A review of major government infrastructure projects has concluded Whitehall has often made poor investment decisions because civil servants do not understand the levels of risk in the schemes they are managing.
Examining six decisions to go ahead with major projects, from High Speed 1 to Hinkley Point C, the Institute for Government said both senior officials and ministers often underestimated the problems big schemes could face.
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The report found that “decision makers can misunderstand the uncertainties and risks inherent in infrastructure investment”, with ministers often unclear on the levels of uncertainty in projected benefits of big projects and civil servants planning budgets based on dubious estimates. In addition, a failure to communicate risks had misinformed the public and parliamentary scrutiny bodies, the report stated.
“In some cases, there has been little planning for what happens if things go wrong, even when there are large unknowns,” the report said. “Consequently, government finds itself stranded with few good options when plausible scenarios, interpreted as accurate predictions, turn out to be incorrect – as the Labour government found with High Speed 1 in the late 1990s.”
That project went ahead with over-optimistic predictions about passenger growth, according to researchers, meaning that private sector backers expected to to provide funding did not materialise. This forced the government to step in and guarantee a £3.7bn debt issue by project developers London and Continental Railways.
The IfG also concluded Whitehall does not devote enough attention to assessing early options for projects, with both ministers and civil servants too quickly settling on preferred schemes. This many have been the case in the ongoing Thames Tideway project to build a new sewer for London, the think tank concluded, where possible alternatives were discarded quickly and not reviewed even as the cost of the project increased as the plans were developed.
Nick Davies, the IfG’s research manager and report co-author, said the UK needed to make a series of major decisions about energy supplies, rail network and airports upgrades in the near future, with £245bn of economic infrastructure projects planned in the next five years.
It was therefore important to review the success of previous initiatives, he said.
“But too often projects are given the green-light based on questionable assumptions, a lack of strategy and without learning from past mistakes,” he said. “Government decision making must improve significantly if we want to reap the benefits of smart infrastructure investment.”
The report urged civil servants to clearly communicate project difficulties and uncertainty to ministers, who in turn must be open with the public about the challenges.
Civil servants told researchers that some details may be lost by the time advice is presented to ministers in a formal submission, limiting their ability to make considered decisions.
A lack of understanding of project risk by civil servants and ministers has also led to increased project costs, with the Private Finance Initiative for building schools and hospitals among the examples highlighted in the report where taxpayers have lost out.
As well as improving the understanding of risk across the civil service and improving assessment of early options in projects, the IfG also called for a national strategy for infrastructure investment, and improved evaluation of successes – and failures – across Whitehall.