IV. UNITED KINGDOM

1.Overview

1.1.The legal framework governing budget processes

The budget process is governed by a combination of primary and secondary legislation, published guidance and convention.1 Unlike other European countries, the United Kingdom does not have a written constitution to provide an overriding framework outlining the powers of the legislature, the government and civil servants in budget processes. Parliament has nonetheless adopted a number of laws to support the budget system (Box 1). However, these provide incomplete coverage of budget processes and, in some cases, statutes merely provide general principles for particular aspects of the budget system.

For several centuries, it has been recognised that Parliament is supreme in budgetary matters. However, although Parliament formally adopts laws, considerable rule-making power resides with the government. Principles embodied in primary legislation may be implemented by a variety of means, including delegated legislation,2 Command papers,3 or H.M. Treasury memoranda.

Beginning with the Exchequer and Audit Departments Act 1866 (E&AD Act 1866), statute law has been used to confer considerable budget-

Box 1. United Kingdom: Main budget system laws

●Exchequer and Audit Departments Acts, 1866 and 1921 (E&AD Acts).

●Parliament Acts, 1911 and 1949.

●National Loans Act, 1968, amended in 1998.

●National Audit Act, 1983.

●Local Government Acts, various years.

●Audit Commission Act, 1998.

●Devolution Acts, 1998 (for Northern Ireland, Scotland and Wales).

●Finance Act, 1998 (Chapter 36) (Code for Fiscal Stability, CFS).

●Government Resources and Accounts Act, 2000 (GRA Act 2000).

Sources: Government Accounting (www.government-accounting.gov.uk – see appendices) and H.M. Stationery Office (www.hmso.gov.uk).

IV. UNITED KINGDOM

making powers on H.M. Treasury. The Minister of Finance (known as the Chancellor of the Exchequer) is rarely mentioned in laws relating to the budget system. For example, the laws relating to government accounting and fiscal responsibility are replete with references to the role of H.M. Treasury. This longstanding and extra-legal4 body enjoys considerable powers inherited from the royal prerogative,5 especially with regard to the appropriations structure, the issuance of public money, expenditure control, and controlling access to Parliament (discussed in Daintith and Page, 1999).

The Cabinet of ministers plays a powerful role in determining the shape of the annual budget. It is also an extra-legal body. The government, by virtue of its majority in the House of Commons controls Parliamentary business, including the structure and composition of parliamentary committees. The Standing Orders (internal procedural rules) of the House of Commons severely limit the lower house’s role in approving the annual budget. The upper house

– the House of Lords – has no power to make changes in any bill concerned with public money.

A 1932 agreement between the Public Accounts Committee (PAC) and H.M. Treasury establishes that expenditure on continuing functions of government (with a few exceptions) should be covered by a specific statute. H.M. Treasury has agreed to uphold this principle and the agreement is known as the 1932 Public Accounts Committee Concordat.6

The role of Parliament reflects the historic relationship with the Crown, namely that the sovereign sought Parliament’s approval and authority to raise taxes for spending. It is still a basic constitutional principle that the government (in lieu of the Crown) proposes expenditure and taxation, not Parliament. Today, Parliament has very few powers in budget approval processes. Improved ways for Parliament to be more effective in holding the government to account and in improving parliamentary oversight have been suggested (Hansard, 2001).

The external audit function was formally established by the E&AD Act in 1866. The Act was extensively revised and updated when the Government Resources and Accounts Act (GRA Act) was passed in 2000. Another major revision took place in 1983 when the Comptroller and Auditor General (C&AG) became an officer of Parliament, not the head of an executive department. This act also put value-for-money audits on an explicitly statutory footing.

Finally, devolution of some government functions to Scotland and Wales in 1998 by new acts resulted in the creation of new parliamentary budget procedures in Scotland and new statutory external audit institutions throughout the United Kingdom (see Box 5).