The British Lord of the Money Bag

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 sleek grey body is flanked by two broad wings; from here passengers would check in their luggage and board trains to airports 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 government spending. The NAO may not be a household name, but its reports often make headlines, calculating the costs of expensive and often controversial policies such as the Covid response, the Rwanda deportation plan and HS2.

The NAO accountants 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. They are headed by Gareth Davies. The post of chief bean-counter has existed for centuries – the first known mention of an accountant to 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 origin. The post is appointed by the monarch and Davies could only be removed by a humble address to His Majesty from either the House of Commons or the House of Lords.

Davies is tall and soft-spoken, and is cautious in his responses to questions; auditing is not a profession known for attracting extroverts, and the NAO as an organisation fears nothing more than being seen as partisan. Davies has the difficult task of suggesting, 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 in government. Convincing Westminster that you are politically neutral while pointing out that a party that has portrayed itself as the economy’s austerity guardian is wasting more than £50m a day is no mean feat.

Davies’s parents were both teachers, his father history and his mother English. “There was a lot of talk about what was happening in the world,” he recalled, and although he excelled in maths rather than humanities, he was always interested in “public affairs… how governments got difficult things done”. He read mathematics at Cambridge and joined the Audit Commission, the body that audited the finances of local government and the NHS, 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 dissolution of the Audit Commission was, in his view, “a huge mistake”. However, the commission had made some enemies: it investigated the “houses for votes” scandal at the Conservative-run Westminster council in the 1990s and accused the council leader of gerrymandering, while other councils and some MPs, including Vince Cable, were angered by what they saw as its overreach. Shortly before its abolition, stories leaked to the press about its “shocking excesses” (the excesses included hiring out venues to train staff and spending too much on “designer” office chairs). Pickles – whose deregulation 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 Telegraphin which he told the newspaper: “I’ve had a lot of fun doing away with a lot of things.”

If the Audit Commission – which Davies recalled as a “quiet but effective part of the British accountability structure” – had still existed, it would have been able to question the dodgy investments and doomed money-making schemes that local authorities used to try to shore up their incomes during austerity. Instead, central government has lost billions bailing out insolvent councils, while council tax bills soar and public services collapse. 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 important role in public life – not because he pushed it in this direction, but because public spending has been higher and more contentious over the past five years. He joined in 2019, nine months before the first Covid lockdown began. “Everyone understands that there were all sorts of compromises that had to be made to get to the speed that was needed to save lives,” he told me, but “we didn’t just accept any answer that was given to us”. The NAO’s work on the “VIP lanes” for certain suppliers at the time – the contracts given to people with access to ministers and the tens of billions lost to fraud and error – was a reliable and impartial source at a feverish time.

What makes him angry? “Unnecessary waste,” he told me, “where something has just been done sloppily, when it clearly wasn’t a priority, and bad practice has been allowed to spread… that makes me angry, because you know how hard those resources were obtained.” What shocks him? Despite the hundreds of billions of pounds of government spending his organisation has to monitor, it’s the effects of failed policies 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 put the British public on hold for a total of almost 800 years by 2022-23. “That’s not a performance measure,” he told me. “Clearly it’s not a target that HMRC has… it’s having a real impact on people’s time, which is valuable to them.”

Although he said it was “unusual” to be genuinely surprised by what his accountants found, he was shocked to learn last year that almost three-quarters of a million children attend schools that need major renovations. “The scale of that, across the education system,” he said, “was a much bigger number than if we had been asked to estimate.” This failure to maintain is central to why nothing seems to work in Britain: headline-grabbing new projects are prioritised by politicians, capital budgets are plundered and assets are left to rot. “We’ve seen in our work on school buildings, hospital buildings, flood defences, local roads – this is a recurring theme that may not be glamorous, but if you don’t maintain them properly you’re setting yourself up for much bigger financial problems for your future.”

In the past, the NAO, in its role as auditor of public spending, has been accused of being anti-innovation. Davies said the opposite was true: one of the issues he was most concerned about was cybersecurity, with the recent cyberattacks on London hospitals highlighting the huge costs of outdated or poorly maintained defences. Innovation is key, he told me: “The cyber risk to essential public services is very significant and there is an arms race going on all the time.” This is just one of a number of potential “systemic emergencies” the state must be prepared for, such as the next pandemic – “there will be another one” – and climate change. At a time of heightened geopolitical risk and strained public finances, it has never been more important that the state is held to account for its spending. “There are not many £400 billion emergencies that you can take as a blow to your balance sheet, as a country.”

Halfway through his 10-year term, Davies is working to help MPs understand how a new government is spending money. Meanwhile, the new government is focusing on the notoriously sloppy accounting of the previous administration. Last week it was revealed that the Home Office had overspent £7.6 billion on asylum and border control over the past three years, 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 were “entirely foreseeable” for much of this time. The failure to recognise the true costs of the asylum system in government budgets is responsible for around a quarter of the £22bn “black hole” in current spending that Rachel Reeves announced following the government’s audit of the 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 trend where services become more expensive because they have low productivity growth: a new machine can make a factory worker produce ten times as many buttons an hour, but a GP can’t squeeze more ten-minute appointments into an hour than he did last year or even last century. It was identified by economists in the 1960s and is now reflected in the cash-strapped finances of national and local governments, health services and universities. But Davies said this was no time to admit defeat. There were still so many inefficiencies to be identified. “However daunting the investment challenges, it is always possible to get more out of what you currently spend.” For a new government trying to repair a depleted public service with very little financial room to spare, the role of the accountant has perhaps never been more important.