The ten-storey clock tower of a handsome art deco building is visible from either end of Buckingham Palace Road, just south of London’s Victoria station. Built in 1939 as the Empire Terminal for the British Overseas Airways Corporation, the tower’s slim grey fuselage is flanked by two sweeping wings; from here passengers checked in their bags and were taken by train to the airfields and flying boats. The travellers of that glamorous age of air travel are long gone. But the building still exudes a certain calm authority: it is now home to the National Audit Office (NAO), the body that scrutinises public spending. The NAO may not be a household name but the reports it produces often become headlines: it is here that the cost of expensive and often controversial policies such as the Covid response, the Rwanda deportation plan and HS2 are calculated.
The NAO’s auditors are not civil servants. They serve parliament, giving MPs of all parties the numbers they need to make good policy and hold bad policy to account. At its head is Gareth Davies. The position of chief bean-counter has existed for many centuries – the first known mention of an auditor of the Exchequer is from 1314 – and Davies’ full title (Comptroller General of the Receipt and Issue of Her Majesty’s Exchequer and Auditor General of Public Accounts) is of Victorian provenance. The position is appointed by the monarch, and Davies could only be removed by a humble address to His Majesty from both the Commons and the Lords.
Tall and softly spoken, Davies is careful in his responses to questions; auditing isn’t a profession known for attracting extroverts, and the NAO as an organisation fears nothing more than to be seen as partisan. Davies has the difficult job of pointing out, as he did last year, that the government could save £20bn a year through better governance without implying that this is a criticism of the people doing the governing. To convince Westminster that you are politically neutral while pointing out that a party that has painted itself as the belt-tightening steward of the economy has been wasting more than £50m a day is no mean feat.
Davies’ parents were both teachers: his father taught history and his mother taught English. “There was a lot of chat about what was going on in the world,” he remembered, and while he excelled at maths rather than humanities, he always had an interest in “public affairs… how governments got difficult things done”. He studied maths at Cambridge and joined the Audit Commission, the body that audited local government and NHS finances, where he stayed for 25 years. He left in 2012; three years later, the then communities secretary Eric Pickles abolished the commission.
Davies said the disbanding of the Audit Commission was, in his view, “a big mistake”. However, the commission had made a number of enemies: it investigated the “homes for votes” scandal at Conservative-run Westminster council in the 1990s and charged the council’s leader with gerrymandering, while other councils and certain MPs, including Vince Cable, became angry at what they saw as its overreach. Shortly before its abolition, stories were leaked to the press about its “shocking excess” (the excesses included hiring venues to train staff and spending too much on “designer” office chairs). Pickles – whose deregulatory agenda was also cited as a factor in this week’s report into the Grenfell tragedy – announced the privatisation of local government auditing in an interview with the Telegraph, in which he told the paper: “I have had great fun abolishing lots of stuff.”
Had the Audit Commission – which Davies remembered as a “quiet but effective part of the UK accountability setup” – still existed, it would have been able to question the dodgy investments and doomed moneymaking schemes with which local authorities tried to supplement their incomes during austerity. Instead, central government has lost billions bailing out insolvent councils, while council tax bills rise steeply and public services crumble. No money has been saved – the big accountancy firms that now do the work charge more for it – and council finances are often reported years late.
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During Davies’ tenure, the NAO has taken on a more significant role in public life – not because he has pushed it in this direction, but because public spending has been, in the last five years, higher and more contentious. He joined in 2019, nine months before the first Covid lockdown began. “Everyone understands that all sorts of compromises were necessary to achieve the speed that was needed to save lives,” he told me, but “neither did we just accept every answer we were given”. The NAO’s work on the “VIP lanes” for certain suppliers during that time – the contracts given to people with access to ministers and the tens of billions lost to fraud and error – was a trustworthy and impartial source during a febrile time.
What makes him angry? “Gratuitous waste,” he told me, “where something has just been done shoddily, when it clearly hasn’t been a priority, and poor practice has been allowed to creep in… that makes me angry, because you know how hard-won those resources are.” What shocks him? In spite of the hundreds of billions of pounds of public spending it is his organisation’s jobs to oversee, it is more the effects of failed policy that he still finds surprising. It was for this reason that when the NAO audited HMRC’s customer service, it reported that the taxman had kept the British public waiting on hold for a cumulative total of nearly 800 years in 2022-23. “That’s not a performance measure,” he told me. “It’s clear it’s not a target that HMRC has… it is a real impact on people’s time, which has a value to them.”
While he said it is “unusual” for him to be truly surprised by what his auditors uncover, he was shocked to learn last year that nearly three quarters of a million children are learning in schools that need significant rebuilding. “The scale of that, across the education system,” he said, “was a bigger number than if we’ve been asked to estimate it.” This failure of maintenance is the central answer to the question of why nothing in Britain seems to work properly: headline-friendly new projects are given priority by politicians, capital budgets are raided and the assets are allowed to rot. “We’ve seen in our work on school buildings, on hospital buildings, flood defences, local roads – this is a regular theme that may not be glamorous, but if you don’t maintain those adequately, you’re storing up much bigger financial problems for your future.”
In the past, in its role as the auditor of public spending, the NAO has been accused of being opposed to innovation. Davies said the opposite is true: one of the issues he is most concerned about is cybersecurity, with the recent cyberattacks on London hospitals showing the huge cost of running outdated or poorly maintained defences. Innovation is essential, he told me: “The cyber-risk to essential public services is very significant, and there’s an arms race constantly under way.” This is only one of the possible “systemic emergencies” for which the state must be prepared, such as the next pandemic – “there will be another one” – and climate change. In a time of heightened geopolitical risk and stretched public finances it has never been more important for the state to be held to account in its spending. “There aren’t many £400bn emergencies you can take as a hit to your balance sheet, as a country.”
Halfway through his ten-year term, Davies is committed to helping parliamentarians understand how a new government spends. Meanwhile, the new government’s focus is currently on the last government’s decidedly smudgy book-keeping. Last week it was revealed that in the past three years the Home Office has overspent on asylum and border control by £7.6bn, 23 times the budget it agreed with the Treasury over the same period. The Institute for Fiscal Studies concluded that the increased costs of the asylum system had been “entirely foreseeable” for much of this time. The failure to recognise the real cost of the asylum system in departmental budgets accounts for around a quarter of the £22bn “black hole” in current spending announced by Rachel Reeves after the Treasury’s audit of public finances in July.
At the same time, public services in the UK and other advanced economies are suffering from a nasty case of Baumol’s cost disease. This is a tendency for services to become more expensive because they have low productivity growth: a new machine might let a factory worker produce ten times as many buttons per hour, but a GP can’t fit any more ten-minute appointments into an hour than they did last year or indeed last century. It was identified by economists in the 1960s and is now found in the strained finances of national and local governments, health services and universities. But Davies said this is no time to admit defeat. There is still so much inefficiency to identify. “However daunting the investment challenges are, it’s always possible to get more out of what you’re currently spending.” For a new government that must try to fix threadbare public services with very little fiscal room, the role of the auditor has perhaps never been more important.
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