The Home Office has been accused of submitting “woeful” budget figures under successive Conservative ministers – which officials knew understated the ballooning cost of asylum and illegal immigration spending.
In a report partially vindicating Rachel Reeves’s claim that the new Labour government inherited a far worse financial situation than initially thought, the Institute for Fiscal Studies (IFS) thinktank suggested the Home Office had repeatedly lowballed its budget estimates.
It found ministers knew budgets it had submitted were insufficient and habitually drew on Treasury contingency reserves, a practice that one Labour source described as “like the wild west”.
Labour said it was proof the previous government had “covered up” the extent of the crisis in the asylum system and that ministers “ran away from the problem”.
Government sources said the IFS had now shown “in black and white” that there was a black hole in the public finances that was previously unknown.
“This is entirely consistent with the situation we have found in government,” one said. “Previously ministers had no regard at all for value for money, it is a really serious dereliction of duty.”
Analysing three years of financial records, the IFS found the Home Office had told parliament at the start of each year it needed an average £110m to cover the UK’s asylum, border, visa and passport operations. However, it ended up spending vastly more: an average of £2.6bn a year.
“The Home Office has got into the bad habit of submitting initial budgets to parliament that it knows to be insufficient, in the expectation of a top-up from the Treasury’s contingency reserve later in the financial year,” it said.
The chancellor claimed last month she was facing a £22bn “hole” in the public finances left by the Tories, triggering a furious row with her predecessor, Jeremy Hunt, who dismissed the claims as “absolute nonsense”.
The IFS had also been critical publicly of an apparent political strategy by the chancellor to “discover” that the public finances were worse than expected.
But the IFS director, Paul Johnson, admitted in a post on X that when Reeves released her findings from a Treasury audit last month she had uncovered spending that “does genuinely appear to have been unfunded”.
In-year spending pressures relating to asylum and illegal migration were one of the largest items identified in that Treasury audit commissioned by Reeves in the first week after Labour’s general election landslide, amounting to an estimated £6.4bn in the current financial year.
Hunt argued the figure contradicted the budgets signed off by civil servants just weeks before the election, and said Reeves had confected a story about a “black hole” as a smokescreen to justify tax rises she was already planning.
The IFS said both “have a point” – but only because of “poor budgeting practice” in recent years at the Home Office and the Treasury, including during the period when Hunt was chancellor.
A Labour spokesperson said the report laid bare the state of the new government’s inheritance.
“Instead of reflecting the real costs of the asylum system in Home Office budgets, the previous Conservative government covered up the true extent of the crisis and its spending implications, leaving behind an unforgivable inheritance with nothing to show for it except record high small boat crossings in the first half of the year,” they said.
“Every time the Conservatives faced a difficult problem, they failed to be honest. They knowingly overspent on departmental budgets, covered it up, called an election and ran away from the problem, leaving a £22bn black hole in the country’s finances for Labour to clean up.”
Home Office spending has increased in recent years after a sharp rise in migration, while a lack of resources has contributed to a vast backlog of asylum claims – further driving up costs as people have been housed in hotels while awaiting the outcome of their applications.
However, the IFS said the Home Office had submitted budgets that relied on bailouts from the Treasury’s reserve fund – normally used for unexpected spending pressures – even though it knew it was facing rising costs.
The Home Office last month submitted a budget that included a top-up worth £1.5bn from the Treasury for its asylum operations. But even then, the department said this was “not sufficient to support those currently in the asylum system”, indicating that it would need more cash to cover its costs.
Despite £800m of expected savings after the new government scrapped the Conservatives’ Rwanda scheme, the IFS said a further top-up of about £4bn appeared “all but inevitable” this year.
While the ballooning costs linked to asylum and immigration have been well documented, the IFS suggested Reeves may not have had the full picture before she entered government.
Max Warner, a research economist at the IFS, said: “The way in which the Home Office and Treasury have budgeted for asylum costs leaves a lot to be desired. When there is a one-off unexpected spike in costs or demand, spending more than was budgeted is entirely understandable. But when it is happening year after year, something is going wrong with the budgeting process.”
A Labour source said: “The sheer scale of the Tories’ utter incompetence at governing is a total farce. Why have a budget process at all if you’re just knowingly going to overspend year on year?
“James Cleverly [home secretary, November 2023-July 2024] ran the department like the wild west. This is just the latest in an increasingly long list of Tory failures and dishonesty coming to light which proves the British people worked them out correctly in July.”
A Conservative source hit back and said the government had not set out any plans to reduce the costs. “This is why we were doing Rwanda, a solution to costs spiralling. Labour have ditched that with no replacement,” they said.
Cleverly, now the shadow home secretary, said: “Border control has never been free. By scrapping our deterrent on day one of a Labour government, the asylum bill will soar for taxpayers under Keir Starmer’s government. The government must urgently come forward with a plan to stop illegal boat crossings and end the use of expensive hotels to manage down costs within the asylum system.”
A Home Office spokesperson said in a statement provided after publication: “This government is determined to restore order to the asylum system so that it operates swiftly, fairly and in the interest of taxpayers. We will not be taking the costly migration and economic partnership with Rwanda forward, while taking immediate action to clear the asylum backlog and reduce the use of expensive hotels.
“We have been clear the prior approach was to fund the majority of asylum system costs through the supplementary estimate. As part of the ongoing spending review, in future we are seeking to include these costs in the main estimate.”
• This article was amended on 29 August 2024 to add a comment from the Home Office received after publication.
