What is Whitehall spending on exiting the EU?
The vote to leave the European Union (EU) is leaving a lasting impression on the shape and size of Whitehall. There are new departments, new priorities and thousands of new civil servants.
These changes don’t come without cost. After years of strict controls on departmental budgets, the Chancellor is loosening the purse strings. In the 2017 Autumn Budget, he announced that an extra £250 million (m) had been shared among departments in 2017/18, and a further £3 billion (bn) has been set aside to fund Brexit over the next two years.
This paper looks at six of the government departments most affected by Brexit in order to understand where this money is going and what else Whitehall is spending on leaving the EU. It shows that the Treasury numbers only tell part of the story.
As well as the two new departments set up in the summer of 2016 – the Department for Exiting the European Union (DExEU) and the Department for International Trade (DIT) – we look at the four other departments most impacted by Brexit: the Department for Business, Energy and Industrial Strategy (BEIS), the Department for Environment, Food and Rural Affairs (Defra), the Home Office, and Her Majesty’s Revenue and Customs (HMRC).
Brexit preparations have cost around £400m in 2017/18
The six departments will have spent approximately £400m on Brexit by the end of 2017/18. Defra has seen the largest increase in its spending, with almost £100m approved by the Treasury for its EU exit work.
That total exceeds the Treasury’s Whitehall-wide allocation of £250m for 2017/18 by £150m. That is because the Chancellor’s figure does not include the Brexit money allocated to DExEU and DIT over the Parliament in the 2016 Autumn Statement, or the additional money these departments are spending by reallocating their budgets internally.
Much of the effort in Whitehall so far has been on supporting negotiations, preparing future policy and legislation, and scenario planning for implementation. But the implementation work itself has yet to get going fully, with little progress made, for example, on a future EU migration regime. Some of the results of the policy work planned for 2017/18 – white papers on migration, and fisheries, for example – have also yet to be published and Defra’s consultation on the future of agriculture will not close until May 2018.
The cost will jump to at least £900m in 2018/19
The cost of Brexit in the year running up to the UK’s formal exit is likely to increase significantly. HMRC, which will play a critical role in preparing the border for Brexit, expects it will need between £300m and £450m for 2018/19 alone.*
With March 2019 fast approaching, the step change in Brexit costs partly reflects increased spending on the systems and processes necessary for life outside the EU. But in addition to this, teams across Whitehall will be supporting future relationship negotiations in Brussels and shepherding more legislation (both primary and secondary) through Parliament.
For the six departments we have looked at, we expect that roughly £900m will be required for work on EU exit in 2018/19. While this total is less than the Treasury’s allocation for next year, we have looked at just six departments and have made conservative assumptions where public information is not available.
The total cost could be as high as £2bn
Across the two years we have looked at, the expected cost of Brexit is about £1.3bn for the six key departments. The number across the whole of government could be much bigger. In the Autumn Budget, as noted above, the Chancellor set aside £1.5bn for Brexit preparations in 2018/19.
The Treasury is in the process of confirming the allocation of this money. It has committed to update Parliament on where this £1.5bn Brexit ‘war-chest’ is going, before the end of the financial year. Once those figures are released, there will be a clearer sense of the total cost of Brexit by March 2019. If all the money is allocated, the total amount spent over the years leading up to formal exit could be as high as £2bn.**
The big Brexit cost for government has been new civil servants
To date, half the money spent on Brexit has gone on staff. Numbers have increased particularly quickly in the new departments, with DExEU growing from 50 to around 700 and DIT adding 800 new Brexit roles.
Between June 2016 and March 2018, Defra expects to have filled 1,200 new full time equivalent (FTE) EU exit roles. The Home Office is planning to have hired 1,500 new staff by September 2018, and HMRC is looking to take on between 3,000 and 5,000 by March 2019.
Not all of these jobs will be filled by new civil servants; some will be covered by internal transfers within the civil service. But these internal transfers will need to be backfilled, or other planned work will not be done.
In 2018/19 alone, we estimate that the cost of new payroll staff working on Brexit in these six departments will be around £400m. The final figure could be significantly higher, though: our calculations do not include the cost of recruiting and training new staff, and are based on conservative estimates of expected staff increases between March 2018 and March 2019.
Brexit preparations have reversed the staff reductions made in those departments since 2010
At the time of the EU referendum, the civil service was at its smallest since the Second World War, and 20% smaller than at the start of the Coalition Government in 2010.
Brexit has already largely reversed these staff reductions in the departments we have looked at. Defra lost more than one in three members of staff between 2010 and 2016, but has grown by around 65% since June 2016. The Home Office and HMRC are seeing staff numbers return to pre-2010 levels.
Agency staff and consultants are playing a significant role, but they come at a cost
Departments are also bringing in contractors and agency staff to support their full-time employees, and enlisting consultants to help with organisational restructuring and reprioritisation in the run up to Brexit.
The Home Office, for example, is using around 50% more agency staff per month now than it was in the year before the referendum. If this continues, the department will have spent almost £40m more on agency staff in 2017/18 than it did between June 2015 and June 2016, with a similar amount expected in 2018/19.
While DExEU received pro bono work from the likes of Accenture, Deloitte and KPMG in 2016/17, it is now starting to spend, signing a £1.9m contract with McKinsey for six months of work in 2017. BEIS and Defra have both recently signed £1m contracts with The Boston Consulting Group.
The Government has slowly started to spend on new systems, with more expected in future years
Government spend on big technology and infrastructure programmes has been relatively small so far, but that is because many are still in the policy design stage and dependent on the outcome of the negotiations.
The main focus is on border technology. We estimate that an additional £21m has been committed to customs systems since the referendum, with significant cost increases to the Customs Declaration Service (CDS) programme. More money will be required to improve customs infrastructure.
Likewise, Secretary of State Michael Gove signed a ministerial direction at Defra in January 2018, allowing the department to spend £16m on new systems ahead of the legislative authority to do so, some of which will support trade.
The cost of these Defra systems, along with new Home Office systems for granting settled status and handling the arrival of EU citizens during a transition period and beyond, will rise in future years as the focus moves from design to procurement and building.
The real cost of Brexit will not be clear for some time
We look only at costs incurred ahead of the UK’s formal exit from the EU. Brexit will continue to cost money beyond 2019, as the UK prepares for and adjusts to its new relationship with the EU.
But the true scale of those costs will not be clear until the future relationship starts to take shape. Details still to be determined, like the UK’s relationship with EU regulators or its access to EU-wide customs systems, will affect the scale of the task in Whitehall – and the size of the bill for delivering it.
If the UK fails to negotiate the access to EU regulators that the Prime Minister wants, the costs are likely to grow – new arm’s-length bodies and new border functions will need to be operational. If it successfully negotiates continued participation in agencies and systems, the impact on Whitehall budgets could be less significant.
The Treasury has put aside a further £1.5bn for 2019/20. That could prove to be a fairly comprehensive slush fund, or just the beginning.
What this paper does not cover
This analysis only covers the six departments referenced. For staff numbers, it focuses on core departments, and does not attempt to cover the impact of Brexit on arm’slength bodies.
We rely on data, reports or information released by government. Where assumptions have been used to fill certain gaps, it is because data is not available. Calculations made on the basis of these assumptions will not be exact but offer an indication of size and scale. All assumptions are included in the text and referenced in endnotes and an appendix.
These costs reflect only the administrative costs incurred by Whitehall departments. They do not reflect the financial settlement agreed as part of the withdrawal negotiations, nor any other savings or costs anticipated as a result of Brexit. We do not include costs incurred in local and devolved governments.
Apart from the set-up costs for DIT and DExEU, we have ignored costs incurred in 2016/17 since data on these is not readily available, and they are likely to be minor compared to the costs for 2017/18 and beyond.
* We use £375m for our calculation of the £900m total across departments.
** This figure includes our £400m estimate for 2017/18, the £1.5bn set aside by the Government for 2018/19, and the £100m budgeted for DExEU in 2018/19 (which is not included in the £1.5bn).