As another Budget Day comes around, the media focus is inevitably on its contents. But, despite this frenzy, the constitutional and conventional context of the Budget remains poorly understood. This is perhaps understandable as the processes and procedures in Parliament surrounding Budgets are not easy to unravel. It is tempting to repeat Churchill’s 1939 comment on the Soviet Union: “A riddle wrapped in a mystery inside an enigma”.
The purpose of this article it to try and unravel some of the mystery in plain language.
WHO DECIDES?
The history of ‘getting and spending’, as the late Leo Plaitzky famously called it, has been one of a constant struggle between the Crown and Parliament over who decides, and within Parliament, a struggle between the Commons and Lords. It goes back centuries.
For example, in 1678 the House of Commons passed a resolution that:
“All aids and supplies, and aids to his Majesty in Parliament, are the sole gift of the Commons; and all bills for the granting of any such aids and supplies ought to begin with the Commons; and that it is the undoubted and sole right of the Commons to direct, limit and appoint in such bills the ends, purposes, considerations, limitations, and qualifications of such grants, which ought not to be changed or altered by the House of Lords.”
The House of Lords, however, never accepted this position and in 1909 rejected Lloyd George’s controversial Budget proposals. This resulted in the passing of the Parliament Act of 1911 which permanently restricted the right of the Lords to thwart the will of the Commons on financial matters.
This firmly established, until the present, what is called the ‘financial privilege’ of the Commons over the Lords. As one expert states: “The “control of supply” was, historically, the foundation of Parliament’s control of the Crown. In modern times this control is exercised over the Government.”[1] But the ‘financial privilege’ or ‘control of supply’ by the Commons is not quite all it seems.
STANDING ORDER No. 48
The House of Commons Standing Order No. 48 is key to understanding how Budget decisions – the getting and spending – work in practice. And it is said to be of constitutional significance, embodying not the simple ‘control of the Crown’ but a rather different power relationship.
“No. 48. Recommendation from Crown required on application relating to public money
This House will receive no petition for any sum relating to public service or proceed upon any motion for a grant or charge upon the public revenue, whether payable out of the Consolidated Fund or the National Loans Fund or out of money to be provided by Parliament, or for releasing or compounding any sum of money owing to the Crown, unless recommended from the Crown.”[2]
In plainer language, this is taken to mean that only the Government (‘the Crown’) can spend public money.[3]Any amendment in the Commons that sought to spend additional money, other than that proposed by the Government would be ruled out by this Standing Order and the conventions surrounding its interpretation.
Although the SO No. 48 appears to only apply to spending, it is conventionally assumed to also apply to taxation. Or as the House of Commons guidance to MPs states: “only the Crown (in practice, the Government) can make proposals for spending or taxation—this is known as the financial initiative of the Crown”.[4]
In short this means the Commons limits itself to simply accepting, or rejecting, Government (Crown) proposals: The Government proposes, and the Commons disposes.
The conventions go further, though. Famously, it is commonly asserted that any defeat of the Government on either taxation or spending would automatically constitute a vote of no confidence in the Government and trigger a General Election. Although how true this is is somewhat less clear-cut. There have been several minor defeats since the passing of the Parliament Act in 1911 without such a crisis ensuing.
GETTING
The process for authorising changes to taxation or charges after a Budget statement is made is somewhat complex. It involves the passing, without further debate, of a string of Ways and Means resolutions which give temporary authorisation to implement the changes. These are then consolidated into a Finance Bill (or Bills) which has to receive Royal Assent within a fixed period. It is worth noting that taxes and charges already established by other legislation simply continue and changes to National Insurance contributions also do not require authorisation from the Commons.
Only very rarely does the Commons exercise its theoretical right to alter, downwards, taxes or charges. Usually if there is a substantial rebellion on the Government benches, a compromise will be reached. In 1994 the Government was defeated on the second tranche of a VAT increase on domestic fuel.[5] And in 1981 the Government halved a proposed increase in petrol duty itself in order to head off a defeat.
SPENDING
According to the Commons website, the main steps in the estimates cycle are as follows:
- Votes on account are published in February and usually approved in March, ahead of the financial year starting in April. These enable the Government to obtain an advance on the money they need for the financial year.
- Main estimates, sometimes referred to as supply estimates, are usually published in April and approved in July. These set out each department’s proposed annual spending.
- Supplementary estimates are presented the following February and approved in February or March. These enable consideration and approval of any increases in money required by departments.[6]
Main estimates are usually published a few weeks after the Budget, which set out the very broad public spending totals.
Only three days are allocated to debating the Estimates in the Commons, although Select Committees now scrutinise estimates for ‘their’ departments between April and July.
Public expenditure cycles in British Government have mostly been a simple annual process. But attempts have been made to increase their time-span by introducing ‘medium-term expenditure plans’.
The first of these was the Plowden Report of 1961 which attempted to introduce multi-year expenditure. [7]Most subsequent analysis regards this to have been largely ineffective.
SPENDING REVIEW PERIODS
The New Labour government (1997-2010) made a rather more sustained and substantial effort in 1998 with the introduction of multi-year ‘Spending Reviews’ (SRs), which have, remarkably, survived until the present. These supposedly fixed departmental expenditure plans for 3 years, but in practice this rarely held. SRs did not even stick to a 3-year cycle, with the second SR taking place in 2000 instead of 2001. Since then, we have had SRs occurring at everything from 1 to 5 year intervals.[8]
The other spending event in the Parliamentary year, besides SRs and Budgets, is the Autumn Statement in October or November. This is usually a statement of the current state of a government’s fiscal position and lays out in broad terms the spending and taxation “envelop” that will guide the Budget in the following March.
Spending Reviews, Autumn Statements and even Budget statements are merely ‘statements of intent’ with no legal or constitutional force. The decisions that really matter for spending are taken in the ‘estimates’ process.
OFFICE FOR BUDGET RESPONSIBILITY
The Office for Budget Responsibility was established in 2010 by the then Coalition Government and put on a statutory basis in 2011 by the Budget Responsibility and National Audit Act. The main work of the OBR is to publish, independently, an Economic and Fiscal Outlook, usually alongside the Budget and Autumn Statements.
The main purpose of this change was to take these forecasts away from the Chancellor and HM Treasury to try and ensure objectivity in the forecasts. But the role of the OBR is very limited. Unlike, say, the Congressional Budget Office (CBO) in the USA the OBR is limited to five areas of activity:
1. Economic and fiscal forecasting
2. Evaluating performance against targets
3. Sustainability and balance sheet analysis
4. Evaluation of fiscal risks
5. Scrutinising tax and welfare policy costing[9]
They do not analyse specific policies or major projects – that can be done retrospectively by the National Audit Office. During the adoption process for “Obama Care” in the USA the CBO played an important role in analysing the various proposals advanced by the President and by Democrats and Republicans in Congress. By contrast, the OBR would not be permitted to do anything similar here on, say, social care policies.
Nor can they analyse proposals from Opposition parties. It was suggested, for example, that the OBR should analyse the fiscal plans of the main political parties in the run-up to a General Election.
CONCLUDING NOTES
There are several problematic areas of concern surrounding the Budget and ‘getting and spending’ processes.
The first concerns the balance of power between the executive and the legislature. In many other states the legislature plays a much more active roll in determining both tax and expenditure policies. Indeed this is also the case in some of the other tiers of UK government, devolved and local. In these cases, it is more usual for governments to put forward draft budgets which are then subjected to detailed scrutiny and in some cases amendment in the legislature, by the legislature or by the government itself.
Secondly, the obscurantist language and sometimes bizarre procedures of our system are especially confusing compared to many other states. This is a serious concern for transparency and accountability. These could be drastically simplified and modernised.
Thirdly there is also what is called the ‘line of sight’ problem which applies especially to public spending. Public spending plans and outturns are published in several different ways: Spending Reviews; Autumn Statements; the Budget itself; Estimates; and finally Departmental Annual Reports & Accounts. Because the formats and categories used at each of these stages often differ, it is almost impossible to track public spending from intention through implementation and on to outturns and outcomes. This makes accountability and transparency very problematic. Although there have been attempts to address this there has been very little improvement.
Finally, there is the issue of scrutiny of both spending and taxation policies – both ex-ante and ex-post. The ex-ante scrutiny of both ‘tax and spend’ by the OBR is, as we have already mentioned, quite limited. On spending, the Estimates process does give the Commons some greater ex-ante scrutiny opportunities through the Select Committees between April and July every year. But on tax changes, these are much more limited. And the Commons has very limited resources to conduct such analyses anyway.
One option that has been proposed to improve ex-ante scrutiny is to convert the OBR into a ‘Parliamentary Budget Office’ (PBO), similar to the CBO in the USA. [10] Such non-partisan institutions have become increasingly popular in recent years.[11] A few examples include:
- Korea – National Assembly Budget Office (est. 2003)
- Sweden – Fiscal Policy Council in Sweden (2007)
- Canada – Parliamentary Budget Office (2008)
- Australia – Parliamentary Budget Office (2011)
- Ireland – Parliamentary Budget Office (2017)
These new institutions – like the US CBO – are designed to provide ‘honest numbers’ to inform fiscal policy itself and the fiscal implications of other policies.
We could well see these issues about fiscal processes and institutions coming back to the fore in the near future as the UK struggles with its fiscal problems, so perhaps now is the time to consider structural reform.
Colin Talbot.
Colin is Emeritus Professor of Government, University of Manchester. He also has relationships with the Cambridge Judge Business School and the Federal Trust. Colin has worked extensively with all levels of British government and public services, including being an advisor to two House of Commons Select Committees and appearing as an expert witness over two dozen times in both Houses of Parliament, the Scottish Parliament, and the Welsh Assembly. He has also advised more than a dozen other governments, from the USA to Japan.
The Constitution Society is committed to the promotion of informed debate and is politically impartial. Any views expressed in this article are the personal views of the author and not those of The Constitution Society.
[1] P Evans, 2011, DODS Handbook of House of Commons Procedure, DODS. P94
[2] Cited by R. Rogers and R. Walters (2015) How Parliament Works, Routledge. p235
[3] Although the Standing Order makes to direct reference to taxation, it is assumed to apply to both ‘getting’ and ‘spending’.
[4] https://guidetoprocedure.parliament.uk/collections/C6pm6WK1/taxation-and-spending accessed 13 March 23
[5] NB this defeat was not taken to be a ‘confidence vote’ and it did not lead to a General Election
[6] https://guidetoprocedure.parliament.uk/collections/M6EZp3wb/estimates accessed 13/03/23
[7] Report on the Control of Public Expenditure (Chairman, Lord Plowden). Cmnd 1432, 1961.
[8] For more on this history see C Talbot, Spending Reviews – a short history, Civil Service World, 27 Oct 2021 https://www.civilserviceworld.com/in-depth/article/spending-reviews-a-short-history
[9] https://obr.uk/about-the-obr/what-we-do/ accessed 15/03/23
[10] For a history of the CBO see Philip Joyce, The Congressional Budget Office – honest numbers, power and policymaking, 2011. Georgetown University Press
[11] See https://www.oecd.org/gov/budgeting/48141323.pdf accessed 15/03/23