HM Treasury has written to ministers signalling a clampdown on departments’ ability to seek additional funding from the Treasury Reserve to deal with new financial pressures.
A letter from newly-installed chief secretary James Murray stresses the need for departments to “take responsibility” for changes to their own financial position, and for efficiency plans set out in June’s Spending Review to be adhered to.
Murray’s call, which comes seven weeks ahead of chancellor Rachel Reeves’s Autumn Budget, also puts departments on notice that in future they will be required to repay any successful claims from the Treasury Reserve.
The Treasury Reserve is essentially a pool of additional funding that departments can tap to deal with what official guidance describes as “genuinely unforeseen, unaffordable and unavoidable pressures” that cannot be absorbed within their agreed budgets.
The reserve can also be used for “special cases of expenditure that would otherwise be difficult to manage”. In recent years, the Home Office has come under criticism for relying on the Treasury Reserve to cover asylum costs.
Independent think tank the Institute for Fiscal Studies last year said the Home Office’s habit of submitting “unrealistically low” spending estimates and then looking to make up the balance from the Treasury Reserve was “deeply unsatisfactory”.
In his letter, Murray – who replaced Darren Jones as chief secretary to the Treasury last month – told ministers that in future their departments will be expected to make greater efforts to manage financial pressures in-house.
“To keep tight control on public spending, departments must take responsibility for managing pressures and making choices about priorities without relying on the reserve,” he said.
“We must deliver the efficiency plans set out in June – reducing administrative budgets, including those of arms-length bodies and agencies – and deliver comprehensive digital transformation.
“I would ask you respond to any pressures your department faces by making offsetting savings and by taking choices about reprioritisation.”
A parliamentary briefing for MPs published last year noted that the Department for Education was the biggest single recipient of Treasury Reserve funding in 2023-24, with a claim for £18.5bn that accounted for 45% of all reserve claims. DfE’s claim reflected a change in the valuation of the stock of student-loan debt owed to the government.
The Home Office made the second biggest claim for Treasury Reserve funding in 2023-24, with £4.3bn sought for asylum costs.
The Department of Health and Social Care was in third place, with a claim for £2.8bn to cover NHS pay, industrial action and winter costs incurred by the health service.