Many Government financial forecasts are poor – a situation blighted by pressure on officials not to deliver bad news and low quality data – spending watchdogs have concluded.

A study issued by the National Audit Office (NAO) last week finds poor financial forecasting in Whitehall is an ‘entrenched problem' – leading to poor value for
money and increased costs on the public purse.

The watchdogs blamed a civil service culture in which departments have failed to take forecasting sufficiently seriously – with senior officials often failing to understand financial modelling and unable, therefore, to effectively challenge and manage risks.

Less than two-in-five (39%) analysts surveyed in the report believed senior managers used forecasts effectively.

In consequence, departments have found themselves making ill-informed decisions, causing cost overruns and delays to implementing schemes which produce fewer benefits than first planned.

The NAO calculated that more than 70 of its value-for-money reports published since 2010 contain instances of poor Whitehall forecasting.

In its report last year on the Department for Communities and Local Government's (DCLG) New Homes Bonus policy, the NAO found the department's unsophisticated
modelling used unrealistic assumptions and was not based on the actual behaviour of
local authorities.

In consequence, DCLG officials overstated by 32,000 the number of new homes the policy could deliver in its first 10 years.

Misjudged demand and underestimated costs forced an £80m upward revision to NHB budgets.

Similarly, the urgency to introduce new policies quickly and failure to develop robust cost assessments led the Department for Education to miscalculate the scale of demand for the academies expansion programme.

To keep within departmental spending limits, the DfE had to make use of £105m contingency funding and reassign £244m from other parts of the education and children's budget.

The report authors found ‘optimism bias' is a significant problem across central government.

Many analysts said they felt under pressure to provide forecasts that were politically supportive rather than financially realistic.

Evidence from the Cabinet Office's Major Projects Authority (MPA) supports this view. MPA officials tasked with managing risk in government-funded infrastructure
schemes, and major policies such as Universal Credit now expect one-in-three projects to be delivered late and over budget.

The auditors also expressed concerns at the recent trend for departments to significantly underspend their budgets – a figure which increased to £11.5bn in
2012/13.

Underspends on this unprecedented scale have been driven by fear of missing Parliament's requirement for departments not to exceed end-of-year spending
totals and by encouragement from the Treasury.

But underspends have not improved the quality of financial management in Whitehall, and the auditors noted a tendency for departments to push through rapid and late shifts of funding to mask bad forecasting.

Head of the NAO, Amyas Morse, called for greater levels of transparency and oversight of forecasting and concerted action from the Cabinet Office and the Treasury to improve current weaknesses in financial modelling.

‘Departments generally treat forecasting of future spending as little more than a technical activity, of limited relevance to financial management,' said Mr Morse.

‘In fact, high quality forecasting is an indispensable element of project planning and
implementation.'