10 November 2017

Brexit spending is being micro-managed by the Treasury. The Chancellor must relax the purse strings and use the Budget to properly fund Brexit preparations, argues Joe Owen.

Most departmental budgets remain the same as they were before the EU referendum. Aside from a bit of a bump to the Foreign and Commonwealth Office, and a necessary boost for two new Brexit departments, Whitehall is working to 2015 spending plans. 

That can’t carry on forever. The Treasury has already allocated an additional £250 million for Brexit preparations this year. But the extra cash is not going into departmental spending plans, it is being drip-fed to departments by the Chancellor.

With the Government gearing up for phase two of the negotiations and the potential cliff-edge coming into view, the Chancellor needs to give departments what they need – both the money and the power to spend it – and let them get on with the job.

Whitehall departments are already spending money on Brexit

There are two buckets of administrative costs.

The first bucket includes the essentials: the cash we need to spend and, in many cases, are already spending. This covers the staff to prepare for negotiations, draft legislation and form policy. The Department for Environment, Food and Rural Affairs (Defra) has increased its headcount by 17% since the Brexit vote, a number we heard would be bigger if the department’s HR team could keep pace with demand. Defra cannot get new recruits through the door quickly enough.

This bucket also covers spending on systems and processes. These are the things we will need whatever the outcome of the talks, including a new system for registering EEA nationals and preparing for a five-fold increase in customs declarations. As the future UK-EU relationship becomes clearer, more items will fall into this essential bucket.

The second bucket, much bigger and scarier than the first, is the ‘no deal’ contingency money. This where you put the thousands of new Border Force staff, the possible lorry parks in Kent, new regulatory functions and new public bodies. Reports suggest that ‘no deal’ spend could amount to billions of pounds.

The Treasury is at the heart of preparations

The Chancellor is funding Brexit preparations through the reserve, with spend signed off on a case-by-case basis. Departments bring forward a proposal, there’s a back and forth on the total ask and if an agreement is reached, the Treasury will dip into the reserve. It will grant only enough money to cover the financial year.

This approach makes some sense for costs that fall in the contingency bucket. Piecemeal funding means the Treasury can fully justify spend on ‘no deal’ preparations, hopefully avoiding a situation where we have thousands of new border staff twiddling their thumbs in April 2019.

But for essential spend, the process adds little value. Departments waste precious time squabbling with the Treasury over money that needs to be spent. Any cash saved as a result of Treasury intervention is likely to be a rounding error when the full bill for Brexit is calculated.

Departmental resource budgets have not changed since 2015

By funding all new Brexit spend through the reserve, the Chancellor hopes to avoid alterations to the departmental spending settlements.

If that is the case, when the Budget is published it will show no change in the future spending limits for key Brexit-affected departments like Defra, the Home Office and HM Revenue and Customs (HMRC). Nominally, they will be working to the budgets set out by George Osborne and David Cameron in 2015. Brexit will not be factored in.

But we know these departments are being ‘topped up’ by the Chancellor for critical Brexit preparations. HMRC received £78 million this financial year for extra staff while the Home Office got £50 million towards a new EU citizens registration scheme. Now they are negotiating with the Treasury for next year’s top up from the reserve, which is likely to be for substantially more money.

Time to let departments get on with the job

With government departments gearing up for phase two of Brexit negotiations, haggling with the Treasury is an added distraction. Carefully managing contingency money is one thing, but making departments return cap in hand for essentials every year is more likely to cause delays rather than savings. Timelines are already heroic and the consequences of not delivering could be dire.

The Cabinet Secretary has described Brexit as the biggest and most complex challenge the civil service has faced in its peacetime history, but we are yet to see that reflected in the Budget.

If the Chancellor is serious about giving departments the authority and money to prepare for Brexit, he must give them the cash they need in their resource budgets for essentials over the next few years.

If he wants to haggle over money, the real action is happening in Brussels.

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