Capital spending in public services: Fixing how the government invests in the NHS, schools and prisons

Crumbling buildings, creaking IT and a lack of equipment will continue to seriously hamper public service performance unless the next government takes a new approach to capital spending.

This report, published with Grant Thornton UK LLP, reveals the impact of the UK’s historically low – and badly spent – capital budgets on the Department of Health and Social Care, Department for Education and Ministry of Justice.  

Decisions since 2010 – which saw capital budgets in DHSC, DfE and MoJ down 18%, 17% and 69% respectively in 2015/16 relative to 2007/08 in real terms, with capital spending for education still 17% lower – have led to patients languishing on waiting lists, prisoners kept in over-crowded cells, and some pupils being taught in poor conditions.

Spending has increased more quickly in recent years, but maintenance backlogs in each service are still at record highs. Both the Conservative and Labour manifesto plans imply further cuts to capital spending overall in the next few years, which will mean difficult choices between prioritising public service estates and investing in other areas like transport, R&D and defence. It also means spending budgets well will be more important than ever.

The report also reveals how poor ministerial decisions, weak oversight and an overly centralised approach means capital budgets have also been badly spent: 

• Between 2010/11 and 2022/23, DHSC had a cumulative capital department expenditure limits (CDEL) underspend of £6.7 billion (7.9% of its CDEL budget), DfE £3.4bn (4.9%) and MoJ £550m (6.8%).  
• In 2023/24, both DHSC and DfE used 4% of their capital budgets to meet the costs of higher-than-anticipated pay settlements. 
• There is a ministerial tendency to be attracted to big, new building programmes – such as Boris Johnson’s commitment to build “40 new hospitals” – rather than less exciting announcements about maintaining existing assets.

Drawing on interviews with more than 40 key figures involved in allocating and spending capital budgets, the report says there is a compelling case for the next multiyear spending review to provide a more capital-intensive mix of spending than in recent years. It also sets out a series of recommendations for ministers, select committees, the Treasury, central government departments and their delivery bodies all to take a different approach to achieve better outcomes.