Ministers fail to spend £7bn meant for public services

The true extent of the Government's failure to spend the money it has allocated to public services was exposed on Friday in a report published by the Treasury.

Whitehall departments missed their spending targets by almost £7bn last year – compared with the figure of £1bn the Government said at the time of the Budget was the extent of its underspending.

The report, which was put on the Treasury's website yesterday evening, will compound fears that Labour will fail to meet its ambitious targets to revitalise key services. One public-sector trade union condemned it as "scandalous".

Whitehall departments are estimated to have spent £190.5bn in the year to April 2001, 3 per cent less than their agreed limit of £197.4bn.

The biggest shortfalls were in the politically sensitive areas of health and education. The former Department for Education and Employment failed to spend £1.5bn of its allocated £19bn, while the Department of Health spent £44.8bn of its £45.5bn limit.

Dan Hodges of the GMB union – which includes health and education workers – said it raised questions over the need to bring in private-sector money. "Ministers are leaving billions of pounds to sit idly in the coffers of the Treasury," he said. "Gordon Brown should launch an immediate investigation into this scandalous underspend."

The Treasury said the money would be carried forward and added to departments' budgets in coming years. It was not lost, as it would have been under the previous public finances system. "Once firm figures are available, we will determine the extent to which the balance of spending below plans will be carried forward and added to spending plans for future years," it said.

However, some experts believe that two decades of relentless cost-cutting under the Conservatives has left Whitehall unable to deal with rising expenditure. The Institute of Fiscal Studies, an independent think-tank, said recently that Whitehall had "simply forgotten how to spend money".

The Government knows it has to fulfil its promise to improve key public services. It is understood that the Treasury will start putting pressure on individual departments to ensure that officials are aware of the targets.

When Labour won power, Gordon Brown, the Chancellor of the Exchequer, instituted three-year plans to do away with the old system of one-year budgets to improve long-term planning. "One reason for the underspending could be that departments are not passing through the three-year spending plans down to the people that actually deliver the results," a Whitehall source said.

In the Government's first parliament, investment fell by 4.4 per cent a year. However, since the election there seems to have been a reversal of this trend. Figures for the three months to June, published last week, showed that departmental spending is 11 per cent higher than last year. Net investment has risen by £700m, compared with a £400m fall a year ago.