Cabinet secretary Simon Case has blamed the last government's failure to update plans set out in its 2021 Spending Review for the multi-billion-pound funding shortfall identified by new chancellor Rachel Reeves.
Case's observations come in a letter to former chancellor Jeremy Hunt, who reacted furiously to Reeves's claims that Treasury officials had identified a £22bn "black hole" in the nation's finances in a 29 July statement to parliament.
Hunt said the claims risked bringing the civil service "into disrepute" as they were at odds with figures in the departmental "main estimates" spending plans presented to parliament just 12 days earlier. He wrote to Case expressing "deep concern" over Reeves's figures and asking whether senior officials would face sanctions if it turned out that they had signed off on estimates that were "wrong".
Case's 1 September reply to Hunt rejects the suggestion that Reeves's claims of a £22bn financial shortfall risk bringing the civil service into disrepute in light of the main estimates figures.
Case argues that the last government's decision not to update its 2021 spending plans in the face of "significant pressures" – such as those resulting from Russia's invasion of Ukraine and September 2022's disastrous mini-budget – contributed to the current situation.
"The sizeable in-year changes to spending plans in recent years have resulted from the lack of a new spending review to replan departmental budgets in the face of significant pressures which have materialised since budgets were set in 2021," Case wrote.
"By the time the election was called, we were in the final year of the 2021 Spending Review period. The most effective way to transparently identify, quantify and address those pressures would have been to conduct a prompt spending review."
Hunt and then-PM Rishi Sunak this year pointedly refused launch a new spending review ahead of calling a general election, prompting some Whitehall watchers to fear a funding "cliff edge" for departments if polling was delayed until November, December or even January 2025.
In his letter to Hunt, Case said that "unlike previous years", the current government had chosen to "set out to parliament the pressures that it is having to manage down and the actions it is taking to do so".
In her 29 July speech to parliament, Reeves included a projected overspend of £6.4bn in the asylum system and a £2.9bn overspend in the transport budget in the £22bn "black hole" calculation. The figure also included £9bn for settling public sector pay claims, after Reeves said the previous government had "failed to prepare" for the recommendations of independent pay-review bodies.
'No time to revise last government's main estimates'
In his letter to Hunt, Case said the timing of July's general election had forced the new government into presenting main estimates prepared for the previous administration to parliament days after it had taken office.
"As you know, preparing estimates takes a considerable amount of time. With the House rising for summer recess on 30 July, there were only 10 sitting days available to lay estimates and secure royal assent, compared to the normal timetable of around five weeks of preparation and two to three months of parliamentary scrutiny," he wrote. "It would therefore have been impossible to prepare a completely new set of estimates in the time available."
Case said departmental accounting officers had been made aware of Reeves's intention to set out the pressures departments were facing last month and "were able to proceed in light of the opportunity to adjust at supplementary estimates".
He added: "I am confident accounting officers have acted appropriately on the basis of decisions and assurances provided by ministers."
Responding to the letter, Hunt today said that Case's letter was anything but a vindication for the new government and raised "more serious questions" for them.
"If civil servants signed off estimates to parliament that they knew were false, it is a breach of the civil service code irrespective of any decision by the last government to hold a spending review," he wrote on X.
"But if those estimates were not false – and the cabinet secretary says accounting officers acted appropriately – then Labour’s claim of a £22bn ‘black hole’ is exposed as bogus.
"In reality it is a political device to justify tax rises – a political choice the government made long before the election."
Last week independent think tank the Institute for Fiscal Studies singled out the Home Office for criticism over its recent "bad habit" of submitting "unrealistically low" main estimates to parliament and then seeking to resolve the situation with supplementary estimates later in the year. It said the practice was likely to be a breach of Treasury rules.
In a direct reference to the spat between Hunt and Reeves, research economists Max Warner and Ben Zaranko said the chancellor had been right to flag a genuinely big in-year asylum spending pressure that had not been budgeted for. Nevertheless, they said she may have overstated "the extent to which this was unforeseeable and unexpected".
Warner and Zaranko said Hunt was right to say the asylum funding pressures cited by Reeves seemingly contradicted the main estimates put before parliament.
But they added the situation was "only because the Home Office and HM Treasury are continuing the poor budgeting practice of recent years, including the period when Mr Hunt was chancellor".