The guts of all Government policy are how it spends its money.
—Sir Stephen Laws KCB, former First Parliamentary Counsel
7.The right of the House of Commons to authorise taxation and to grant the proceeds of such taxation to the executive is a central feature of the UK’s constitutional arrangements. As a predecessor Committee put it:
It is a fundamental constitutional principle that it is for the Crown to make proposals about expenditure and taxation: it is for the Commons to examine and grant them.
8.Treasury guidance to Departments on Estimates states that “ministers … will only be able to finance planned activities if Parliament votes the necessary financial provision. This is normally done through the Supply Estimates process, which confers formal statutory authority through the Supply and Appropriation Acts that follow. It is only once this legislation has obtained Royal Assent that the provision sought in the Estimates, and approved by the House of Commons, has full legal effect.”.
9.Charges on public funds must, unless a dispensation is given by the Treasury, also be authorised by specific legislation. Where a Bill contains a provision to make a charge on the public funds, the expenditure contemplated must be authorised in advance by the House by means of a money resolution: for Government bills a motion for a money resolution is typically moved immediately after the bill’s Second Reading.
10.The use of Estimates as a means to control the Crown’s expenditure out of taxation is the foundation of the House’s role in running the country. The reforms to the system of public finances introduced by the Exchequer and Audit Departments Act 1866 resulted in a system in which almost all public money collected under the authority of the Commons is paid into a single account (the Consolidated Fund) and the Treasury must account to the House for all expenditure from that fund. Individual Government Departments designate an Accounting Officer who is accountable to Parliament for the spending of that Department, and is responsible for keeping spending within the limits Parliament has voted.
11.Although the House has delegated its historic function of control of expenditure to the Treasury and other Government departments, the House’s important constitutional role in the annual authorisation of maximum amounts of public expenditure remains. As the memorandum from academic members of the Study of Parliament Group explains:
The setting of annual [expenditure] limits is an essential component of the regular scrutiny of the financial implications of government policy decisions and the way in which they administer the public service. The annual authorisation of such spending provides the basis for [the] audit undertaken on behalf of the House of Commons by the National Audit Office and the publication of audited annual accounts.
12.Scrutiny of public finances is not, of course, limited to the formal budgetary approval processes in the House, nor to the floor of the House. Departmental Select committees have a role, identified by the Liaison Committee as a “core task”, to examine the spending and performance of government departments and their arm’s length bodies. Select committees are routinely briefed on the detail of Estimates of relevant Departments by the House of Commons Scrutiny Unit and may choose question Ministers or officials on any aspect of Estimates in writing or at relevant hearings. The Public Administration and Constitutional Affairs Committee also has a general responsibility for the effectiveness of civil service management of resources.
13.Government accounts are also audited by the National Audit Office (NAO) which has a specific role, known as a ‘regularity audit’, in reporting on whether funds were spent for the purposes intended and within the limits formally authorised by Parliament. Select Committees, with the help of the House of Commons Scrutiny Unit and the NAO, review the annual accounts and often hold hearings with Ministers and officials on these accounts.
14.The NAO undertakes a programme of value for money investigations resulting in reports to the House making recommendations for improvements in financial management for the future, many of which are followed up by the Public Accounts Committee.
15.While all of this helps to hold Ministers and civil servants accountable for the spending of their departments, and seeks to ensure that lessons are learned from past practice, it does not provide a substitute for the need for consideration, scrutiny and authorisation of spending plans by the House to take place before that spending occurs.
16.Control of Government spending proposals by the House of Commons is the foundation of parliamentary control of the executive. The House must do this job effectively, and must be seen to do it effectively.
17.The Treasury states that “the primary means through which the Treasury controls public expenditure is multi-year budgets, agreed collectively at spending reviews.”. Since the 1990s, successive governments have explicitly planned spending over multi-year periods, thereby diminishing the role of the annual Estimates process. These medium-term plans have been constructed through multi-year spending reviews, resulting in announcements of headline planned spending totals for each department for a number of years ahead. It is these spending plans which represent the big political and pragmatic choices being made by the Government about the priorities for public expenditure.
18.Such spending reviews have no legislative or parliamentary status: although in political terms they represent substantial forward commitments, they are effectively no more than statements of intent on the part of an incumbent government. While the Government may choose to make time for debate on the outcome of a Spending Review, there is no requirement on it to do so, and no legislative process arises directly from any Spending Review. Following the announcement of a Spending Review outcome, some additions or other changes may be made over time, but the fundamentals of the plans are rarely reopened, and essentially Spending Review plans form the basis of subsequent annual Main Estimates voted by the House.
19.A number of witnesses drew attention to this development and its implications for the House’s authorisation of Government expenditure. Professor David Heald, Professor of Public Sector Accounting at the Adam Smith Business School, University of Glasgow, said:
The Estimates represent the translation of multi-year Spending Review plans into authorised expenditure for one financial year. Therefore they are part of a larger system which is complete[d] by the publication of audited accounts. Whereas much attention has been given to the rear end of the process […] the front end has been neglected.
The academic members of the Study of Parliament Group confirmed that there are no House procedures to approve multi-annual spending reviews, and that on the occasions when the House is invited to approve multi-annual financial plans—in the context of the Charter for Fiscal Responsibility—the House is validating the executive’s spending plans, rather than acting
as part of a strategy shaped within the House in order to support scrutiny or exercise influence over medium-term expenditure plans.
The OECD suggested that scrutiny of multi-annual spending plans could provide an opportunity for greater Parliamentary engagement: it envisaged
some sort of pre-budgetary, pre-Estimate dialogue that allowed Parliament to fulfil its function of transmitting views from citizens to the Executive, and then the Executive exercises its prerogative to deliberate upon what the budgetary proposals should be and then table them to Parliament.
20.Spending Reviews have increased in importance over recent years, setting the ceiling on spending plans for many years ahead. They represent substantial political choices about the allocation of public funds. It is only by participating in those choices between competing priorities that the House can effectively discharge its duty to represent the country: the Estimates system is more about control than choice. The House must therefore have an opportunity to consider and debate proposals in spending reviews. We reiterate the 2009 recommendation of the Liaison Committee—which the Government accepted—that it is essential that the Government allocate a day’s debate on the outcome of each Spending Review. One day’s debate is the bare minimum to be allocated: an allocation of further days to debate these highly significant spending proposals would be highly desirable.
21.A number of witnesses to this inquiry have pointed out the inadequacy of a system whereby the executive seeks approval for spending without clarity over what that expenditure is expected to deliver. Estimates and departmental accounts alike currently allocate spending to broad headings with little indication of what the purpose or anticipated outputs or outcomes of the spending are.
22.The Comptroller and Auditor General, in his evidence to us, suggested that the role of the House in checking Government expenditure should concentrate on two areas:
He believed that scrutiny of the Estimates in their current form would not contribute to these aims, as the Estimates process is concerned solely with authorising resources for Government and not for evaluating the effectiveness of how these resources will be, or have been, used. He drew to our attention the recent work of the National Audit Office in promoting better management of the implementation of policy and the public finances.
23.The importance of proper scrutiny of policy objectives and performance against them is uncontroversial. Throughout personal and business life, individuals and organisations make decisions on spending in the context and knowledge of what they receive in return. Government and the public sector should be no different. How much is spent or to be spent is only one side of an equation; the outcomes of the expenditure are of considerable interest.
24.In this respect the Estimates procedure appears to be a vestigial outlier, having arguably atrophied or become functionless in the course of evolution: while annual expenditure control remains a constitutional requirement, the work of the House in scrutinising and influencing a sophisticated policy planning machine within Government has taken a different course. The National Audit Office, the Public Accounts Committee and departmental select committees have crucial roles in highlighting the need for government to have clarity over its aims and objectives and to maximise value for money for the taxpayer. These are roles which we acknowledge and fully endorse. We also recognise that the National Audit Office and the Public Accounts Committee work is structured to focus on ex-post scrutiny of expenditure. Yet the prior scrutiny function for Parliament is generally underdeveloped.
25.Other systems operating on the Westminster model, such as New Zealand, Australia and Ireland, have introduced systems which seek to address this issue, by including information on relevant past or planned outputs or outcomes within Estimates documentation. In the UK system, information on such outputs and outcomes is instead contained within departmental annual reports, typically laid before Parliament in the July following the end of the financial year.
26.Publication by the Government of better information on the outputs from expenditure in multiannual financial frameworks raises broader questions for the House’s involvement in influencing the priorities of government and the decisions announced outside the formal processes for authorisation of spending. These are issues to which we will to return to at a later date. For now, this report focuses on reform of the present arrangements for formal authorisation of spending.
27.Opinion among our witnesses was divided as to how effective better scrutiny of annual Estimates could ever be in a process dictated by multi-annual spending envelopes. Professor Heald suggested that the annual approvals were largely irrelevant as a means of fiscal control. He observed that
If one had serious attention to the spending review—we now have four years—I would be quite happy with a fairly formal process for the actual Estimates. The problem we have is that we do not have a process at all for the spending review, and then we have a formal process for the Estimates.
28.The academic members of the Study of Parliament Group considered that the examination of Estimates by the House was valuable. Speaking from considerable experience inside Government, Sir Stephen Laws, former First Parliamentary Counsel, told us that “scrutiny by sampling” was a very effective method of ensuring the quality of work within Government. Professor David Heald concurred:
[…] a degree of randomness in which is done is going to be beneficial in making people a little bit worried that they might be the people chosen in a particular spending review or Estimates round.
29.The Estimates process is an important check on executive action. The principle that Government seeks annual authorisation for its planned expenditure is a vital element of the UK’s constitutional arrangements. That process, as it has now evolved, is not a means of controlling spending decisions. It should not be presented as a sufficient means of performing that fundamental democratic role of a legislature.
6 In oral evidence to the Committee,
7 Procedure Committee, Sixth Report of Session 1998–99, Procedure for Debate on the Government’s Expenditure Plans, HC 295, para 2
10 Study of Parliament Group (), para 5
11 See paragraph 66 below.
12 Standing Order No. 146: in this respect the remit of PACAC is “ to consider matters relating to the quality and standards of administration provided by civil service departments, and other matters relating to the civil service.”.
14 Professor David Heald (), para 11
15 Study of Parliament Group (), para 6
16 Q 10 (Ronnie Downes)
17 Liaison Committee, Second Report of Session 2008–09, Financial Scrutiny: Parliamentary control over Government Budgets, HC 804, para 97. In 2015 the Chancellor of the Exchequer announced the outcome of the Spending Review in an oral statement: .
18 National Audit Office ().
20 Q 9 (Dr Wehner); Q 14 (Ronnie Downes)
21 The Public Administration and Constitutional Affairs Committee is examining “the format and utility of monthly management accounts used by Ministers, Permanent Secretaries and Departmental Boards, and the Departmental Accounts published for Parliament and the public” in its current inquiry into .
22 Q 80
23 Q 78
24 Q 33
25 Q 65
18 April 2017