Civil service chief weighs in on Labour’s £22bn ‘black hole’ – who is right?

In a highly unusual move, Simon Case – cabinet secretary and head of the civil service, a job that includes protecting the impartiality of the government machine – has engaged in direct debate with the opposition over some sensitive political issues.

In a letter to former chancellor Jeremy Hunt, Case appears to criticise the previous government’s approach to managing public finances, thus addressing the question of the £22bn “black hole” Labour accuses the Tories of leaving behind. The private note was leaked to the media, raising some troublesome questions…

Because Hunt wrote to him first – publicly – seeking his support against Labour’s claim it has been left with a mess. Hunt asked if it was right for Labour “to make claims about the public finances to the House of Commons which directly contradict the documents and legislation the new government has put before parliament, signed off by Senior Civil Servant Accounting Officers”.

Hunt’s argument was that there could be no sudden emergence of a “black hole” when the new Labour administration had accepted the previous government’s figures, as laid out by Treasury civil servants. (In other words, Hunt implied, Rachel Reeves is just looking for a big excuse to raise taxes, which she planned to do all along.)

Oblique, and technical. Case praised Labour’s handling of actual spending versus planned spending, which can be taken as a criticism of recent Tory failures to keep on top of this.

“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 that have materialised since budgets were set in 2021,” he wrote.

“Unlike previous years, this government has set out to parliament the pressures it is having to manage down, and the actions it is taking to do so.”  Ouch!

It has been a little damaged but none of this is really Case’s doing. As cabinet secretary, he was placed in an impossible position by Hunt who was visibly angry at the Labour claims, but he should not have been. His private letter to Hunt was inevitably leaked, doubtless by a political figure on the Labour side, but on balance was damaging to the civil service as an institution.

“The real story behind this letter is that, far from endorsing the government’s spurious £22bn quote, it makes no mention of it whatsoever … and defends the civil servants who told parliament it did not exist,” Hunt said. Given that Case didn’t back him up, Hunt chose not to pursue the matter further.

She’s staying out of it, wisely. Case’s words speak for themselves, albeit quietly, and it’s generally a good idea not to drag the civil service into politics; apart from anything else, as Hunt has discovered, it can backfire.

Labour’s defence has previously been that it accepted Tory numbers for technical reasons: estimates were prepared before the election, and the government was forced to lay them unchanged in order to allow them to be voted on before the summer recess. It’s true that the pay rises for doctors and train drivers were political choices that made the black hole deeper, but trying to keep the lid on public sector pay indefinitely was not sustainable.

Nothing. Having served during turbulent times under Boris Johnson, Liz Truss and Rishi Sunak, and overseen the transition to Keir Starmer, he’s expected to move on himself before too long. He’s made his mistakes – but look who he had to work with.

With the elephantine gestation period of the next Tory leader finally coming to an end, a new shadow chancellor will be appointed to face Reeves, and the details of this arcane and vexed argument will melt away.

However, Labour will still bang on until the next general election about its dreadful economic inheritance, the £22bn black hole. It is what politicians do: even at the last election, ministers were still using the state of the economy they took over in 2010 as a justification for austerity, and the 1978-79 “winter of discontent” that brought down the Callaghan government was being deployed in Tory propaganda well into the 1990s.

Not as bad as Labour made out, in some respects, and a complicated thing to assess at this stage, though the Truss mini-Budget was a historic and unmitigated disaster. The record on inflation and employment is mixed; public finances were not on a sustainable footing, albeit partly because of the damage inflicted by the pandemic and the energy crisis, but also because of Brexit.