Spending on infrastructure — including schools, hospitals, road and energy projects — has fallen by at least £15bn from its peak, following sharp cuts since the Conservative-Liberal Democrat coalition came to power in 2010.
Capital investment — which includes new projects as well as maintenance — shrunk by one-third in real terms from a high of £57bn in 2009-10 to £42bn in 2013-14, according to new figures from the National Audit Office.
The decline, which is being partially reversed, comes amid government pledges to put infrastructure at the heart of plans for national growth. This was first promised in the Autumn Statement of 2010 and has been reiterated in every Budget since.
Overall, capital spending financed by central government averaged £45.3bn in the past five years of the Labour government and fell to an average £43.6bn over the five years of the coalition government, the NAO figures show.
The report comes just a day after Sir Amyas Morse, who leads the National Audit Office, accused civil servants of irresponsible decision-making. “If you’re going to do radical surgery it would be nice if you knew where the heart was,” he said in an interview with the Financial Times. “You’re slightly more likely not to stick a knife in it by mistake.”
The largest falls in capital investment between 2009-10 and 2013-14 were in education, communities and local government. Spending on schools was reduced by 55 per cent in real terms from £7bn to less than £4bn, after the coalition cut the previous government’s Building for Schools programme in 2010.
Communities and Local Government’s capital spending, which is primarily for housing, reduced by 62 per cent during this period — from £9bn to less than £4bn — while health and defence reduced spending by around a quarter.
The NAO criticised government departments’ failure to distinguish between capital expenditure used to build new assets and those used to simply maintain assets in their existing condition. It called for greater transparency on capital spending data to support long-term planning.
Among other findings, the government spending watchdog found that the cost of financing private finance initiative projects has swelled from £7bn in 2009-10 to £10bn in 2013-14. About £4bn of this was debt and interest payments, with the balance for ongoing service contracts linked to the assets.
About £3bn a year is spent servicing private finance debt for around 728 projects on the Treasury’s PFI database. But even despite this and a long period of low interest rates, there have been relatively few refinancings of PFI deals, with the exception of Northumberland hospital.
This is partly because it can be expensive to redeem bonds or buy out interest rate swaps (contracts used to fix the interest rates for bank loans), the NAO said. It estimates that the swap liabilities of all PFI deals are currently about £6bn.
In the wake of the coalition’s review of the PFI scheme, its use has fallen sharply to an average of £2.3bn over the past five years from £4.6bn in the previous five-year period.
But the proportion of cash spent on PFI by some departments remains significant. The Highways Agency, for example, spent more than three times as much on privately financed roads as it did on publicly financed roads in 2013-14, in proportion to road usage.
The NAO’s report echoes the findings of both the Office for Budget Responsibility and the Institute of Fiscal Studies in showing that public expenditure in real terms on investment has been falling.
Alexander Jan, director at Arup, the infrastructure consultancy, said capital expenditure had declined to one of the lowest levels since the second world war in sharp contrast to the social security budget, which has increased two and half times in real terms over the past 50 years or so.
“There’s a growing danger that the government is spending and borrowing to pay for welfare and services at the expense of infrastructure. Do we really believe that this is all government is for?” he said.
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