Where has all the money gone?

The left demanded more cash for public services. New Labour provided it. The problem is that only th

After the slasher movie of the cabinet reshuffle, new ministers stepped over the corpses of colleagues to take charge of unfamiliar departments. Whatever they do, the odds are that it will not work, because they will listen to advisers who all but guarantee failure. By "not work", I don't mean fail on a grand scale in the same way building a democratic Iraq or abolishing child poverty isn't working, but simply fail to deliver on the basics.

Take the case of David Miliband, the new man at the Department for Environment, Food and Rural Affairs. Its job is to hand out subsidies to farmers, but thousands have not yet received the money and are threatening to sue. The failure came because highly rewarded management consultants advised Defra to buy a spanking new IT system to process claims. The consultants were from Accenture, a child of Arthur Andersen, whose snake-oil salesmen went down in the Enron scandal. Margaret Thatcher's government blacklisted Andersen after shady behaviour by its consultants in the early 1980s. New Labour hasn't followed her example by banning Accenture from receiving more public money, even though the cost of the Defra computer system more than doubled from £18.1m to £37.4m and it doesn't work.

Miliband's problems are a mere headache compared to the migraine John Reid will get at the Home Office. His predecessor had to go because he couldn't manage the task of ensuring that foreign criminals were deported. This failure is hardly a novel experience for the Home Office. On the one hand, it has produced more bills and initiatives than any other department because new Labour has been determined not to be outflanked by the right on crime. If you write down all the draconian powers it has given the police, Britain looks like a country close to martial law. On the other hand, it's not a police state because the computer systems for the courts, prisons, National Probation Service and Immigration and Nationality Directorate haven't worked.

Like many, I loathe the idea of identity cards. But whenever I hear the ghost of John Hampden, Cromwell's cousin, urging me to denounce this assault on the rights of freeborn Englishmen, I wonder whether the national identity database will ever work anyway. PA Consulting is advising the Home Office at a cost of £1,093 per consultant per day.

It is more than clear that the NHS isn't working. Tony Blair has poured money in, but the returns have been measly. The reasons are various. The British Medical Association struck a deal with the Department of Health that might make Arthur Scargill weep with envy, and then there are the rising price of drugs and the extortionate terms of the private finance initiative. Beyond them lies the fortune spent on Connecting for Health, the largest civil computer project in history. The government has already awarded contracts worth £6.5bn, and Accountancy Age estimates that the total cost may be around £30bn.

It is too early to say that the attempt to bring the NHS into the internet age won't work, because the project hasn't been completed. Nevertheless, the parts of the project that are meant to be up and running are not. The most egregious example is the Choose and Book system, which is meant to allow GPs to make hospital appointments for patients online. Since the Department of Health unveiled it with great pride in 2004, the cost has gone from £65m to £200m and it still isn't working. An astonished Computing magazine commented: "This is bog-standard business technology. This is simple stuff, but they just can't get it to work." Ministers have been unable to answer parliamentary questions on the project's management consultants, so I can't say who they are and how much they cost. Given previous form, the best guess is that they cost a lot and Patricia Hewitt won't follow Thatcher's example and ban them from working for the NHS again.

So far, I've been writing as if sharp-suited and sharp-eyed consultants have cozened naive civil servants. That has happened to an extent, but the image of the disinterested civil servant providing impartial advice has taken a battering in the past decade. More than anything else, Lord Hutton's inquiry into the decision-making before the Iraq war showed how the old lines have been blurred. If you blot out the names from the transcripts of meetings, it is impossible to tell who is the politician and who is the civil servant, who is the spin-doctor and who is the spy. So it is with civil servants and management consultants. The revolving door between the public and private sectors has been spinning so fast that it is a wonder it hasn't escaped its bearings as Lord Birt and other management consultants head into Whitehall and senior civil servants leave for management consultancies.

New Labour can live with the potential conflicts of interests because its aim is to bring business methods into government. Its tragedy, and the reason for its repeated failure, is that it has never understood how business works. This is the central point of Plundering the Public Sector: how new Labour are letting consultants run off with £70bn of our money by David Craig and Richard Brooks. Craig is the most interesting whistle-blower I've met in years because, as a former management consultant, he knows all the tricks. But his real argument is that it is not in the interests of the management consultants, who are currently receiving about £5bn a year from Whitehall, to give good advice.

If you were advising a friend on a new computer system, you would tell him or her to get tried and tested software. The logic is reversed if you are a management consultant advising a government. Your interest is in getting as large a fee as possible. You do not recommend a proven program with all the glitches removed - where's the money in that? You recommend that the Home Office or Defra or the DoH build an IT system from scratch, bringing thousands of billable hours to your company.

Computing was astonished by the failure of Choose and Book, because there is no real difference between booking a hospital bed online and booking a flight. Yet I doubt if the DoH's advisers recommended going to either easyJet.com or lastminute.com and buying and adapting their programs. In January the Child Support Agency announced that it would be hiring debt collectors to chase £3bn because its new computer system, which came in at £456m - two years late and £56m over budget - could not handle 1.2 million cases. Why didn't the agency's consultants advise it to hire debt collectors in the first place? They may simply have been stupid, but clearly a new and complicated system suited them very well.

The British centre left has insisted for decades that the public services need more money. New Labour has provided it. But look how easily the professionals, whether hospital or management consultants, are diverting it into their pockets. This can't go on for ever. Eventually Tory leaders - and indeed Liberal Democrat and new Labour leaders - will be able to say that putting more money into public services is a nice idea that just doesn't work. All that happens is the rich get richer. You should not underestimate the danger for the left. If - to paraphrase James Mill's description of the British empire - the modern welfare state is allowed to become a vast system of outdoor relief for the upper classes, the next step will be to dismantle it.