Capital investment: why governments fail to meet their spending plans

As Rishi Sunak prepares the Johnson government’s first budget, this report finds that departments may struggle to spend the money they are allocated as part of Johnson’s ambitious infrastructure investment plans.

The 2019 Conservative manifesto committed to investing up to an additional £100bn over the next five years on areas such as de-carbonisation, further education, and research and development.

But previous governments have struggled to meet their investment plans. The Major, Blair, and Brown governments did not spend as much as they planned. Continuing this pattern, the coalition, Cameron and May governments all underspent on their capital budgets every year from 2011/12 to 2018/19. Underspending stood consistently at 3–6% in this period. In 2018/19, the latest year for which data is available, £2.8bn went unspent, representing 4% of the total budget.

This report outlines how government can better set capital budgets that will actually be spent – and spent well – by analysing the problems that have caused persistent underspending:

• Over the last 10 years, governments have transferred money intended for capital investment to meet day-to-day spending pressures.
• Over-optimism in planning construction projects has caused delays down the line.
• Reductions in civil service staff numbers mean that some departments lack enough, or the right, staff to spend capital budgets efficiently.
• Departments have struggled to agree contracts with private companies because they have tried to transfer excessive risk to construction companies.

Ramping up investment spending will also be difficult. The construction sector may not have enough engineers, project managers and construction workers to deliver a rapid increase in government projects – a problem that may be made more difficult by post-Brexit immigration policy.