The government's claims that it is on target to achieve a £21.5bn efficiency saving in the public sector by 2007-2008 could be flawed because Whitehall does not include capital costs - including IT - of developing new ways of working.
The warning was given in a National Audit Office report which said at least £3.2bn (15%) of the efficiency gains target depends on projects needing new or upgraded IT systems.
However, spending on these systems will not be included in the efficiency equations. The NAO report said, "The overall target for gains across central government was constructed without taking into account the up-front capital investment already made in individual projects or the ongoing costs of delivering efficiencies, such as depreciation on new IT systems. Without such matching of capital costs against gains, the £21.5bn target overestimates the efficiency gains that will actually be achieved by 2007-08."
Local government was not allowed to exclude capital spending from efficiency measures in the same way, said the NAO.
David Bradshaw, principal analyst at IT research firm Ovum, said firms sometimes ignored "sunk" costs of IT spending when calculating efficiency gains, but often measured return on investment of IT projects themselves. "You must take into account IT spending when looking at the government figures," he said.