Government departments should not expect to receive individual funding settlements like the one given to the NHS even if there is a delay to the Spending Review planned for later this year, the chancellor has said.
Giving evidence to parliament’s Treasury Select Committee today, Philip Hammond did not rule out the possibility of allocating department-specific funding settlements before a full Spending Review, but said he would oppose such a proposal.
“Setting those allocations for a single department or a single subset within a department would pre-empt what should be a proper balancing discussion across the range of public expenditure,” he said.
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Earlier this month, Hammond said the upcoming Spending Review may not begin before the summer recess as planned because the UK has yet to agree a Brexit deal with the EU.
Asked today whether the exercise could be pushed back to next year, Hammond said the Treasury would “keep an open mind about how the process should unfold”.
He added: “It seems to me that we need to have a clear understanding of where our economy is likely to be going over that three-year period in order to carry out that exercise.”
Challenged on the decision to announce a multi-billion pound settlement for the NHS ahead of the Spending Review last year, Hammond said that had been an “exceptional decision… which we judged was necessary in order to address some of the challenges that it was facing, particularly around workforce planning”.
But he said other departments should not expect the same treatment.
“It would be possible to set a department’s budget or a sub-budget out of the context of a Spending Review, but I wouldn’t recommend it,” he said.
Keeping options open
Hammond also cited Brexit-related uncertainty when asked whether he intended to run a budget surplus in the coming years.
He said for the first time in a decade, the government had "options" about whether to balance its budget or achieve a surplus.
"Given that there is very significant uncertainty about the future trajectory of the economy right now and will remain so until we have resolved the Brexit issue, I don’t think it makes sense to plump for one option or another and rule out the optionality at the moment," he said.
Questions have been raised about whether the chancellor intends to increase spending on public services, as despite his pledge to "end austerity", average departmental budgets are expected to remain flat in real terms.
Asked by committee chair Nicky Morgan whether the government should step up funding for public services in response to reduced private investment in the UK since the EU referendum, Hammond insisted private investment had merely been "postponed".
He gave scarce other details about his plans for the Spending Review but did say that as in previous rounds, departments would be encouraged to submit joint bids for funding in areas such as national security. He added that the Treasury would take a “more in-depth look" at the process for allocating cross-cutting funding.
“We’ve not completed our plans for what we do here, we’ll decide when we launch in the summer, but there are other areas of spending where you could take a similar approach – criminal justice would be certainly an example,” he said.
Brexit preparations to continue
Hammond told MPs that Brexit preparations were taking up a “huge chunk of the Treasury’s capacity”, with 400 of the department’s 1,500 full-time equivalent staff working solely on Brexit-related roles.
And he reiterated assurances by both cabinet secretary Sir Mark Sedwill and prime minister Theresa May that across government, “medium-term work” to prepare for a potential no-deal scenario, such as building IT systems, would continue in the coming months.
This would ensure a “higher level of preparedness” if no deal is in place by the revised Brexit deadline of 31 October than if the UK had left the EU in April, he said.
He acknowledged that “the legal default remains exit without a deal if we can’t reach an alternative conclusion, and therefore it is prudent to continue planning.”
Hammond also confirmed reports that Operation Yellowhammer, the government’s contingency planning for a no-deal Brexit, had been paused in light of the October extension.
“The heightened and immediate work to prepare for a potential no-deal exit in the middle of April was stood down – crisis management teams that were working on an emergency basis were stood down, and that work if we approach October 31 without a resolution, will have to be stood up again but It can’t keep going at that intensity because people were working incredibly long hours, seven days a week,” he said.