In the chancellor’s speech on 29 July, and accompanying report ‘Fixing the foundations’, we were told that this year’s likely departmental government overspend is, as of now, £22bn over the limits set by the Treasury in its spring forecast. Along with the announcement, there was an accompanying degree of cynicism in parliament and in the press that Labour had intended from the outset to find or create a shortfall in order to raise taxes at a later date.
Prior to the election Rachel Reeves had access to government officials and the ‘books’. So it is widely assumed that this meant she knew the state of the economy prior to taking office. This article explains why some of the information Reeves received (or understood from the accounts she was given) does not represent the full picture which can only become evident once in office.
Access talks for incoming ministers
As is normal practice, incoming Labour ministers had ‘access talks’ with civil servants towards the end of the Conservative government. These meeting are held at a very high level in the civil service with a small core group of civil servants and shadow ministers. They are primarily an opportunity for the opposition to set out their thinking and plans to enable officials to begin work on them in readiness for government. There will also be discussions about any changes the prospective government hopes to make in the workings of government that will impact on the civil service and how best this can be taken forward.
Civil servants are loyal to the government of the day right up to the handover and are constrained in what they can say in access talks. They must never pass the advice given to one government onto the next. It is in often in these policy documents that the most pressing concerns will be raised and information exchanged between civil servants and ministers.
Civil servants cannot express concerns about any chaos, overspends or crises that may await the new minister. It is not within their remit to raise concerns, but to listen and answer questions. They are not preparing a new government; they are preparing themselves for the change and enabling the opposition to prepare themselves better if they so choose. The meetings are key for relationship and trust building and for enabling politicians to go away to do their own thinking and ask more pertinent questions on day one.
Entering office as a new minister
When a new minister is appointed, they will be welcomed to the department, meet key people, perhaps make a speech to staff, be briefed on national security issues and be asked to sign off pressing decisions (usually expenditure) which have been delayed because of the election.
The government’s spending plans presented to parliament on 17 July 2024 and signed off by Reeves are a good example. She signed off the budgets prepared under the previous administration but now says they are wrong. Had she not signed them off a fortnight ago, government expenditure and government business, including public services, would have come to a standstill over the summer recess.
When new ministers arrive, civil servants will also open discussions on the most critical risks the department has to manage. In Reeves’s case, this was likely to have been the overspend.
In addition to pressing business, civil servants will also explore the minister’s policy priorities and their personal preferences – such as how information is provided, how their time is allocated and even how they like their coffee. The aim is to enable the minister to function and be in control of their department from the moment they enter it.
Civil servants, across all policy areas, prepare briefing notes for the incoming government outlining the policy at the time of the election and any potential challenges. Most of these will not be included in the ‘briefing packs’ for new ministers (which can run to hundreds of pages and which they may never have time to read). So as not to overwhelm a new minister, permanent secretaries will have a small list, and briefing notes, of the key concerns the new minister will have to immediately address e.g. prison overcrowding.
Personal or political?
In the opening days of a new government, civil servants will also seek to understand the more personal views and preferences of their new minister and the impact this may have on how best they can support them in their role. For example, Theresa May was known for her capacity to understand detail and wanted all the information before making a decision. Boris Johnson preferred discussion to paper, with all sides of an argument addressed in Socratic form.
Civil servants’ understanding of their minister as a person is crucial to how they approach their task. Their role is to enable the minister to make good decisions. Mostly this approach works well. Minsters are generally intelligent and able to quickly grasp their brief and understand that civil servants are trying to help them.
This was true for the vast majority of Conservative ministers and exceptions, such as Kemi Badenoch, were comparatively rare (though well publicised). Keir Starmer’s appointment of Sue Gray and his desire to reset relationships with the civil service may encourage them to be more open with the new government about pending problems and concerns. Having the respect of ministers will enhance civil servant problem-solving capabilities.
Over the past few months, we have seen quite a bit of Reeves in the public domain. It appears she likes detail, is scrupulous in how the finances are handled, and wants funding to precede policy. Writing this as an outsider, reliant on the media, it appears to me that her mindset is more ‘accountant’ than ‘economist’ (her background).
If this is the case, civil servants will have to work out how best to ensure she has all the information she needs about the deficit management, almost day-by-day, while also ensuring work is being undertaken on the overall state of the UK and global economy in order for well-informed longer-term decisions at the next spending review and to set the ‘growth’ agenda. These agendas (and mindsets) are in conflict. Good civil servants will help the minister find a route through. The less able, or where a relationship of trust is absent, will push for the minister to prioritise concerns and work on the most pressing.
For most civil servants, a minister’s success is theirs. For example, Antonia Romero is one of the most highly regarded civil servants by both ministers and civil servants and pipped to succeed Simon Case. She was the permanent secretary responsible for the disastrous ‘Grayling reforms’ (Chris Grayling) of the probation service. But she delivered exactly what Grayling ordered; the failure was one of policy and principle.
What would it have been reasonable for Reeves to know pre-election?
Reeves’ economic background and long period as shadow chancellor means she may have been better prepared than many for her role. The dire state of the UK’s finances was no secret, and she commissioned a report on this on 8 July, the first full working day after the election. While this may have been her intention before gaining office, based on prior information, it may also have been on the advice of civil servants who could see the problems ahead and thought she should be better informed from the outset.
There are comprehensive and very detailed systems for accounting for public sector finance, with oversight from the Office of Budget Responsibility (OBR), the Public Accounts Committee (PAC) and departmental audits. Departmental accounting officers have to sign off all departmental expenditure.
The work of the PAC is retrospective, scrutinising the work of departments. The OBR forecasts future expenditure, and many commentators have noted that these forecasts were available to Reeves prior to the election. These forecasts are based on what is included in departmental budgets and it is now known that the following government expenditure was not:
- Unfunded policy announcements
- The impacts of inflation
- Recent events, such as the invasion of Ukraine
- Public sector pay
Reeves would therefore not have known about these before entering office. Nor would she have known about the anticipated, and hefty, 40% departmental overspend.
Fudging accounts and shifting budgets
It is normal practice for civil servants, within spending review periods, to implement modest government policies without seeking additional funds. They are always shifting resources and money to meet priorities and demands. Shifting civil service resources between Covid and Brexit as each crisis hit is a good example.
Rarely are these resource reallocations discussed with ministers unless the sums are large, or the impact is likely to be great. Money allocated to outside organisations such as the health service cannot be shifted elsewhere. But new funding or projects can be postponed, or funding can remain unadjusted for inflation or pay settlements. This appears to be what’s happened in terms of some of the shortfall now identified, and it’s unsustainable as the gap increases year on year.
But some of the big-ticket underfunded items are not due to accounting irregularities. They are due to politics. The government did not fund Brexit, because no adverse impacts were anticipated that might have had to be managed and funded; it was sold as a revenue generating scheme, not a cost. Similarly, with Rwanda; it anticipated that it would save money through a deterrent effect (and Jeremy Hunt is still maintaining that it would) in spite of all the evidence to the contrary.
Reeves’s assumption that these policies would and should have had budgets and funding attached to them is reasonable. However, it would also have been reasonable for her to have anticipated that they might not be funded given all the government pronouncements about their savings capabilities.
Reeves has expressed her views strongly. They will have been heard across Whitehall and will influence departments as they revise budgets and begin implementing new policies for their ministers. Just as strong pronouncements about expected savings from Brexit or Rwanda prohibited the inclusion of proper costings in prepared accounts, Reeves’s understanding of what ‘counts’ and how, will have an impact.
A book-keeping approach may be necessary in the first few months but if departmental heads are unable to fudge and transfer resources where they can without ministerial approval, no policies will be implemented. Some ministerial ignorance will be needed to get the job done.
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