Departments could see their existing budgets extended for a year because the timing of the Treasury’s upcoming Spending Review has been jeopardised by the delay to the Brexit process, Philip Hammond has revealed.
The chancellor said in last month’s Spring Statement that the Spending Review was due to kick off before the parliamentary Summer recess begins, "assuming a Brexit deal is agreed over the next few weeks".
At the time, he said the latest zero-based spending exercise, covering the three years from next April, would then be presented in the Autumn Budget.
But Hammond told reporters on Friday that the timing of the process threatened to be knocked off course by delays to the UK’s withdrawal from the EU.
Speaking at the International Monetary Fund's spring conference in Washington DC, Hammond warned that it would be “inappropriate” to carry out the review while uncertainty over the future trajectory of the UK economy, resulting from the absence of a Brexit deal, continued.
Hammond said: “If we don’t have a [Brexit] deal done, the level of uncertainty that will remain probably makes it inappropriate to do a long-term Spending Review.”
However, a review will still be on the cards if a deal is concluded swiftly, the chancellor said. “If we get a deal through parliament in the next few weeks I expect to conduct a full three-year Spending Review of resource spending and a longer review of capital spending.”
He also said that the need to prepare for a potential no deal Brexit had diverted civil service resources from preparing for the Spending Review.
“At the purely technical level, there’s is a bandwidth issue. Huge areas of the civil service have been focusing on no-deal preparations... so some of the preparatory work [for the Spending Review] that would normally have been done in departments may not have been done or may not be as advanced as would otherwise be the case.”
Departmental budgets have been set until the end of the current financial year, next April, when the five-year Spending Review fixed in 2015 by Hammond’s predecessor, George Osborne, expires.
If the long-term review cannot be carried out, departmental budgets will have to be extended for a single year.
The government has already announced that the review will see spending across government rise by 1.2%, the first increase since the austerity programme to cut public spending was introduced in the wake of the 2008 global recession.
However, critics have pointed out that this 1.2% uptick factors in a rise in NHS funding – amounting to an annual 3.4% rise until 2023 – and that when this is removed, overall spending will remain flat in real terms.
Hammond appeared to confirm this analysis earlier this month, when he said not all government departments should expect a budget increase in the Spending Review.