Lessons still to be learned from the Chilcot Inquiry Contents

Annex: Note from the Chair of PACAC to the Cabinet Office on Leaving the EU and the Machinery of Government

Leaving the EU and the Machinery of Government

The heart of the process of leaving the EU comprises the negotiation of the UK’s “withdrawal agreement” with the EU, as referred to in Article 50. Leaving the EU represents perhaps the most significant test to face Whitehall since 1945, not least because of the absence of pre- referendum contingency planning in Whitehall.

A key question for the new Prime Minister is to decide the extent to which negotiations should extend beyond the process of leaving the EU to include a comprehensive agreement which defines future UK-EU relations. In order to minimise uncertainty, the UK government should wish to leave the EU as swiftly as possible. The withdrawal agreement should reflect this political urgency and be capable of swift implementation.

Whitehall now faces three distinct tasks:

(1)  Agree the terms of the Article 50 withdrawal agreement, covering issues such as the acquired rights of EU and UK nationals; budget matters; and arrangements for the transfer of programmes and vital activities under EU institutional jurisdiction to the UK Government and/or placed on to a government-to-government basis.149 It may also be necessary to address some issues covered by pan-EU regulation, such as civil aviation, and data protection and control.

(2)  Agree the terms of the UK’s future relationship with the EU. For example, in the case of leaving the EU customs union, this will include the need to negotiate a free trade agreement with the European Union, based on the WTO’s ‘trade by rules of origin’.150

(3)  Establish a new relationship with non-EU nations and international organisations. This also involves the additional task of negotiating with the 50–60 non-EU countries which have a trade agreements with the EU.

Key questions about the coordination of the machinery of Government, and the capability and capacity of the Civil Service, must be addressed in order to carry out these tasks concurrently. For example, should a new ‘Brexit’ Department be established, drawing in both the Cabinet Office’s EU unit and other arms of Government (e.g. UK Trade and Investment), headed by a dedicated ‘Secretary of State for Brexit’? And how can the Civil Service quickly develop the capability necessary to conduct trade negotiations with both the EU and non-EU member states when this function has been outsourced since 1972?

How to structure the required negotiating capacity?

It is instructive to look at Whitehall’s preparation for, and organisation during, the 1970–71 European Communities (EC) accession negotiations. During this period, there was a single ministerial lead on negotiations (who had a seat in Cabinet by virtue of being Chancellor of the Duchy of Lancaster) and alongside this a Ministerial Group on the Approach to Europe (AE), chaired by the Foreign Secretary. While this ministerial group was supported by an official level committee, entitled AE (O), consisting of Deputy Secretaries (equivalent to Director Generals today), the detailed preparation of negotiations was coordinated through a Working Group on Europe (WGE).

The Cabinet Office European Unit (COEU) played a key role in coordination both during negotiations and in terms of preparing Whitehall departments for the accession. The WGE, which brought together officials from relevant departments and members of the negotiating team, was chaired by a COEU Deputy Secretary (Peter Thornton), while the COEU also took charge of the preparations for accession from the drafting of the Government’s formal statement on entry to overseeing the drafting of the European Communities Act 1972.151

With the COEU playing a leading role in the process of coordinating Whitehall during the accession negotiations, every government department had to acquire a sense of what EC membership implied. This involved the establishment of several permanent new functions, such as UKREP in FCO, a new division in MAFF with over 400 staff to run the new CAP, and in Treasury to understand the new budget requirements and to forecast the net contributions to the EC.

Leaving aside the absence of a contingency plan for delivering Brexit, pre-referendum, the actual tasks now facing Whitehall may not necessarily be any more challenging or complicated than in 1970–71. Some additional capacity will be required (policy development, trade negotiating, increased diplomatic representation) and this will require some more resources. However, the process of leaving the EU can make use of the acquired knowledge and expertise which resides in the Whitehall EU machinery, and so will not require the same kind of adaptation.

Impact of Devolution

Today’s machinery of government will have to take account of one other change of circumstance since the early 1970s, namely devolution to Scotland, Wales and Northern Ireland. Arrangements will have to be put in place to consult and involve the devolved administrations and their legislatures so that their concerns and aspirations are immediately and continually represented in the process. This will have to be mindful that neither Scotland nor Northern Ireland voted to leave the European Union in the referendum. Gibraltar will also require special consideration.

Options for the structure of government

There are a number of options for ministerial oversight of Brexit, including the possibility of a ‘Secretary of State for Brexit’ based in a new ‘Ministry for Brexit’; or the appointment of a lead Secretary of State in another government department (e.g. Treasury, FCO or DBIS); or a lead Brexit minister of cabinet rank based in the Cabinet Office and working to the Prime Minister and with other government departments. Again, the experience of the early 1970s is instructive.

Tony Barber, followed by Geoffrey Rippon, was given cabinet rank as Chancellor of the Duchy of Lancaster and made responsible for the Cabinet Office machinery and for coordinating across accession negotiations all government departments. This suited the then Prime Minister who wanted to be closely involved in the negotiations and preparations for EC membership. He wanted all departments to think and act European. The possibility of a new Ministry for Europe was discussed but not seriously considered. Either it would have had to be given such extensive powers over other government departments, with the potential for conflicts at the centre, or it would too easily be marginalised. It was also felt that a lead department such as Treasury or FCO would never be wholly trusted to be impartial with the rest of Whitehall.

The arguments made against a Ministry for Europe in 1970–71, are just as applicable to a Department for Brexit today. The reality is that, as with joining the EC in the 1970s, leaving the EU is a whole-of-government project. The Prime Minister, supported by the Cabinet Secretary as Head of the Civil Service, must be able to provide overall leadership to both the Civil Service, and to the Cabinet, to provide oversight and to approve key policy decisions. No other arrangement could provide as effectively for these key elements. The chosen minister will take over responsibility for the emerging Cabinet Office Brexit unit and would report to the Prime Minister, just as Oliver Robins, the new Second Permanent Secretary in charge of the new EU Unit, already reports to the Cabinet Secretary. Together they will service the relevant Cabinet Sub-Committee and coordinate officials and ministers across Whitehall. This approach avoids duplication, and puts the new Prime Minister with the Cabinet Secretary in overall control of policy and process. It would also remove the risk of rival power structures, by providing a clear chain of political authority, while the Brexit unit in the Cabinet Office can optimise policy and resource coordination across Whitehall.

How to develop the right capability and skills?

The new Cabinet Office EU Unit is in the process of conducting a capability audit. This audit should address what resources the Unit requires to scope the terms of withdrawal from the EU, as well as where these resources should be drawn from. This audit should be led by a dedicated HR director with the task of drawing together the right people and talent. Civil servants from across Whitehall will need to be brought into the new Unit, with the emphasis on quality rather than quantity. The Unit should draw on the resources and capability of the UK Permanent Representation to the EU (UKRep), to support intergovernmental discussions before the invocation of Article 50, as well as actual negotiations with and through the EU institutions.

UKRep is practiced at working to a cross-government remit. Where there are gaps identified by the capability audit, steps should be taken to recruit lawyers, sectoral analysts and specialists on short term contracts. This will require some increase in headcount, and the government must be prepared to recruit some key skills and experience from outside, perhaps at considerable cost.

This applies particularly to expertise in trade and trade negotiations. Having “outsourced” competence in trade negotiations to the EU for the past 40 years the Civil Service now lacks any significant capacity to conduct trade negotiations. It has been estimated that currently there are only between 12 and 20 officials in Whitehall with direct knowledge of trade negotiations.

However, several hundred are likely to be required and Sir Simon Fraser, former Permanent Secretary to the FCO, has been clear about the scale of this capability gap. It is worth emphasising that this is not a shortfall which can be addressed by adopting Lord Kerslake’s calls to reverse recent and forthcoming cuts to Government departments: this is a capability and responsibility which the Civil Service has not required much for over 40 years.152

Developing negotiating capacity will have to proceed with haste. As a first step, contact is being made with friendly countries that have recently concluded, or are in the process of concluding, trade agreements with the EU e.g. Canada and the United States153, and we can draw on the negotiating expertise of our Commonwealth partners such as Australia, New Zealand and India. This contact should focus on the different resources that have been expended on these trade negotiations and include secondments aimed at bolstering our domestic negotiating capacity. In terms of international examples of the resources that may be required, it should be noted that Canada, which has recently negotiated a (yet to be ratified) Free Trade Agreement with the European Union, spends over 80,000,000 Canadian dollars on its Integrated Foreign Affairs, Trade, and Development Policy.154 This policy area commands 830 (FTEs) officials working in this area, and while many of these officials will not be involved with the Canada-EU agreement, Canada’s Trade Commissioner Service has representation in 26 of the 28 EU capitals.155

The Government must be prepared to invest in crucial skills, expertise and knowledge and to pay accordingly to attract top negotiators from overseas and from the private sector to lead the process. Particularly strenuous efforts should be made to convince the 1,000 plus UK nationals currently working for the European Commission to return to Whitehall, especially those working in key areas such as Financial Services and Trade, by offering more than competitive pay and conditions.156 Their knowledge of European institutions will be crucial to providing the UK with the best possible basis with which to go into withdrawal and trade negotiations. During this capacity building period, the Government may wish to consider asking suitably experienced and recently retired Civil Servants to become involved on a part-time/short-term basis.

At the same time, the Civil Service should take steps to quickly upskill a new profession of talented and effective negotiators. A training programme to develop expertise in, for example, trade negotiations and tariff agreements, could be quickly established. The development of the new Civil Service Leadership Academy at Shrivenham should be accelerated. It should offer intensive training to turn out graduates with the basic skills and knowledge in trade and trade negotiations to augment the expertise brought in from elsewhere.

Civil Service Learning should also rapidly institute a new programme of residential courses to provide a framework to enable all civil servants to explore, understand and to embrace both the consequences and the opportunities opened up by leaving the EU. There is more need than ever for the “unified approach” to Civil Service Skills called for in PASC’s 2015 report.157

What other capacity will be required for Government departments?

As civil servants are loaned from departments such as the FCO, HMT, BIS and Defra to the new Cabinet Office Unit, it is crucial that the capacity of these other departments is not hollowed out, resulting in them becoming dangerously reactive in other policy areas. Where resources have been stripped out to facilitate EU negotiations they must be replaced. In addition, every Government department must now consider as a matter of urgency what extra activities will need to be undertaken before and after leaving the EU, and consider what extra resources are required for this.

This challenge is particularly critical for the FCO, which must be properly resourced to make the most of the opportunities for new global partnerships offered by leaving the EU, but has seen its operating budget cut substantially in recent years. In 2008–9, the Department spent £2.116 billion pounds, but in 2014–15 spent only £1.878 billion. The Foreign Affairs Select Committee said in 2014–15 that FCO only had discretion over £700 million of that budget.158 The Foreign Secretary told the committee that “we are pretty close to the irreducible minimum of UK-based staff on the network”, a minimum based on pre-Brexit demands upon that network.159 In particular, some FCO expenditure counts towards the UK’s Official Development Assistance (ODA) target (0.7% of GNI) and officials suggested to the committee that non-ODA budgets in FCO were particularly under strain.160 In the spending review the Chancellor announced that FCO’s budget would be protected in real terms.161 However the Foreign Office will require real terms increases to assist in the “major diplomatic set of initiatives” called for by Sir Simon Fraser in the wake of the referendum result.162

Across Whitehall, there is a danger that Brexit could distract from other policies and activity, limiting the overall effectiveness of the Government. To gauge the appropriate level of resources required across Whitehall as a whole, and the specific needs of each department, each department should conduct its own capacity audit. This will assess what extra capacity is required to absorb the likely impact of Brexit, taking into account each department’s existing capacity and workload.

What should happen to BIS?

There should be a new trade directorate set up within the Department for Business, Innovation and Skills (which might itself be renamed the Department for Trade and Industry to reflect its new role) responsible for negotiating trade deals. Negotiations with the 50–60 countries which the EU currently has trade deals with, and with countries such as the United States, Australia and New Zealand who have already expressed a strong interest in agreeing trade deals with the UK, must begin straight away, ready to be signed off on the day the UK formally leaves the EU.163 This directorate should have a high level advisory group drawn from the City, business, and think tanks to inform its broader strategy.

The imperative of improving Civil Service Engagement

Perhaps the greatest challenge concerns how to address the hopes and fears of officials in Whitehall. The Civil Service of the 1970s was well prepared and oriented for the task of negotiating entry to the EC following years of policy development under successive governments. Today, the referendum decision has arrived like a bolt from the blue, leaving much of the Civil Service, and indeed many ministers, initially in a state of shock, without any idea of the implications of Brexit. As well as equipping Whitehall with the necessary capabilities and capacity, it will be vital to understand the impact of the referendum result and forthcoming negotiations on civil servants, both collectively and individually.

Leaving the EU quickly and smoothly will depend on officials across Whitehall. The senior leadership of the Civil Service should consider how best to motivate civil servants across Whitehall on a sustained basis. It is not just a challenge, but an opportunity for permanent secretaries to renew efforts to raise levels of engagement throughout their departments. The Prime Minister, as Minister for the Civil Service, has a vital role in ensuring that all ministers also understand the importance of this.

This is an important moment in the history of Whitehall and of the Civil Service. There are critics of today’s civil servants who no longer support the continuation of the Northcote- Trevelyan settlement. They are looking for Whitehall to prove incapable of implementing this dramatic and fundamental reverse of post-war policy towards Europe. The SCS leadership must imbue their departments with the enthusiasm and determination to pursue this new policy, but without closing down the discussion of concerns which are essential to the development of new learning and to securing the best outcomes.164

149 For example: research and science funding; agricultural support; regional and structural funds; and on an intergovernmental level; security coordination and counterterrorism.

151 See Bulmer and Burch, The Europeanisation of Whitehall: UK Central Government and the European Union (Manchester University Press, 2009).

152 Civil Service World. Former civil service head Lord Kerslake: Brexit challenge should prompt rethink on job cuts.

154 Canadian Government, Global Affairs Canada: Report on Plans and Priorities 2016–17.

157 Public Administration Select Committee, Developing Civil Service Skills: a unified approach, Fourth Report of Session 2014–15, HC 112.

158 Foreign Affairs Select Committee, The FCO and the 2015 Spending Review October 2015 p.3

159 Ibid, p.8.

160 Ibid, p.12.

161 HM Treasury, Spending Review and Autumn Statement, November 2015.

164 Public Administration Select Committee, Truth to power: how Civil Service reform can succeed, Eighth Report of Session 2013–14, HC 74, September 2013.

15 March 2017