The FA has announced that the Italian will remain in charge of the England side despite failing at the FIFA World Cup in
Capello has two years remaining on a £6 million-a-year ($10.75 million) contract which was renegotiated just a month ago to remove an escape clause.
"I think if they had offered him the money for the two years he has got on his contract he probably would have gone, and quite willingly.
"But I don't think the FA have got that sort of money to pay a new manager, and if they have got to fork out £12 million ($21.50 million), I think they would rather keep him."
England struggled through the group stage at the World Cup and then crashed out of the tournament with a 4-1 thrashing by
Mullery feels Capello must now revamp his side for the forthcoming
Mullery, who won 35 caps and played in the 1970 World Cup, added: "Unless he gets rid of four or five senior players of a certain age and brings in some younger players, then the crowd are just not going to turn up for the first game as far as Wembley is concerned.
"Everyone I bump into, someone says, 'Weren't we a load of rubbish?'
"If they want to keep him that's fine, that's up to them, but I think he has got to do one hell of a lot more to bring back the crowds to watch his England football team."
Another former England international, Gerry Francis, has given Capello his backing but stressed it is important he learns from his mistakes.
Francis said on Sky Sports News: "He is England manager and it is very important we move on.
"He has been a brilliant club manager and has a very good record as a club manager but, as I learned when I spent years working with the England Under-19s, international football is different.
"You have got to be a lot more adaptable in formations and systems.
"His static 4-4-2 system was the cause of a lot of problems during the World Cup and I think he will have learned from this World Cup and learned you have got to be a lot more adaptable and play maybe 4-3-3, 4-5-1, which is used by most teams at international level.
"It is important - he is going to be here now - that he learns from the experience of this World Cup."Paul Merson, who won 21 caps from 1991-98, reacted angrily to the announcement Capello would be staying on.
The former Arsenal forward told Sky Sports News: "I'm not happy with that. What has he done?
"He took us to the World Cup, which was made to look good because of the job Steve McClaren had done before that.
"I wasn't great as a manager at Walsall but I could have taken us to where we went in the World Cup, in the finals.
"I could have got us out of the group and got us beaten by Germany, quite easily. It wasn't good enough.
"Why would you keep the same person on? Keep on doing the same things and you'll get the same results, nothing will change."
Merson is also disappointed the FA are continuing with a non-English manager.
He added: "We have a system here where you have to pass all your badges to be a coach and a manager.
"It takes three or four years, a lot of time, and then they go and give the job to a foreigner. What is the point of taking these badges?"