Messenger NewspapersWarning over Government forecasts (From Messenger Newspapers)

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Warning over Government forecasts

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The taxpayer is losing large sums of money because Government forecasts for the impact of policies are faulty or too optimistic, auditors have warned.

Predictions are too often based on "unrealistic assumptions driven by policy agendas", leading to cost overruns, delays and poor implementation.

Examples highlighted by the National Audit Office (NAO) included:

:: Communities and Local Government being forced to add £80 million to the budget for its mortgage rescue scheme after being flooded with applications from struggling homeowners.

:: The Ministry of Defence incurred extra costs of £74 million after realising its decision to purchase the carrier version of the Joint Strike Fighter had been undermined by "immature information and assumptions".

:: The Department for Education underestimated demand for the academy programme and needed to find another £350 million between 2010 and 2012.

:: The Department for Transport was found to be using 10-year-old data to calculate the benefits of the controversial High Speed 2 rail project to business travellers.

The NAO's report said that while the Treasury had introduced incentives to improve forecasting, they conflicted with the obligation on departments to avoid breaching end-of-year spending limits.

A survey of Government finance directors carried out by the spending watchdog found most felt they were being encouraged to set high budgets and come in below them.

In 2012-13 departments had underspends totalling £11.5 billion, although the Treasury had already told them they would be allowed to carry much of the money into this year.

The report said: "'Optimism bias' is a significant problem, with analysts concerned about the pressure to provide supportive rather than realistic forecasts.

"Forecasting is not taken sufficiently seriously and is often hampered by poor quality data and unrealistic assumptions driven by policy agendas."

NAO head Amyas Morse said: "Departments generally treat forecasting of future spending as little more than a technical activity, of limited relevance to financial management. In fact, high quality forecasting is an indispensable element of project planning and implementation.

"We have seen many examples over recent years of Government projects where weaknesses in forecasting have led to poor value for money. A first step towards improving the quality of forecasting would be increased transparency and scrutiny of forecasting and more concerted action at the centre of Government."

A Treasury spokesman said: "We have introduced tough financial controls to bring spending down across all departments, as part of the ongoing commitment to deficit reduction.

"The Treasury continues to work across Government to further improve forecasting and financial management."

A Department for Transport spokesman said: "Accurate information forms the very foundation of a successful project.

"All of our methodologies have been rigorously tested and we use the most up-to-date data available to us."

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