NAO Auditor General: Here’s how to make public money work harder

The Prime Minister and Chancellor’s recent speeches – and their implications for the forthcoming Budget – throw into sharp focus the question of how the new government will reconcile its ambitions with a tough fiscal backdrop. There is no avoiding difficult choices.

As head of the National Audit Office (NAO), the UK’s independent public spending watchdog, I am acutely aware of the scale of the challenge. To help meet it, government must make public money work harder.

Our insights, based on lessons learned from our work spanning the breadth of UK public policy, can help civil servants and new ministers do that. Perhaps unsurprisingly, we have previously identified major infrastructure projects as one of five areas where there is significant potential for spending money more efficiently and effectively.

Let’s examine this briefly. The estimated cost of government’s 244 largest infrastructure projects presently stands at £805bn. But recent experience of delivering the largest projects shows that there is a governance problem.

We have seen insufficient realism at the outset on the likely range of costs, and subsequent poor control of the specification. Along with misaligned commercial incentives and supply-chain inflation, these factors go a long way to explaining the escalating costs that resulted in the cancellation of HS2 Phase 2.

Government has already indicated it will likely use private as well as public finance to fund major projects. But the use of private finance comes with risks to be managed. Again, realism is important here. Private backers want a return on their investment, so being clear about how that will be achieved, and who pays, is essential.

Some poorly designed private finance initiative (PFI) schemes have left public service managers with a lack of operational flexibility or high costs of change. But there are plenty of examples of good practice to help new schemes avoid these problems.

Reducing fraud and error

A second area of financial opportunity is reducing fraud and error to make more money available for government priorities. In 2022-23, HM Revenue and Customs (HMRC) estimated a £40bn shortfall, or “tax gap”, in revenue. Meanwhile, the Department for Work and Pensions (DWP) last year overpaid £9.4bn in benefits.

Both departments are working hard to improve defences against fraud and recover funds for the taxpayer. But the legacy of the pandemic is still visible in higher rates of fraud and stretched investigatory resources.

Eliminating all fraud and error is impossible. Closing the tax gap and reducing overpayments requires a managed approach. That’s why government should consider fraud and error in policy design from the outset, measure losses each year, and identify ways to reduce them.

Four routes to success

Though we’re not alone in suggesting that making public money work harder ultimately relies on increasing public sector productivity, we have specifically identified four key drivers.

First, government needs better quality data to inform its policy choices, understand service performance and realise the potential of new technology.

Second, a focus on well-managed innovation and rigorous evaluation will help spread effective solutions more reliably.

Third, the planning and spending framework needs to recognise that better results and greater efficiency rely on a ‘whole system’ approach, cutting across departments and sectors. In this context, we will be assessing government’s mission-led approach with interest.

And finally, all this must be underpinned by the right leadership, skills and culture to succeed.

Innovation and good practice

Take the second key driver. Innovative approaches are a must-have if government is to tackle the many pressing public policy challenges on its plate. The technologies we need to achieve net zero do not yet all exist and artificial intelligence will play an important role in improving data-led services.

But our work also demonstrates the benefits of a disciplined application of existing good practice. For example, Active Travel England is making promising progress in helping local authorities across the country improve the quality of their transport schemes aimed at increasing activity levels, with long-term benefits to health and wellbeing, and knock-on savings for the NHS.

The NAO’s core role is to help Parliament hold government to account for how it spends public money. By drawing out the learning from this work, we also help tackle the productivity challenge. I look forward to discussing our work with MPs – both newly elected and those returning to the House of Commons – in the coming weeks and months.

This opinion piece was originally published on The i