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Forecasting in government to achieve value for money

Poor forecasting by government departments is an entrenched problem, leading to poor value for money and increased costs for the taxpayer, according to a report today by the National Audit Office.

Government departments do not take forecasting sufficiently seriously, with the process often hampered by poor quality data and unrealistic assumptions driven by policy agendas. Poor forecasting can result in ill-informed decisions, cost overruns, delay and fewer benefits than predicted.

High-quality forecasting is an essential part of achieving value for money for the taxpayer. Since 2010, more than 70 of the NAO’s reports have identified forecasting weaknesses. For example, the Department for Education initially underestimated the scale of demand for its academies programme and did not develop robust cost estimates. To remain within spending limits without restricting the pace or scale of the expansion, it used additional contingency funding of £105m and reassigned £244m from other budgets.

‘Optimism bias’ and poor quality data are among the root causes of departments’ poor production and use of forecasts. Analysts have expressed concern that they are under pressure to provide supportive rather than realistic forecasts; and over half the analysts surveyed by the NAO identified a lack of good-quality data as preventing good forecasting. The Department for Transport has recently responded to our recommendation and updated the values in the economic case for High Speed 2 after the NAO noted it was using 10 year old data to calculate the benefits for business travellers.

The centre of government also needs to do more. While the Treasury has introduced incentives to improve forecasting, these are at risk of being overwhelmed by the need to meet Parliament’s requirements not to breach end of year spending totals. Most Finance Directors responding to the NAO survey considered that the spending control framework incentivised them to over-budget and underspend. In 2012-13, underspending increased to £11.5 billion, nearly three times the recent average. The Treasury encouraged underspends for Budget 2013; however, the NAO is concerned that the Treasury’s flexing of the budget exchange rules (allowing departments to carry forward a forecast underspend from one year to the next) was not clearly related to the quality of individual departments’ financial management.

Recommendations from the NAO include that HM Treasury should work with the NAO and Parliament to identify how to support informed scrutiny of departments’ forecasts.


“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.”

Amyas Morse, head of the National Audit Office

Notes for Editors

  1. Press notices and reports are available from the date of publication on the NAO website, which is at Hard copies can be obtained from The Stationery Office on 0845 702 3474.
  2. The National Audit Office scrutinises public spending for Parliament and is independent of government. The Comptroller and Auditor General (C&AG), Amyas Morse, is an Officer of the House of Commons and leads the NAO, which employs some 860 staff. The C&AG certifies the accounts of all government departments and many other public sector bodies. He has statutory authority to examine and report to Parliament on whether departments and the bodies they fund have used their resources efficiently, effectively, and with economy. Our studies evaluate the value for money of public spending, nationally and locally. Our recommendations and reports on good practice help government improve public services, and our work led to audited savings of almost £1.2 billion in 2012.

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