Government Expenditure (Hansard, 15 May 2002)

§ Lord Barnett
asked Her Majesty's Government:
What is their policy on underspend of public expenditure by government departments.

§ Lord McIntosh of Haringey
My Lords, the public spending system introduced in 1998 provides three-year budgets for departments and allows underspends in one year to be carried over to the following year. Budgets are linked to targets for results set out in public service agreements. This encourages departments to plan their budgets over a longer time-frame and reduces the incentive to spend wastefully at the end of the year.

§ Lord Barnett
My Lords, I thank my noble friend for that Answer, I think. Does he accept that there is a serious issue here? We are not talking about petty cash. As I understand it, the underspend in departments in the year to April last year was approximately £6.2 billion. In those circumstances, is it the Treasury's policy to ensure that departments underspend and do not rush to spend in March each year, as has happened in the past, not necessarily in the best possible way? Are departments worried that if they underspend for any length of time, that underspend will be transferred to other departments?

§ Lord McIntosh of Haringey
My Lords, I am more grateful to my noble friend for the timing of his Question than I am for the accuracy of his supplementary question. The timing is excellent because last Friday we published the public expenditure statistical analysis, which gives the figures for this year, not the figures that he quoted. The up-to-date figures show that total underspending on public services—what we know as departmental expenditure limits—over the past three years has been only 1 per cent of the plans. I call that pretty accurate for any business or government.

Lord Campbell of Croy
My Lords, does the noble Lord agree that one department that should not be underspending is the Department for Transport, Local Government and the Regions where the Minister has problems of staffing and of communicating with the media? He may well be in need of more resources, not less.

§ Lord McIntosh of Haringey
My Lords, as I explained in my original Answer, the reforms that we have introduced ensure that if there is an underspend, the money can be spent in succeeding years. We therefore do not have the frantic expenditure during February and March, often on stupid things, which I remember from my time as a member of a local authority. The system is much better for all departments. Of course, there is bound to be slippage on large capital programmes with long lead times. This is expenditure by arm's-length agencies with responsibility for their own finances. I have made it clear that the underspend across government as a whole is very small—only 1 per cent over the past three years.

§ Lord Newby
My Lords, the Minister has already said that a large proportion of the underspend is capital expenditure. Does he accept that one reason for that is that there has been a serious erosion of the 285 capacity in national and local government to manage projects because of many years of underfunding under the previous administration and during the first two years of this administration? Finally, does he mean that underspend can be carried from one year to the next or, as he said in his second answer, that it can be carried over several years? Could we find ourselves in the ridiculous position of some EU programmes, with bits of budget carried over year after year? When will that end?

§ Lord McIntosh of Haringey
My Lords, it is not bits of budget that are carried forward. The end of year flexibility provides that last year's underspending can be spent this year. If there is still an underspending at the end of this year, it will not be identifiable as last year's underspending, it will simply be part of an underspending that is carried forward. That ridiculous situation described by the noble Lord, Lord Newby, does not exist here. I do not agree with the noble Lord on his first point. I think that the resources are available in this country and the capacity for the capital expenditure that is necessary for our public services, which is made possible financially by our Budget, helped, of course, by our resource accounting procedures.

§ Lord Saatchi
My Lords, may I underline the seriousness of the Question asked by the noble Lord, Lord Barnett, and that asked by my noble friend Lord Campbell—neither of which the Minister seemed to take very seriously? Am I right in saying that, last year, the Secretary of State for Transport underspent by £350 million? Will the Minister give the House an assurance that there will be no underspending on capital investment in the transport department this year?

§ Lord McIntosh of Haringey
And I, my Lords, underline the seriousness of the answers that I have given to the noble Lords, Lord Barnett and Lord Campbell. In point of fact, the most recent figure for underspending by the Department of Transport is not £350 million but £530 million. I say that simply in the interests of accuracy, as always. I shall not, however, give an assurance that every penny of that will he spent in this year because, as I said, the Department of Transport is responsible for very large capital projects with very long lead times. However, if it is claimed that the Government have a problem with underspending either on resourcing or on capital, then that claim is just plain wrong.

§ Lord Barnett
My Lords, I appreciate the figures that my noble friend has given. Is he aware, however, that 1 per cent of public expenditure is approximately £4 billion and that 1.5 per cent is approximately £6 billion? He has not answered my specific question about departments such as the Department of Transport. If they have an underspend for more than one year, will that underspend be transferred to other departments to spend?

§ Lord McIntosh of Haringey
My Lords, no. Departmental expenditure limits are as described. In 286 other words, underspending can be carried forward, but it cannot be carried forward to other departments other than by agreement between the two departments concerned and the Treasury.

§ Baroness Carnegy of Lour
My Lords, what happens at the end of three years? Can the underspend be carried forward at the end of three years or can it mount up forever?

§ Lord McIntosh of Haringey
My Lords, the spending reviews are a rolling programme covering three years' expenditure. One of the improvements which I hope the House will agree is helpful is that departments have their budgets for three years rather than just for one year. Therefore, they can plan properly ahead. Then, every two years, we have an expenditure review, as we shall have this summer, at which the three-year rolling programme is updated. That is a much more sensible way of managing these matters than existed in the past.