Watchdog slams Home Office for £2.6bn asylum overspend

A watchdog has criticised the Home Office for years of poor budgeting, leading to significant overspending on asylum. Over the past three years, the Home Office allocated £110 million annually for asylum operations. However, a report from the Institute for Fiscal Studies (IFS) revealed that the actual expenditure averaged £2.6 billion each year.

Max Warner, a research economist for the IFS, mentioned that occasional budget overruns due to unexpected spikes in costs or demand are understandable. However, he stressed that consistent overspending indicates a flawed budgeting process.

The IFS accused the Home Office of habitually presenting initial budgets to parliament that were knowingly insufficient, relying instead on additional funds from the Treasury’s reserve. Last year, this top-up amounted to an extra £4 billion. The watchdog claimed that the current government is repeating these mistakes, submitting figures it knows are inadequate and already factoring in a £1.5 billion Treasury top-up, with another £4 billion deemed almost inevitable.

This budgeting issue underpins the dispute between former Tory chancellor Jeremy Hunt and his Labour successor Rachel Reeves, which erupted shortly after Reeves assumed office. She accused Hunt of lying about the UK’s financial state, citing a £22 billion funding gap, including £6.4 billion needed for asylum and illegal migration in 2024/25. Hunt refuted this, arguing that the budgets he presented to parliament, and signed off by civil servants, contradicted her claims.

The IFS acknowledged both politicians have valid points, attributing the problem to continued poor budgeting practices by the Home Office and the Treasury. The watchdog agreed with Reeves’ criticism of the previous government’s failure to budget for asylum pressures but noted that she might have overstated the unpredictability of these pressures. It also recognised Hunt’s right to question Labour’s budget estimates, as similar concerns existed during his tenure as chancellor.

A Labour spokesperson reiterated the party’s criticism of the previous Tory administration, accusing it of concealing the true extent of the financial crisis and leaving a significant fiscal gap. They argued that the Conservatives knowingly overspent on departmental budgets, covered it up, and called an election, leaving a £22 billion deficit for Labour to address. The Labour government has begun efforts to rectify this situation and create an effective asylum system.

Shadow home secretary James Cleverly commented that border control has always incurred costs. He warned that scrapping deterrent measures would increase the asylum bill under Keir Starmer’s government. Cleverly urged the government to develop a plan to stop illegal boat crossings and reduce the reliance on expensive hotels to manage asylum costs.

The report emerged amid speculation about potential tax increases as Reeves prepares to deliver her first budget on 30 October. Prime Minister Sir Keir Starmer warned of difficult decisions ahead to stabilise the UK economy. While the details remain unclear, the chancellor did not rule out increases to inheritance or capital gains taxes during a press briefing.