Capital Spending and Broken Physical and Digital Infrastructure: A lost decade of underinvestment

On October 13 2022 we posted on LinkedIn about the alarming growth of the public sector maintenance backlog, highlighting:

• a £13bn black hole to address life safety risk in schools (see recent  RAAC headlines), 

• the view from the NHS Confederation that the NHS is, “plagued by one of the worst records for capital investment in the OECD over the past decade”; 

• the news that a £10.2bn shortfall had been identified to bring rundown buildings and kit up to standard with about £1.8bn for repairs.

The issue of the growing maintenance backlog is one among a number of areas now featured in this Performance Tracker produced by the Institute for Government (IFG). The IFG Tracker sets out the shocking consequences of the lost decade of capital underinvestment from 2010 to 2020. What’s not surprising is that services are broken and technology is unfit for purpose. What is shocking is just how broken and unfit they really are - and the costs involved to fix them.

The challenge faced by Government officials and political leaders in addressing this is enormous. Here are some of the key  findings in the report:

1. The UK is now a comparatively “low investment nation”. Since 2000 investment has averaged 2.5% of GDP - almost two thirds of the OECD average

2. The cuts in capital budgets have been substantial. The department most affected was the Ministry of Justice with annual capital expenditure now less than half what was being spent in 2007/08. Even DHSC which was “protected” saw cuts averaging 8%.

3. If the Government had wanted to keep capital expenditure in line with the average between 2004/05 and 2007/08 for all of the 2010s they would have needed an extra £24bn! Whether this accounts for population growth is unclear. On a per capita basis the figure would plainly be higher.

4. The total estimated maintenance backlog is now at £37bn and has created and led to, “health and safety risk, catastrophic failure and major disruption.”

5. Technology is found in some parts of the public sector to be unfit for purpose with “slow loading computers and creaking internal systems” and internet connectivity afflicting places like the courts service.

6. The shortage of healthcare investment has put the UK fifth from bottom amongst the OECD on the number of CT, MRI and PET scanners per capita limiting the number of diagnostic tests, increasing the elective backlog and NHS waiting times.

Clearly there are some urgent questions that need answering. The most important of which are as follows:

1. Where is the Whitehall brains trust that is working on this long-term dilemma and what were they doing in the 2010s? Who knows where capital spending is needed most or are Sponsor Departments fending for themselves and still being asked to deliver more for ever reducing settlements? Which areas are truly broken and need rebuilding? That this is possibly being guided by life safety risk is a true indication of the extent of the problem. Given the unrelenting business case culture in some quarters it would not be unreasonable to expect that someone has modelled or is modelling where the biggest electoral bang for buck is?

2. What don’t we know about? RAAC and some of the things featured in this report  have been yielded up i.e. are now known risks and issues. What about the unexploded ordnance that the public and the opposition are not yet aware of? Which assets and services are linked to the estimated maintenance backlog? What is the next thing that is about to fall over?

3. Is there any merit in returning to a culture where the centre of government was more target oriented and had greater control? If there were Public Service Agreements or anything like a balanced scorecard for delivery by departments surely it would be glowing red and anyone sitting in the control room could easily see this.

4. Where will the capital come from? Will the government borrow more? Debt is higher now than was the case when some were talking about the UK going Greek, currency crises and bond vigilantes in the wake of the financial crisis - in 2020 debt exceeded GDP. Some would say this was nonsense then just as it is nonsense now, but we are faced with both parties talking about fiscal restraint and rectitude. In this context where will the capital come from?

5. What is the role of the private sector? Fixing ever so much of this will necessarily involve outsourced solutions. Who are the key supplier markets, are they healthy, are they ready for this, how can they help and on what commercial basis?

While there are clearly a number of significant challenges facing this government right now, the time bomb ticking under our public infrastructure should be close to the top of the priority list. Without functioning schools, hospitals, court rooms, prisons and transport networks our core services cannot work efficiently or effectively. While the challenge is significant we believe a commitment needs to be made or the risk will become critical and the costs even greater.