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IV. UNITED KINGDOM

Other information required by law. Besides the above, the CFS sets out specific information to be provided, including:

A breakdown of expenditure and revenue by sector and economic and/or functional category.

A statement outlining proceeds received from the sale of public assets.

An explanation of significant accounting changes. H.M. Treasury may also invite the NAO to audit any changes to the key assumptions underlying fiscal projections.

The structure of government borrowing, the cost of government debt, and other details for the Debt Management Office’s annual report.

4.1.8. Budgets of Parliament and other constitutional bodies

Both the House of Commons and the House of Lords have their own estimates in the annual appropriation acts. For the House of Commons, SO No. 144 specifies that the Finance and Services Committee is responsible for preparing the estimates the House of Commons. This select committee also monitors the financial performance of the House of Commons. For the House of Lords, a House Committee, advised by a management board, was established in 2002. This committee is required to agree on the annual and supplementary estimates and approve the House of Lords annual report. Other constitutional bodies19 also prepare their own budgets independently and have separate estimates.

4.2. Budget process in Parliament

There are two separate parliamentary processes for budget aggregates: one for revenues and another for expenditures (Box 4). The tax measures announced in the budget are traditionally presented to Parliament in a single, comprehensive finance bill, which may be amended by majority vote in the House of Commons. The House of Commons lacks effective power to increase or change the government’s expenditure estimates. Its main option for changing substantially the expenditure estimates would be to bring down the government via a vote of no-confidence. This has never happened in recent United Kingdom history, mainly because the Cabinet and the ruling party’s whip20 ensure that party unity is maintained. Although the usefulness of very brief parliamentary debate of the expenditure estimates in the House of Commons has been questioned, proposals to change the existing system have failed.21

The House of Lords plays no substantive role in approving the annual budget law. When the Parliament Act was adopted in 1911 (following the Lords’ rejection of the government’s budget for 1909), the upper House lost its

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Box 4. United Kingdom: Budget processes in Parliament

The Chancellor of the Exchequer gives his/her budget speech and outlines the government’s fiscal policy strategy to Parliament.

The timing of the budget speech is at the discretion of the government.

Tax measures may take effect on the night of the budget speech. A Finance Bill is submitted to the House of Commons. The bill is scrutinised in committee, where both the government and the opposition parties may propose amendments and new clauses.

The Finance Bill passes to the House of Lords for debate only. After the House of Lords debates the bill, it gains royal assent.

The expenditure of individual departments is scrutinised by the relevant departmental select committee, but this is not mandatory.

The Liaison Committee of the House of Commons decides on which select committee reports should be discussed in plenary session.

The House of Commons adopts a resolution approving the main estimates and any revised estimates.

The draft Appropriation Act is formally approved.

budget veto rights. Today, the Lords may delay any “money bill” by up to one month. In practice, the budget “debate” in the House of Lords is a one-day formality. Similarly, royal assent has been a formality since the supremacy of Parliament over the King was recognised in the 1689 Bill of Rights.

4.2.1. The timetable for budget adoption and constraints on the budget debate in Parliament

In contrast to many other countries, the main estimates are generally presented to Parliament after the beginning of the fiscal year (1st April-31 March). SO No. 54 limits consideration of the estimates in the House of Commons to three days per session, that is, a parliamentary year. In practice, the need to obtain royal assent of the appropriation act before Parliament rises for the summer recess means that the estimates typically could not be presented later than the end of June. The Liaison Committee recommends which estimates (or portions of them) are debated.

Parliamentary proceedings on consolidated fund and appropriation bills, which take place later than the three-day debate on the estimates, have been reduced to mere formalities. SO No. 56, adopted in 1982, dispenses with the

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usual obligatory intervals between 2nd and 3rd readings, implying that government proposals for providing the annual legal authority for public spending does not pass through any parliamentary committee stage (Erskine May, 1997, p. 739). Such practice is highly unusual in OECD countries. Formalities in the House of Lords and royal assent are required before the expenditures to be paid out of the Consolidated Fund become law in the form of an annual appropriation act.

4.2.2. Provisional budgets

Since the government’s draft budget is often presented to the House of Commons after the beginning of the new financial year, and appropriation acts are not usually adopted until about the fourth month of the new financial year, provisional legal authority to spend has to be in place prior to 1st April. To this end, the House of Commons routinely approves, 4-5 months before the start of a new financial year, a “Vote on Account” that authorises spending by government departments and constitutional bodies for the first few months of the upcoming financial year.22 Typically the amount voted is 45% of the expenditure estimates for the current year. The votes on account are given legislative force by the winter consolidated fund acts, which provide, in one line, the total amount that can be issued out of the Consolidated Fund in the new financial year. Neither the amount, nor the timing of annual votes on account has legislative basis; rather it is a longstanding convention, which is set out in Government Accounting and mentioned in the Standing Orders of the House of Commons.

The Parliament in Scotland has adopted a different procedure, which is a more akin to “standard practice” in other countries. If the annual budget act is not adopted by the Scottish Parliament before the beginning of the financial year, the amount of resources used in a given month may not exceed the greater of a) one-twelfth of any amount authorised in the previous financial year, or b) the amount used for that purpose in the equivalent month of the previous year [Art. 17, Public Finance and Accountability (Scotland) Act 2000].

4.2.3. Powers of amendment

The House of Commons cannot propose amendments to increase total expenditure, change the composition of spending, or reduce revenues. The basis for this restriction is the 300-year-old SO No. 48 of the House of Commons, which states that “the House will receive no petition for any sum relating to public service unless recommended from the Crown”. The Crown’s recommendation lays down a maximum charge on public funds, as well as its objects and purposes (Erskine May, 1997, p. 740). Clearly a representative of the Crown would not propose revisions to the budget proposals of the

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Chancellor of the Exchequer. Also, since parliamentary committees are dominated by members of the ruling majority party, proposals are not made to revise the main estimates, as these would be overridden by the government. Thus, the House of Commons may only reduce a particular item of expenditure. Any revisions to the estimates that are incorporated in the annual appropriation act are very small – the approved budget is extremely close to the main estimates presented by the government in the budget speech.

4.2.4. Approval of resources

The right to initiate the kinds and levels of taxation rests firmly with the executive. This is a long-standing tradition that is not specified in Standing Orders (Daintith and Page, 1999, p. 108). Parliament formally approves revenues – in a finance bill – well after the start of the financial year. The tax measures adopted in the budget are legislated at a time different from the appropriation of expenditures for the same year.

Most United Kingdom taxes, including all indirect taxes, are permanent. As major exceptions, the government’s authority to impose personal income and corporation taxes has to be renewed by legislation every year. This is done by adopting an annual finance bill, which also imposes new duties or adjusts the rates of permanent duties so that revenues match proposed expenditures and deficit targets. For more than three centuries, proposals for raising taxation – which were initiated by a government minister – originated in the House of Commons Committee of Ways and Means. However, this committee was abolished in 1967. Today, after a one-day debate at the second reading, the convention is for any controversial measures of the draft finance bill to be considered by the House of Commons Committee of the Whole House. Less controversial detailed revenue proposals are sent to a standing committee (despite the name, “standing” committees are not permanent). Many amendments may be proposed by select committees, but only those selected by the chairmen of the standing committee are debated. After the third reading in the House of Commons, the draft finance bill passes through all legislative stages of the House of Lords in one day, as the upper House is prohibited from making any amendments.23

Separate primary legislation is not required to make tax changes – simple resolutions of the House of Commons are adequate.24 By virtue of the Provisional Collection of Taxes Act, 1968, some income and excise tax changes and the validation of existing taxes (but not the approval of new taxes) may come into effect immediately following the Chancellor’s budget speech.25 Fees collected or proceeds of assets sales by departments may be retained and used by them, outside the Consolidated Fund. The amounts expected in the upcoming fiscal year are separately approved in the supply estimates as

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