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“appropriations-in-aid” (see below). Should actual fees collected or asset sales revenues be higher than projected, departments may not spend these revenues, unless Parliament provides authority through the adoption of a supplementary estimate.26

4.2.5. The nature, structure and duration of appropriations

It is a prerogative of H.M. Treasury to specify the structure, format and duration of the estimates and decide which totals are subject to parliamentary control. Parliament’s control totals are much more aggregated than those used by H.M. Treasury for expenditure control purposes. Since the adoption of resource-based accounts in 2001/02, the overall structure of the estimates, as adopted by the annual appropriations acts, is shown in Table 1.

Table 1. United Kingdom: Format of appropriation adopted by Parliament for Department X

Parliament approves expenditures on two bases: first, the consumption of resources (authority to enter commitments that may not necessarily be paid for in the fiscal year) and second, the net cash requirement for all payments, taking into account cash receipts associated with appropriated income. Expenditure is on a net basis, that is, after deduction of revenues collected and retained by spending departments/agencies. The 1891 Public Accounts and Charges Act [s. 2(2)] authorises departmental fees to be appropriated in aid of their estimates; such fees are not paid into the Exchequer account at the Bank of England.

For current expenditures, “net resources used” (column 1) is the sum of administrative and other current expenses, and grants (all on an accrual basis) minus “operating appropriations-in-aid” (column 3). The latter is the amount that departments/agencies may spend from their own revenues. The retention of fees, etc., for spending is subject to oversight by H.M. Treasury (s. 2, GRA Act 2000). Since appropriations-in-aid are also approved on an accruals basis, the GRA Act 2000 makes provision for cash being received in a year other than that for which the appropriations-in-aid were approved. Should

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departments collect more revenues than shown in the appropriations act as appropriations-in-aid, they must return the excess to the Consolidated Fund as extra receipts.

Capital expenditures are also appropriated on a net basis, that is, after deduction of “non-operating appropriations-in-aid”, which are mainly proceeds from sales of departmental assets. All appropriations-in-aid are detailed comprehensively in footnotes to the estimates. Failure to include a relevant item in a footnote would mean that the income in question could not be applied as appropriations-in-aid.

The unit of appropriation in the supply process is the estimates for which the House of Commons takes a separate decision. For 2003/04, there were 58 estimates.27 When the supply estimates are presented to Parliament, for each department and for each “programme” (or Request for Resources, RfR), expenditure is broken down as follows:

a)Spending in DEL:

●Central government spending (with subheads).

●Support for local authorities (with subheads).

b)Spending in AME:

●Central government spending (with subheads).

●Support for local authorities (with subheads).

c)Non-budget.

4.2.6. Carryover of appropriations and borrowing of future appropriations

The budget year begins on 1st April. Expenditure and appropriations-in- aid are annual and, in principle, there is no borrowing against future income (see s. 1, GRA Act 2000). Besides the expenditure, which is controlled by Parliament, H.M. Treasury has its own internal expenditure controls. For the sub-total DEL, where expenditure limits are fixed for three years (and revised every two years), H.M. Treasury authorises departments unlimited carry forward within the three-year approved amounts. This is known as end-year flexibility. The objective is to encourage departments and their executive agencies to plan over the medium term and avoid wasteful end-year surges. Since AME is controlled annually, unspent provisions may not be carried over.

4.2.7. Public debt approval

There is no separate public debt act. Instead there are a number of statutes, several of which provide H.M. Treasury with considerable power in the management of public debt, including proposing debt limits to the government for fiscal management purposes and the issuing of securities under the 1877 Treasury Bills Act. The National Loans Act 1968 (itself an

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amendment of s. 21, E&AD Act 1866) establishes a statutory fund, the National Loans Fund (NLF), used to finance central government operations through borrowing. H.M. Treasury has wide discretion as to how to raise money by borrowing using the NLF.

The United Kingdom Debt Management Office manages the Debt Management Account, which was established under the Finance Act 1988, which amended the National Loans Act 1968. H.M. Treasury’s wide powers for acquiring, holding, transferring or redeeming securities are spelt out in Schedule 5A to the original 1968 Act. The Finance Act 2003 amended the National Loans Act 1968 to repeal the cap on borrowing by the Debt Management Office. However, overall government borrowing is limited by the government’s “golden rule” (see above). Annual debt/borrowing government guidelines are restated in each budget – a requirement of the CFS. Since 1997, successive budgets have restated the sustainable investment rule that net public debt will be maintained at below 40% of GDP over the economic cycle.

The Local Government Act 2003 allows local councils in England and Wales to borrow for capital expenditure, provided that the financing of expenditure is affordable from within local authority resources. The act requires each local authority to abide by a professional “prudential” code that requires them to determine that any proposed borrowing is both prudent and affordable through the setting of local prudential limits based on a range of financial indicators. Local authorities are not permitted to borrow for purposes other than for treasury management in the normal course of business.28 Local government borrowing in foreign currency requires H.M. Treasury approval. The government (not Parliament) and the National Assembly of Wales reserve power to override local authorities’ selfdetermined prudential limits should national economic circumstances require (s. 4).

Concerning debt guarantees, the CFS requires the economic and fiscal projections to include, inter alia, contingent liabilities. The granting of guarantees requires the consent of H.M. Treasury. Chapter 26 of Government Accounting provides guidance to departments and of the need to report to Parliament.

Finally, the CFS requires financial statements to include measurement of the government’s fiscal policy objectives and rules compared with the government’s European commitments, in particular the Stability and Growth Pact. Debt developments are also monitored in budget reports, using the Treaty of Maastricht’s general government gross debt limit of 60% of GDP as a reference.

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4.2.8. Promulgation, veto and publication of the adopted budget

Normal bills require a first reading, second reading, committee and report stages and a third reading before being passed to the other house where they go through the same process. With consolidated fund bills, however, second and third readings occur without any debate and there is no committee stage. The Lords’ consideration is purely formal and the bill becomes a consolidated fund act on royal assent. A similar procedure occurs for consolidated fund (appropriation) bills, which are introduced immediately after the related estimates debates, and provide a more detailed legislative request for supply, setting out the ambit and each request for resource.

4.2.9. Supplementary budgets (rectifying laws)

Supplementary estimates may be sought to either increase the amounts needed for existing services or to cover the cost of a service newly imposed upon the government by statute. There are no legal limits on the number of supplementary estimates. Typically, supplementary supply estimates, if necessary, are presented three times: in summer (June), winter (November) and spring (February). Formal statutory authority for extra funds may be provided in the summer, following the estimates day debates in the House of Commons, with extra spending being incorporated in the annual appropriation act. In contrast, if additional budgetary authority is sought in November or February, consolidated fund acts are used. For winter supplementary budgets, the same act that provides provisional legal authority to spend in year (+1) is used to approve supplementary spending for the remainder of year (0). In 2004, the House of Commons agreed to reform this process. As from the parliamentary session for 2004/05 there will be two appropriation acts, one in March appropriating the expenditure for the financial year just ending and one in July, as is currently the case.

If expenditure exceeds the annual estimate and it is too late to seek a supplementary estimate, the excess will appear in a department’s resource account and will be reported to the PAC by the C&AG (see section 4.5 below). Subject to PAC’s report, the necessary provision is sought in an excess vote. H.M. Treasury presents a statement of excesses to Parliament, usually in February. Ex post parliamentary authority for the overspending is then obtained (i.e. 10-11 months after the financial year has closed). It is rare for large amounts to be approved in this way.

4.2.10. Budgetary implications of other bills

A principle of constitutional propriety is that any new functions to be exercised on an ongoing basis and financed out of money provided by Parliament through the annual appropriation act should be authorised by a