The chancellor has said remarkably little about Brexit in his fiscal events to date.
The November Budget needs to put Brexit spending on a firmer footing.
But it will also be interesting to see whether the government – and the Office for Budget Responsibility (OBR) – give more information on the wider impact on the public finances.
In order for Brexit to happen as smoothly as possible, government departments need the funds to plan and prepare.
Last Autumn Statement, we had an announcement of money for the new departments and a bit extra for the Foreign and Commonwealth Office (FCO) – though this week the permanent secretary told MPs he was coming back for more. In the March Budget, there was little said on the topic.
Since then, the chancellor has made £250m available this year for departments to spend – and we know that key areas are increasing their headcount.
Clearly, with the additional work of preparing all aspects of governance for leaving the EU, additional resources are in order. Not only have the two new Brexit-related departments kept expanding, but so too are existing ones.
Or at least, they’re trying to.
The Department for Environment, Food and Rural Affairs has slammed on the handbrake and made a dramatic U-turn – after years of headcount reduction, it has increased staff numbers by 17 per cent since the Referendum.
That number would be higher if staff could be “onboarded” quickly enough. The need to get people through security vetting is proving a pinch-point. And the FCO has had problems in redeploying people to staff up embassies in Europe.
Meanwhile, the chief executive of HMRC has been given the green light to start spending. He’s already spent £78m on Brexit preparations this year, and told parliament’s Public Accounts Committee in October he would need £450m next year, and 5,000 staff, to be ready for a no-deal Brexit.
He also said he would be telling ministers that his department could not keep up the pretence that Brexit was deliverable alongside business as usual – and there would need to be a significant re-prioritisation in the spring.
Then there’s home secretary Amber Rudd, who has told the Home Affairs Committee that her department needs to start recruiting 1,200 new staff to register EU citizens as part of the government’s “settled status” scheme.
The dribbling out of information in specific releases and in select committee appearances reflects the overall ad hoc approach the government is taking to budgeting for Brexit. The Treasury is determined to hold onto the purse strings – and crawl over spending bids.
At the heart of this is a conflict over what should be spent when.
The chancellor made clear that he only wanted spending at the last possible moment, to avoid nugatory spend. Others in cabinet are much keener that the UK is visibly preparing for “no deal”. Those responsible for spending decisions in departments and agencies are caught in the crossfire.
So the first thing the chancellor needs to do in the Budget is put Brexit spend on a firm footing.
He needs to give departments the budgets they need – without recourse to Treasury micro-management – and make clear the agreed basis on which they spend. There is no reason to delay spending on changes we will need whatever the outcome of the Brexit negotiation.
The Brexit spend will, however, be relatively insignificant compared to the possible overall impact on the public finances of Brexit. That of course is for the OBR and not the Treasury to forecast (a division of labour for which the Treasury will be eternally grateful).
So far, the impact of Brexit has been quite modest – a downward revision to future growth as migration is controlled and trade flows to the EU reduce – and there is an assumption that any savings on our net contribution will be recycled into domestic government spending.
The interesting question is how the OBR treats Brexit in this year’s forecast, given that 2019-20 is well within the planning horizon. Will the forecast show any signs of an exit bill? How will its analysts cope with the degrees of uncertainty about the terms on which we leave and whether there will be any transition?
The OBR is not supposed to model alternative policies. But in Florence, the Prime Minister was only clear on what she does not want – even though the EU is sticking to the line that there is no middle ground.
The forecast is out of the chancellor’s control. He should focus on where he can make difference – making sure government departments have what they need to deliver Brexit, establishing a clear process for agreeing contingency spend, and then letting departments get on with it.