Select Committee on Liaison Second Report

1  Introduction

1. There is universal agreement that parliamentary scrutiny of the Government's finances needs to be improved.

2. This has been reflected in two recent documents. The Hansard Society published The Fiscal Maze: Parliament, Government and Public Money in July 2006,[1] in which 20 detailed recommendations were made. And the Committee of Public Accounts (PAC) made proposals concerning financial scrutiny in the same month.[2] These prompted our own consideration of how financial scrutiny could be improved.[3] We held a deliberative session on the matter in October 2006 and subsequently appointed a working group, consisting of our own Chairman and the Chairmen of the Environment, Food and Rural Affairs, Public Accounts and Treasury Committees, to conduct a more detailed examination.

3. The working group gathered information on the organisation and reporting of public finances in the UK, on the Treasury's guidance to Departments on financial management, on financial systems and financial scrutiny elsewhere (including in Scotland), and on the way in which boards of private sector companies scrutinise the finances of those companies. The working group wishes to thank the Treasury for helpful discussions at staff level, and Shell UK for explaining to the working group's staff how a major company reports financial information to its Board. Extensive assistance was received from the Committee Office Scrutiny Unit. The working group's examination has formed the basis of our Report.

4. It is of course for the House as a whole to decide how financial scrutiny can best be conducted and what procedures and information are needed. But, with the House's encouragement (for example through the core tasks),[4] select committees have played an increasing part in financial scrutiny. Any improvement in financial scrutiny is likely to rely heavily on select committees, which, unlike the House itself, have the capacity for detailed examination which can inform debates in the Chamber. We therefore considered it appropriate for us to examine the matter and make proposals for the House to consider. We believe that our proposals would assist not just select committees but also individual Members and the House as a whole.

5. There have been several recent improvements as regards the House's financial scrutiny, as listed in the box. These are all valuable changes, and have improved the quality of that scrutiny, but, even taken together, they have not transformed it.

Recent changes
  • Designation in 2002 of core tasks for select committees, including examination of spending plans, Estimates and accounts;
  • Creation in 2002 of the Committee Office Scrutiny Unit, which has a team of financial analysts providing briefing to select committees on issues identified in documents published by the Government;
  • Improved links between the National Audit Office (NAO) and select committees other than the Committee of Public Accounts (PAC), including short-term secondments for specific inquiries;
  • Increased scrutiny of expenditure-related issues by select committees, exemplified by recent work of the Defence Committee on Estimates, the Environment, Food and Rural Affairs Committee on the Department's budgetary controls and the Treasury Committee on the Comprehensive Spending Review 2007;*
  • Extension of the NAO's remit in 2001 to more non-departmental bodies and health bodies, an increase in the number of its Value for Money studies from 50 to 60 a year, and more follow-up reports;
  • Improvements in the Government's financial reporting, notably (from 2004) making Supplementary Estimates available at least 14 days before parliamentary consideration rather than eight days before, and provision of Estimates Memoranda with explanatory material.

* e.g. Defence Committee, Eighth Report of 2007-08, Operational Costs in Afghanistan and Iraq: Spring Supplementary Estimate 2007-08, HC 400; Environment, Food and Rural Affairs Committee, Second Report of 2006-07, Defra's Departmental Report 2006 and Defra's Budget, HC 132; Treasury Committee, First Report of 2007-08, The 2007 Comprehensive Spending Review, HC 55. See also Liaison Committee, Third Report of 2007-08, The Work of Committees in 2007, paras 35-42.


6. The Hansard Society's report compared the effectiveness of the scrutiny of the three main aspects of government finance:

  • the Budget and the raising of revenue;
  • the planning of expenditure (forward-looking scrutiny); and
  • past expenditure (backward-looking scrutiny).

It considered the House's financial scrutiny to be most effective as regards past expenditure and weakest as regards planned expenditure.[5] We agree with this view, and bear it in mind elsewhere in our Report.

The purpose of financial scrutiny

7. There has been no decline in the financial powers of the House of Commons. The House could still, if it chose, reject the Budget or the Estimates. The reason why the House is unlikely ever to do so (except in a hung Parliament) is that rejection of such major parts of a party's programme would be a matter of confidence, leading to the Government's resignation. This applies in any Westminster-style parliamentary system, and is a fundamental difference from, among others, the US system. Moreover, some of the major decisions on tax raising and spending, such as whether to reduce income tax or to spend more on education, have often been proposed by parties in election manifestos and endorsed by the electorate, so it is unlikely that a majority in the House would wish to change them. Improving financial scrutiny is not about finding ways to force through major changes to the Government's overall revenue-raising and spending plans.[6]

8. What improving financial scrutiny is about is making the Government, individual Departments and other public bodies accountable for their financial decisions—in other words, requiring them to justify their revenue-raising and spending plans and, later, to explain whether the expenditure achieved its objectives and, if not, why not. The current problem is not the House's powers but the willingness and (even more) the ability of the House and its Members to scrutinise financial matters in the degree of detail required to hold the Government to account, as explained below.[7]

9. In the light of this, we define the purpose of financial scrutiny as follows:

  • to make the Government's financial decisions transparent, including the relationship between its stated priorities and its funding decisions;
  • to engage bodies and individuals outside Parliament and give them the opportunity to comment;
  • to have the opportunity to influence the Government's financial decisions;
  • to hold the Government, individual Departments and other public bodies to account for their financial decisions and financial management; and thereby
  • to contribute to an improvement in the quality of Departments' financial decisions and management and improved value for money in public services.

10. Financial scrutiny matters because the quality of financial decisions and financial management is likely to be higher if they are made transparent and if those responsible for them know that they will be scrutinised rigorously and mismanagement will be exposed. Better financial scrutiny should therefore result in more efficient and effective public services; to paraphrase the late Robin Cook, former Leader of the House, "Good [financial] scrutiny makes for good Government".[8] Financial scrutiny is not a narrow exercise of poring over figures on a balance sheet but is about ensuring the effective management of finite resources to achieve purposes such as better hospitals or better-equipped troops. Better financial scrutiny would have advantages for the Government as well as for the public and for Parliament.

11. Although we deal only with financial scrutiny in this Report, that does not mean we regard it as necessarily a separate aspect of scrutiny. In select committee work, financial scrutiny is often most effective when conducted in conjunction with analysis of the policies which result in the expenditure and of the outcomes of that expenditure. Finance and performance are inseparable, and examination of performance provides a link to administration and policy. Knowledge of the Department's finances should underlie and inform much of a departmental select committee's activity, including examination of policy and administration, and knowledge of the Government's finances should similarly underlie and inform much of the House's own work.

What is needed

12. Our assessment of the factors which make financial scrutiny difficult and unattractive underlies this Report. Those factors are:

13. The reason why we question the ability at present of Members to hold the Government to account for its financial decisions is that, as just indicated, several of the fundamental requirements for doing so are missing. These missing requirements are:

  • a financial system which is coherently organised and comprehensible;
  • provision to Parliament of information suited to the purpose set out in paragraph 9 above;
  • the opportunity to debate on the floor of the House specific items of expenditure or the objectives of expenditure and if necessary to vote on them.

14. There are many other calls on Members' time, and there is no point in exhorting them to devote more time to financial scrutiny unless these basic requirements are met. On the other hand, it is up to Members to ensure that they are. After a brief survey of the historical background, our Report looks in turn at each of the basic requirements and indicates how they could be met.

By Alex Brazier and Vidya Ram. Back

2   Committee of Public Accounts, Press Notice, Improving financial scrutiny, 3 July 2006 Back

3   The most recent select committee reports devoted to this subject are Procedure Committee, Second Report of 1997-98, Resource Accounting and Budgeting, HC 438, and Sixth Report of1998-99, Procedure for Debate on the Government's Expenditure Plans, HC 295. But see also para 33 below. Back

4   Votes and Proceedings, 14 May 2002 Back

5   Alex Brazier and Vidya Ram, The Fiscal Maze: Parliament, Government and Public Money (2006), paras 4.1, 15.2 Back

6   The IMF league table of the powers of legislatures to review and amend budgets is therefore not a useful guide to the adequacy of financial scrutiny. Back

7   See para 13. Back

8   Select Committee on Modernisation of the House of Commons, Session 2001-02, Memorandum submitted by the Leader of the House of Commons, HC 440, para 2 Back

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Prepared 18 April 2008