Re-drawing the Whitehall map after Brexit

May 30, 2018

Tom Tugendhat, the chairman of the Commons foreign affairs select committee, is widely seen as one of the up and coming figures on the Conservative backbenches. And this week he delivered a speech on the future of the UK’s Foreign and Commonwealth Office that is worth attention.

In an address to the Royal United Services Institute, Mr Tugendhat lamented the fact that the FCO was no longer a “strategic engine” of UK foreign policymaking, having “lost control” of key policy functions such as trade and international development.

He said that following Brexit, the FCO should regain “strategic control” over trade, defence, aid and intelligence as well as retaining its traditional lead on diplomacy.

“Successive foreign secretaries, including the current one, have been hobbled,” he said. “They have had the title but they have not had the power.”

In one sense, this intervention is no surprise. Many experts in defence and diplomacy (Mr Tugendhat is a former soldier) bemoan the fact that the FCO’s influence has diminished and that it struggles for funds.

But his speech is particularly interesting for its timing. Once Britain leaves the EU in March next year, there will be another significant redrawing of the departmental map across Whitehall. As Jill Rutter of the Institute for Government says: “We can see that friends of the FCO . . . are limbering up for the battle ahead.”

Whitehall has already been through a huge overhaul since the 2016 referendum. Two new departments, the Department for Exiting the EU and the Department for International Trade, have been set up. Others, like the Department for the Environment, Food and Rural Affairs, have seen huge personnel expansion.

As Brexit Day approaches, however, senior mandarins are having to address three questions.

First, what will happen to Dexeu? There is a growing impression across Whitehall that after Brexit day, the department will be folded up. There has already been a shift of power to Olly Robbins and his team at the Cabinet Office who are keeping tight control of the Brexit negotiations at the London end.

Secondly, who will lead the fully fledged UK-EU trade negotiations after March next year? This will be an immense undertaking, the scope of which will become clear with the likely publication of a 150-page white paper next month.

Some officials are already betting that the Cabinet Office will lead the FTA negotiations under a newly appointed first secretary of state. David Lidington is seen by some officials as the best equipped candidate for the job.

“The trade negotiation will be a whole of government operation in a way that the Article 50 process wasn’t,” says Ms Rutter. “The Cabinet Office will be seen by many officials as the right place from which to lead it because it can act as an honest broker between departments.”

Thirdly, what will happen to the Department for International Trade? Many officials assume that Liam Fox’s department will continue as a separate ministry.

However, Mrs May is clearly contemplating the idea of the UK staying in a customs union for at least three years after 2019, raising doubts about how quickly the UK can do trade deals with non-EU states. This is adding to speculation that DIT might as well be folded into another ministry.

“DIT ministers still sit inside the Foreign Office building,” says Ms Rutter. “At some point down the line, it’s not inconceivable that FCO might make a lunge at DIT.”

We shall soon see how this inter-departmental contest plays out. Ministers and mandarins are likely to engage more fully on it this summer. Meanwhile, Mr Tugendhat’s speech feels like an opening salvo in the battle ahead.

The City of London is strong enough to go it alone post-Brexit

“The main choice is between equivalence and mutual recognition — and this would cover both the services themselves and the qualifications of those providing services. However, in the absence of an agreed solution with the EU, there is growing support for World Financial Centre model, where the City ‘goes it alone’.” (Professor David Blake of Economists for Free Trade, on BrexitCentral)

Italy shows Brussels only believes in democracy when it produces ‘correct’ result

“The conflict between democracy and the EU is inevitable because the European project is based on the erosion of national sovereignty. Lacking popular support, the work of building the desired political union can proceed only by bullying and deception.” (Norman Lamont on MailOnline)

Snoek signals: May must learn from history or face a fishy fate

“If Theresa May does not force Liam Fox to accept changes to his trade bill, including amendments on a customs union, the threats of mile-long queues could become a reality — and that will mean perishable goods failing to reach supermarket shelves in time. It could also see the enforced changes to the British diet.” (Bill Esterson, shadow international trade minister, in The Times)

Hard numbers

Funding the UK National Health Service through a dedicated tax risks fuelling public mistrust in politicians by failing to deliver consistently higher public expenditure, a leading think-tank has warned.

Since the administration of the day would set the level of the hypothecated tax for the health service, “the governments that decided on the boom and bust in spending we have seen since the inception of the NHS may simply decide on more of the same”, said the King’s Fund in a report published on Tuesday.

Some “independent, non-political input” into setting the budget for the NHS and social care, and the tax rates needed to finance them, would be needed, it added, suggesting a version of the Office for Budget Responsibility, the UK fiscal watchdog that assesses the long-term sustainability of the public finances.

The think-tank also warned in its report that, if national insurance were the chosen vehicle for a hypothecated tax to cover the entire NHS budget, rates on higher earners might have to rise and NI be extended to people beyond state pension age, in order to raise sufficient funding.

The King’s Fund study on the pros and cons of hypothecation comes as the debate over how best to find billions of pounds more for the NHS accelerates, marked by growing tensions between the Treasury and the Department of Health and Social Care over how much the country can afford to pay.

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