Parliamentary Financial Procedures in United Kingdom

History

“The whole law of finance, and consequently the whole British constitution, is grounded upon one fundamental principle, laid down at the very outset of English parliamentary history and secured by three hundred years of mingled conflict with the Crown and peaceful growth. All taxes and public burdens imposed upon the nation for purposes of state, whatsoever their nature, must be granted by the representatives of the citizens and taxpayers, i.e., by Parliament.”[17]

The requirement that legislation sanction all public spending and taxation has a long constitutional history.[18] In medieval England, the King was expected to meet most public expenses (the court, the clergy and the military) out of his personal revenues. Where this was not possible, he was obliged to seek funds by summoning the common council of the realm, or Parliament, to discuss what aids (taxes and tariffs) should be supplied to support the Crown. Even in the earliest days of these assemblies, it was generally recognized that, when “aids” or “supplies” were required, the King should seek consent not only to impose a tax, but also for the manner in which the revenues from that tax might be spent. In 1295, the writ of summons for one of these councils, later known as the “Model Parliament”, proclaimed: “What touches all should be approved by all”.

Early British Parliaments were not legislative bodies as we understand them today, but petitioning bodies. They presented petitions to the King and agreed to taxes (i.e., money granted to the Crown), on the condition that certain problems (or grievances) outlined in the petitions would be addressed or concessions made. By 1400, the Commons insisted that the King respond to their petitions before any grant of money was made. When the King refused, they adopted the practice of delaying the grant until the last day of the session.

The “councils” subsequently divided into two “Houses” based on their communities of interest: the House of Lords and the House of Commons. In principle, each House taxed itself independently; for this reason it was not considered appropriate that the Lords determine what the Commons should contribute. Moreover, because the greater part of the tax burden fell to the Commoners, grants to the Monarch came to be made by the Commons “with the advice and consent” of the Lords. The dominant position of the Commons in terms of deciding matters of taxation was firmly established early in the fifteenth century when Henry IV conceded that any grant to the Sovereign must be agreed upon by both the Lords and the Commons and must be communicated to the Crown by the Speaker of the House of Commons.[19]

Initially, the Commons were content simply to have grants of supply originate in their House. However, over time the Lords began “tacking on” additional legislative provisions to Commons “money bills”, by way of amendments. This was viewed by the House as a breach of its prerogative to originate all legislation which imposed a charge either on the public or the public purse, and led the Commons, in 1678, to resolve 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, conditions, limitations, and qualifications of such grants; which ought not to be changed or altered by the House of Lords.”[20]

By the end of the seventeenth century, the principles of modern financial procedure—most particularly the annual treatment of finance by the House of Commons and the notion of effective and permanent House control over all public expenditure—were well established. Their evolution had taken several centuries and was related to the rise and gradual abolition of the Civil List, the creation of the Consolidated Fund and the growth of the “estimates” system, whereby the government receives annual operating grants from Parliament.

The Civil List

The Civil List[21] was initially a list of all non‑military personnel in the service of the Crown for whom remuneration was paid for by Parliament.[22] These included individuals in the personal employ of the Sovereign, such as domestic servants, people in the diplomatic service and various public officials and civil servants. Previously, the Crown had covered these expenses out of the Sovereign’s hereditary revenues and certain taxes voted to the Sovereign for life by Parliament.

Initially, Parliament did not concern itself with how the funds were spent. In general, it was felt that, while the Crown was not entitled to increase its revenue without the Parliament’s consent, it was perfectly free to dispose, as it pleased, of any funds properly in its possession. However, the amounts voted by Parliament were frequently insufficient and the House was increasingly asked for additional grants to discharge debts which the Sovereign had incurred to cover the shortfall. So emerged the practice of allocating to the Crown funds for specific purposes.
With the accession of Queen Victoria to the throne in 1837, Civil List expenditures were reduced to those required solely to meet the personal needs of the Sovereign and her family. All other civil expenses were taken over by the national treasury and paid out of the Consolidated Fund.

The Consolidated Fund

During the seventeenth and eighteenth centuries, the raising and spending of public money were intimately connected. Requests from the Crown for money, in estimated amounts for specified purposes, were considered and approved by a Committee of the Whole House. This phase concluded, a second Committee of the Whole considered the recommended “ways and means” for raising the money required to cover the amounts approved. The work of the first committee, which came to be known as the Committee of Supply, led directly to the work of the second, the Committee of Ways and Means. Only when the latter came to a decision, would a bill be introduced which empowered the Crown to raise money in the amount of and in the manner approved by the Committee of Ways and Means and to spend up to the amount approved, and only for the purposes designated, by the Committee of Supply.

The close coupling of taxing and spending continued until 1786 when the establishment of the Consolidated Fund[23] abolished the need to match a particular outlay with a specified revenue.[24] Once the Committee of Supply had agreed to the expenditure of certain sums, the Ways and Means Committee would look to the Consolidated Fund to pay for the approved expenditures. The concept of an appropriation bill was introduced to set aside from the Fund the amounts required for the purposes designated. Appropriation bills merely set aside funds; they do not require the Crown to spend all or any of the money which has been appropriated. Furthermore, appropriations are always made with a time limit; the spending authorization provided under an appropriation act expires at the end of the fiscal year to which the Act applies.[25]

Thus, two distinct kinds of government financial business emerged: the business of supply, which approved expenditures and their purposes, and resulted in the passing of appropriation bills; and the business of ways and means, which resulted in the taxation bills used to raise the monies needed to replenish the Consolidated Fund.
Since the institution of the Consolidated Fund, all expenses of the state have been authorized either by specific statute (ongoing and permanent) or by way of an annual appropriation. It is the annual appropriations, or supply grants, which come before the House for discussion each year.

The Estimates

As the seventeenth century drew to a close, England’s continuing colonial disputes with France and Spain and the recent experience of two civil wars made evident the need to maintain a national standing army under the control of Parliament. Previously, the Monarch had simply raised armies to fight wars, as required.

The institution of a permanent military establishment carried with it the requirement for grants to cover the cost of personnel, wars and fortifications.[26] In 1689, the British Parliament passed the Mutiny Act, legislation which had to be renewed yearly. The Act restricted the use of martial law and gave authorization for a definite number of military personnel. The Act also authorized a grant of funds sufficient to cover military wages, ordnance and shipbuilding for that year. This, then, was the means by which Parliament undertook the regular annual charge of supply for the army and navy, and from which emerged the parliamentary practice of granting annual appropriations for the operations of government. The principles governing that practice hold that the government may spend on public administration no more than the amounts (estimates) approved by Parliament and is similarly prohibited from using funds voted for one purpose to pay for another (engaging in virement).[27] As the scope of civil government expanded, civil expenditure came to comprise a number of expenses funded solely by annual parliamentary grants.[28]
Source: (Canada) House of Commons Procedure and Practice, Second Edition, 2009

Resources

See Also

• Public Finances
• Parliament

Notes

[17] Redlich, Vol. III, p. 114.

[18] Most of the historical background has been summarized from an article by Driedger, E.A., entitled “Money Bills and the Senate”, Ottawa Law Review, Vol. 3, No. 1, Fall 1968, pp. 25‑46. See also May, 6th ed.

[19] Ordinance of 1407 on “The Indemnity of the Lords and Commons” (quoted in Driedger, p. 31).

[20] Hatsell, J., Precedents of Proceedings in the House of Commons, Vol. III, South Hackensack, New Jersey: Rothman Reprints Inc., 1971 (reprint of 4th ed., 1818), pp. 122‑3. This is the origin of the Canadian House of Commons’ Standing Order 80(1) which reads: “All aids and supplies granted to the Sovereign by the Parliament of Canada are the sole gift of the House of Commons, and all bills for granting such aids and supplies ought to begin with the House, as it is the undoubted right of the House to direct, limit, and appoint in all such bills, the ends, purposes, considerations, conditions, limitations and qualifications of such grants, which are not alterable by the Senate”.

[21] The term “Civil List” was used also in the Canadian colonies.

[22] Redlich, Vol. III, pp. 161‑2.

[23] In Canada, this fund is known as the Consolidated Revenue Fund.

[24] In 1715, an Aggregate Fund, which was to be fed by definite sources of income and to bear definite charges of a permanent nature, was instituted under George I. However, it was only with the creation of the Consolidated Fund, in 1786, that the whole revenue of the state would flow into one receptacle from which all expenditures of the state would be discharged (Redlich, Vol. III, pp. 163‑4).

[25] Stewart, p. 109.

[26] Redlich, Vol. III, p. 165.

[27] Redlich, Vol. III, pp. 167‑8.

[28] Redlich, Vol. III, p. 165.