| ANNEX D: |
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| THE WESTMINSTER BUDGETING SYSTEM |
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| Introduction |
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| 1. This Annex gives a broad outline
of the Systems operating in Whitehall and at Westminster for the allocation,
accounting and auditing of public expenditure. It is not exhaustive in that
it does not attempt to set out every detail of what is a very complicated
set of arrangements. The paper also looks briefly at possible future developments
in the systems. A brief analysis of the system's strengths and weaknesses
is at Appendix D. 1. |
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| Allocations and Appropriations |
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| 2. There is a two stage process.
Public expenditure planning is undertaken by the Executive: formal approval
to spend money is granted by Parliament. |
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| Public Expenditure Planning |
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| 3. Up until last year the Government
conducted an annual review of public expenditure priorities known internally
as the Public Expenditure Survey (PES). Since then, it has been replaced,
temporarily at least, by the Comprehensive Spending Review (CSR). Since
the precise nature of future arrangements is not clear, this paper concentrates
on the former PES process. |
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| 4. The Survey produced spending
plans for three financial years, although clearly the plans for the latter
two were subject to some degree of review in succeeding Surveys. The results
were reported to Parliament in the Chancellor's November budget Statement,
and prior to that in his Autumn Statement (also in November). The plans
announced at that stage were broadly at the level of individual Government
Departments. More detailed plans were published by Departments in a series
of Departmental Reports, published in late February or March. These Reports
replaced the former Public Expenditure White Paper. |
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| 5. The process was co-ordinated
by the Treasury and, in its latter stages, overseen by a Cabinet Committee
(EDX in the last Parliament, PX in this) prior to the start of detailed
decisions, Cabinet will have taken a view on the overall levels of public
expenditure appropriate in the light of economic circumstances and their
overall macroeconomic policy. The process involved detailed discussions
at official level between Departments and the Treasury to establish and
cost options followed by bilateral discussions at Ministerial level either
with the Chief Secretary to the Treasury or directly with the Cabinet Committee. |
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| 6. The public expenditure plans
so produced were not subject to any formal Parliamentary procedure. They
formed the basis of the Executive's formal application for resources. There
were, of course, general debates in Parliament on the generality of the
public expenditure plans. Departmental Select Committees would examine individual
Department's reports, but not in depth. |
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| Parliamentary Approval |
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| 7. Under long-established constitutional
practice, it is for the Crown (the Government) to demand money, the House
of Commons to grant it and the House of Lords to assent to the grant. Funds
are requested by the Government by means of Budget proposals, known at Westminster
as "Estimates". They are prepared by Departments and, after they
have been examined by the Treasury and any necessary amendments made, they
are presented to Parliament by the Financial Secretary to the Treasury. |
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| 8. Parliament gives statutory
authority for funds to be drawn from the Consolidated Fund (the Government's
general bank account at the Bank of England) by Acts of Parliament known
as Consolidated Fund Acts and by an annual "Appropriation Act".
Funds are made available under the Acts only for a specified financial year.
This is known as "annuality". |
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| Consolidated Fund Standing
Services |
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| 9. Parliament has also passed
statutes that authorise certain expenditure to be charged directly to the
Consolidated fund. That expenditure is not subject to the annual budget
process, known at Westminster as the "Supply procedure". Services
funded in that way are known as "Consolidated Fund Services".
(They include, for example, judges' salaries, payments to European Communities,
Civil List salaries.) |
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| The Budget Process |
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| 10. The Supply Procedure begins
with the presentation by the Treasury to Parliament of "Main Estimates"
containing a request for funds for the coming financial year. These are
normally presented in March. It is important to note that Parliament plays
no part in the allocation decisions which form the basis of the Estimates. |
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| 11. Presentation to Parliament
does not authorise Government Departments to spend the sums requested. Part
I of each Estimate forms the basis of a Supply Resolution which is normally
voted on by MPs in the House of Commons before the end of July. A Consolidated
Fund (Appropriation) Bill is then brought in and passed before Parliament
rises for the Summer Recess. |
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| Budget Approval |
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| 12. When enacted the Consolidated
Fund (Appropriation) Bill is known as the Appropriation Act. This Act authorises
the Government to spend up to the amounts requested in the Main Estimates
and in subsequent amendments, known as Revised or Summer Supplementaries.
It not only gives Parliamentary authority for the total sums requested to
be issued from the Consolidated Fund but also places a ceiling on the amounts
which may in addition be applied as receipts and limits the way in which
this money can be spent. This is done by prescribing how the overall sum
is to be appropriated to particular Estimates in order to finance specified
services. At the same time it gives statutory backing to these services
or functions of Departments. It also appropriates to individual Estimates
sums provided under Consolidated Fund Acts passed during the preceding 12
months. |
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| Interim Budget Approval |
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| 13. Because Parliament does not
normally approve the Main Estimates until the end of July or early August,
funds for early months of the financial year are provided by a system of
"Votes on Account". These are normally presented to Parliament
in the previous November, along with the Winter Supplementary Estimates
for the previous year. They normally seek, for the coming financial year,
45 per cent of the amounts authorised to date for the previous financial
year. |
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| Budget Amendments |
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| 14. Sometimes the Government's
requirement for funds may change between the presentation of a Main Estimate
and the Consolidated Fund (Appropriation) Bill. It would be wrong for the
Government to ask Parliament to vote a sum which was incorrect. In these
circumstances a Revised Estimate may be presented to replace the original
one before the Supply Resolution is voted on. Revised Estimates normally
reduce the provision sought in the original Estimate or vary the way in
which it is to be spent. |
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| 15. The Government may
also decide to ask Parliament during the year for additional money. Supplementary
Estimates, where necessary, are usually presented in June (Summer Supplementaries),
November (Winter Supplementaries) and February (Spring Supplementaries).
Following any debate and vote on the necessary Supply Resolution, formal
statutory authority for extra funds is provided by the Appropriation Act
in the case of Summer Supplementaries and by separate Consolidated Fund
Acts in the case of Winter and Spring Supplementaries. The Winter Consolidated
Fund Act also covers the Vote on Account. Occasionally special Supplementaries
may be presented at other times. Unless they can be associated with the
regular Parliamentary proceedings (as, for example, with late Spring Supplementaries)
they will require their own additional Consolidated Fund Bills. |
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| Budget Overspends |
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| 16. If expenditure on any Vote
exceeds funds available, and it is too late to seek a Supplementary Estimate,
the relevant Department must seek an Excess Vote. A Statement of Excesses
is presented to Parliament by the Treasury, usually in February of the following
year at the same time as Spring Supplementary Estimates for the current
year. Funds are then voted in March (that is, eleven months after the end
of the financial year to which they relate). |
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| Contingencies Fund |
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| 17. There is also a Contingencies
Fund which can be used to finance urgent expenditure, in anticipation of
Parliamentary approval of Estimates. Total advances outstanding at any time
must not exceed 2 per cent of the previous year's total Estimates provision.
Drawings on this Fund are repaid when Parliament has voted the additional
money. |
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| Parliamentary Debate |
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| 18. Parliament's consideration
of individual Estimates is primarily a task for the Departmental Select
Committees, which examine the expenditure of particular Departments. A Committee
may decide to examine individual Main, Revised or Supplementary Estimates,
ask the Department for more information about some aspects and examine Ministers
and officials about particular expenditure. A Committee's conclusions often
take the form of a Report which is printed by the House of Commons. |
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| 19. Under arrangements set out
in Standing Orders, the House of Commons has an opportunity to debate, and
vote on, individual Estimates on three Estimates days in each Parliamentary
Session. When this happens the debate is generally informed by a Report
from the relevant Committee. The time available in Estimates days is allocated
on the advice of the Liaison Committee, whose membership includes the Chairmen
of the Departmental Select Committees. |
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| 20. Under these arrangements
proceedings on Consolidated Fund Bills are formal, ie not open to debate.
Any special Supplementaries, presented at times other than the normal occasions,
may not always be covered by these arrangements in which case the Government
would have to make extra time available for debates on them. |
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| Parliamentary Timetable |
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| 21. Under Standing Orders of
the House of Commons, seven clear days must elapse between the presentation
of an Estimate and the vote on the related Supply Resolution. The Government
aims to leave at least 14 days between presentation and the vote, and to
give Select Committees advance proof copies of Supplementaries ahead of
presentation, although this may not always be possible. In practice, some
5-7 weeks are usually available for Select Committees to examine Supplementaries
on the three main occasions when they are presented, although this period
is necessarily shorter if there are any late revisions and for any special
Supplementaries presented outside the usual timetable. |
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| 22. Parliament's consideration
of Estimates is therefore generally concentrates in three periods: |
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| 22.1 March-July for Main Estimates,
and June-July for Revised Estimates and Summer Supplementaries; followed
by any Estimates day debates in July and the Appropriation Act. |
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| 22.2 November-December for Winter
Supplementaries; followed by any debates and a Consolidated Fund Act. |
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| 22.3 February-March for Spring
Supplementaries; also followed by any debates and a Consolidated Fund Act. |
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| 23. Any special Supplementaries,
presented outside the normal timetable, would be considered by Parliament
as they arose. |
| Annuality |
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| 24. Funds voted by Parliament
under Consolidated Fund Acts and the Appropriation Act are only available
for expenditure during the financial years (running from 1 April to 31 March)
specified in the Acts. Any money which has been voted by Parliament for
a particular year, but which is not needed to meet expenditure chargeable
to that year is surrendered to the Consolidated Fund and cannot be carried
forward into the next financial year. |
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| Cash accounting |
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| 25. Supply Estimates are
based on cash accounting (although resource accounting and budgeting is
being introduced). Provision should therefore be made for payments expected
to be made in the year and for money expected to be received in the year. |
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| Accounts |
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| 26. After the end of the financial
year an "Appropriation Account" is prepared for each Estimate
which, after being certified by the Comptroller and Auditor General (and
reported on where necessary), is laid before the House of Commons in the
autumn following the end of the financial year to which it relates. |
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| Auditing |
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| 27. The Appropriation Accounts
of Government Departments are audited by the Comptroller and Auditor General
(C&AG). The C&AG is an officer of Parliament , and not a civil servant.
Neither are his staff (the National Audit Office) civil servants. |
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| 28. The C&AG also audits
the, non-statutory, accounts of Executive Agencies and various |
| other statutory accounts, including
those for the Secretary of State's lending, from the |
| National Loans Fund, to various
public bodies, particularly Scottish Enterprise, Scottish |
| Homes and the water authorities.
He also audits a statutory account of the Health Service in |
| Scotland. |
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| 29. The accounts of most non-Departmental
public bodies are audited in accordance with the arrangements in their founding
statutes. In most cases in Scotland this is the C&AG, who also audits,
by arrangements, the accounts of two NDPBs set up by Royal Charter. In other
cases, accounts are audited by auditors appointed by the Secretary of State
(normally from the private sector). In a few cases, NDPBs are not incorporated
under specific statutes, but as other types of bodies, for example companies.
In these cases, the auditing arrangements follow that legislation for the
type of body. |
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| 30. The accounts of individual
health bodies, Health Boards and NHS Trusts, are audited by auditors appointed
by the Controller of Audit (the chief official of the Accounts Commission
for Scotland). He also appoints auditors for Scottish local authorities. |
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| 31. In addition to his auditing
duties, the C&AG also carries out, under the National Audit Act 1983,
examinations into the "economy, efficiency and effectiveness"
with which |
| Departments and other public
bodies have used their resources. These are commonly known as value for
money studies. Generally, he may carry out such studies into: bodies which
he audits; bodies which receive more than 50% of their income from public
funds; and bodies where the responsible Minister agrees that he should have
such power. |
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| 32. The C&AG will discuss
the results of his audits with the bodies concerned, though where circumstances
warrant it, he may make a special report on the results of the audit and,
in particularly severe cases, qualify his certificate. These reports, and
the reports on value for money studies, are made to Parliament; and may
be considered by the Committee of Public Accounts (PAC). |
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| 33. The Controller of Audit reports
to the Accounts Commission for Scotland. |
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| The Committee of Public Accounts |
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| 34. PAC is a Select Committee
of the House of Commons with 15 members and a quorum of 4. It is normally
chaired by a Senior Opposition Member, often one who has previously been
a Minister in the Treasury. |
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| 35. The Committee meets, normally,
twice a week during the Parliamentary session and examines individual Accounting
Officers, both from Government Departments and other bodies, on the contents
of reports from the C&AG. The C&AG and a senior official from the
Treasury also attend these hearings. |
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| 36. PAC reports to the House;
and these reports are published. Although they are not binding on the Government,
the reports are very influential. The Government sets out, within 4 months,
a formal response in the form of a Treasury Minute. PAC follow up progress
in implementing actions agreed in Treasury Minutes. |
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| Resource Accounting and Budgeting |
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| 37. The previous Government announced
detailed proposals for introducing a revised system of accounting by Government
Departments, known as Resource Accounting, with, at a later date, budgeting
exercises (eg PES) being conducted on this basis. The present Government
has indicated that it intends carrying these reforms through. The present
timetable is that resource accounts will be completed by Government Departments
for the current financial year, but not audited or published. Accounts for
1998-99 will be audited but not published and accounts for years after that
will be published. The first resource based survey is planned for 2000,
ie for years 2001-02 and beyond. |
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| 38.The main points of difference
about Resource Accounts are: |
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| 38.1 They will be on an accruals
basis as opposed to the current cash basis; |
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| 38.2 This means, in particular,
that capital expenditure will not be charged to the operating account as
the cash is paid over (which is what happens at present) but over the life
of the project; |
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| 38.3 Capital will be charged
both as depreciation (on a modified historic cost basis) and a specific
capital charge of 6% of the net of its value representing the financing
costs; |
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| 38.4 The accounts will also contain
an apportionment of expenditure to the specific objectives of Departments;
and |
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| 38.5 Published separately from
the accounts, will be an "output and performance analysis" showing
performance against targets for various outputs connected with the identified
specific objectives of Departments. |
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