a country still struggling to escape the effects of
the worst slump since the Great Depression. Yet this is what the Government's promotion of
private finance initiatives (PFIs) to pay for public services has foisted on the taxpayer.

In the final part of The Independent on Sunday's investigation into government waste, an
analysis of the latest Treasury statistics reveals a largely hidden debt mountain of hundreds of
billions of pounds.

The taxpayer is, in effect, locked into making enormous annual payments for 667 school, hospital
and other public-sector programmes with a capital value, or price, of around £55bn. The good
news is that more than £37bn has been paid. But the overall bill for the contracts is more than
£262bn, and this will not be fully paid off until 2047.

And that is not all. With a fresh catalogue of further projects valued at £11bn - in capital costs
alone - currently under negotiation, Britain's liability for PFI projects since 1997 could exceed
£300bn.

The PFI - the brainchild of the former Conservative chancellor Norman Lamont - was seized
upon by Tony Blair in 1997, when he swept into power with a New Labour government
determined to show that it could be the party of business. The Government committed itself to
keeping the proportion of public debt to gross national product (GNP) below 40 per cent.
Financing investment through PFI - with costs kept off the balance sheet - was seen as a way of
achieving this, and led Alan Milburn, then health minister, to declare that PFI was "the only game
in town".

PFI works on the principle of private firms building various forms of infrastructure - whether roads
or bridges, schools, hospitals or prisons - then charging the public sector for using them over
lengthy contracts that can run for more than 30 years.
But it has left a legacy of debt that will last a generation, according to unions who have slammed
what they say is a credit-card approach to buying-in essential services. Calling for an end to the
use of PFI to pay for public sector projects, Brian Strutton, the GMB's national secretary for
public services, said: "PFI is building up a legacy of high-interest debt that will last for decades.
The public is paying over the odds on PFI projects, with debt ratios in most areas at over 500 per
cent. This is like paying for schools and hospitals by credit card."

Experts joined the attack on the Government last night.

Jean Shaoul, professor of public accountability at Manchester Business School, said: "They've
mortgaged the future in the most profligate way... we have a government that acts in the
interests of a financial oligarchy. Using the private sector as an intermediary to raise finance to
build hospitals and to run them is extremely expensive and far more expensive than if the
Government were to do it itself."

A case in point is the Norfolk and Norwich University Hospital, where the PFI consortium made
tens of millions on a deal described by the Commons' Public Accounts Committee as "the
unacceptable face of capitalism".

Firms have also made millions in profit by putting up the money for IT programmes that have
become so expensive the Government now frowns on PFI being used to fund them. To take only
one case: payments for the Crown Prosecution Service's Compass IT system come to £670m
over the 10 years of the contract, 37 times the £18m capital value.

And the nature of PFI deals means that payments still have to be made even if the project is
abandoned. Balmoral High School in Belfast closed six years after it was built, when pupil
numbers halved. However, the Northern Ireland Department of Education owes the contractor
£370,000 a year for the next 18 years.

Making changes to PFI-funded buildings and projects can cause costs to spiral. A 2008 National
Audit Office report found that £180m a year is paid out for contractual amendments. And it
highlighted extortionate charges for routine maintenance - such as £302 for an electric socket to
be fitted, £47 for a key, and almost £500 to fit a lock.

Peter Dixon, chief executive of University College London Hospital - which pays some £43m in
PFI charges a year - says that inflation is a real fear. "If we run into a bout of inflation, because
all these payments are index-linked, then we are in trouble, all of us."

He described the arrangement as "expensive and inflexible", but added: "For the past 12 years
the only way you were going to get a brand new hospital was by the PFI route... people knew
they weren't cost effective but it was the only way they could get funding."

But a Treasury spokesman said: "PFI has a good record of delivering to time and budget, and
represents good value for money over the whole life costing by telling us what it will cost to build
and manage our assets."

Contracting out: Familiar faces with PFI connections

Alan Milburn MP

He famously described PFIs as the "only game in town" during a stint as health minister, and is
now a director of Diaverum Healthcare - a company that is contracted to run the kidney dialysis
unit at the PFI-funded Burnley General Hospital.

Quentin Davies MP
The Defence minister is a former director (he resigned in 2008) of Vinci UK and Vinci SA - firms
involved in PFI projects with a total capital value of £223m which will cost £933m over the terms
of their contracts.

John Reid MP

The former home secretary is (since November 2009) a paid consultant to G4S UK and Ireland.
G4S is involved in PFIs, mainly in prisons, with a total capital value of £330m; they will end up
costing £3.6bn.

Steven Norris

Once Conservative Transport minister under John Major, he is now the chairman of Jarvis, a
major PFI player which has a number of contracts, worth £721m, with government. The total
capital value of PFI programmes funded by Jarvis comes to £175m.

Adam Ingram MP

A defence minister for six years under Tony Blair, he now gets paid more than £50,000 a year as
a consultant to Electronic Data Systems - an MoD contractor responsible for the PFI-funded
Tafmis IT system which cost £171m over its 10-year contract.

Patricia Hewitt MP

During her tenure as health secretary, BT won IT contracts from the NHS. The former minister is
now a director of BT Group and was paid £59,475 for 140 hours' work over the past six months -
a rate of £424 an hour.

PFI initiatives - the Lords' inquiry

The continuing flaws in the PFI option have been exposed in evidence to a House of Lords
inquiry into the system.

A consultant, T Martin Blaiklock, said the Government had used the PFI option "like a credit
card". He added: "It allows payments, which would normally be due to be paid today, to be paid
at some future date. The key is to know when to use it, for what, and for how much."

The British Medical Association said: "PFI appears to be an unnecessarily costly and short-
sighted means of building new hospitals."

But the Confederation of British Industry claimed that PFIs had helped to deliver a broad range of
modern projects with "high-quality services and maintenance activities".

It added: "Without this long-term investment, the UK would not have the infrastructure required to
support our economy, nor the public services that are needed."

The soaring cost to taxpayers

Queen Mary's Hospital, Roehampton Cost £73.5m to build, but will cost taxpayers in excess of
£340m by 2034.

John Radcliffe hospital, Oxford Taxpayers will have to pay back £832m for key developments
at a hospital which cost £134m to build.
Queen Elizabeth Hospital, Greenwich Trust is locked into a PFI deal costing £9m a year more
than if it had borrowed money from the Government. Last year it admitted its PFI contract is
"underfunded" by £8m to £10m a year, and it was also carrying debts of £65m.

Norfolk and Norwich University Hospital The 953-bed hospital will cost not £229m, as
announced in 1998, but £16bn, including PFI charges, staff and equipment. Rent costs are
£800m until the end of the contract in 2037.

Highlands School, Enfield Plunged into £300,000 of debt, blamed on "an expensive and
inflexible contract" with the private contractor Equion. A former headteacher, Monica Cross, said
"huge sums of money have been wasted" on the £16m school.

Paddington Health Scheme £900m super-hospital abandoned in 2007; costs rose £300m to
£894m and finish date slipped to 2013.

Leicester hospitals Pathway Project Costs up from £711m to £921m; scrapped in 2007.

University College London Hospital PFI project, rose from £120m to £430m or so in the three
years prior to signing off on the deal.

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