Financial Scrutiny: the Estimates Cycle

The legal basis for parliamentary control of Crown (i.e. government) expenditure dates back to the Glorious Revolution of 1688-89 and Parliament’s decision to legalise the standing army but provide its expenses only for 12 months in advance. Over time, this principle – that expenses be granted only for the year ahead – was extended to other areas of government expenditure until, by 1830, all civil government expenditure was provided on this basis.

Six key principles or rules now govern what has become known as the Estimates process. They are derived variously from practices of the House of Commons stretching back to the early eighteenth century, from Standing Orders, and in some instances from statute:

1. The financial initiative of the Crown: Standing Order No. 48 states that the House of Commons will “receive no petition for any sum relating to public service or proceed upon any motion for a grant or charge upon the public revenue, whether payable out of the Consolidated Fund or the National Loans Fund or out of money to be provided by Parliament, or for releasing or compounding any sum of money owing to the Crown, unless recommended from the Crown.”

Consolidated Fund: This is central government’s current account. It is a public bank account created in 1787 at the Bank of England for the purpose of having a single fund into which all public revenue would be paid, and from which all payments for public services would be made.

The provision that the House will only consider expenditure proposals made by the Crown dates back to an Order of the House of Commons on 11 June 1713 which stated “That this House will receive no Petition for any sum of money relating to public services but what is recommended from the Crown.”

National Loans Fund: This is central government’s primary borrowing and lending account. Administered by HM Treasury and maintained at the Bank of England, the Fund was established on 1 April 1968 by the National Loans Act 1968 in order to separate revenue and expenditure from goverment borrowing and lending. (Previously, both had been accounted for through the Consolidated Fund.) The Fund’s borrowing requirements are met by the Debt Management Office and National Savings and Investments.

This Order gave the government the sole power of financial initiative in Parliament but was, in part, designed to limit ‘pork barrel’ politics by MPs seeking funds for local constituency expenditure with little or no regard for the nation’s finances.

2. Financial privilege: control of spending can be exercised only by the House of Commons, not by the House of Lords. The Parliament Act 1911 provides that all Supply and Appropriation Bills must be certified as Money Bills and can receive Royal Assent without the consent of the Upper House. In practice, Supply and Appropriation Bills go to the House of Lords but their passage there is a formality: such Bills are not printed and are not debated or amended.

3. The requirement for preliminary approval of expenditure by resolution prior to legislative proceedings: Standing Order No. 49 sets out that “Any charge upon the public revenue whether payable out of the Consolidated Fund or the National Loans Fund or out of money to be provided by Parliament including any provision for releasing or compounding any sum of money owing to the Crown shall be authorised by resolution of the House.” The Supply and Appropriations Bill for final authorisation of the release of monies from the Consolidated Fund to departments can thus only be brought forward once the House has considered the Supply motions. In the same way, the Finance Bill follows consideration of the Budget motions.

4. Control on the purposes of expenditure: spending can only be for the purposes approved by Parliament, as set out in the ‘ambit’ of each departmental Estimate. The National Audit Office (NAO) audit function provides a check at the end of the year on whether or not departments have spent money only for the purposes approved by Parliament.

5. The annuality rule: resources are authorised by Parliament only for use in the financial year set out in the Supply and Appropriation Act. The original purpose behind this rule was to prevent government hoarding surplus money from one year to the next and then spending it in ways not authorised by Parliament. This annuality rule was first applied in the 1862-63 session, following a recommendation from the then newly-established Committee of Public Accounts in 1861. The rule is now formally set out in the Government Resources and Accounts Act 2000 and is important in the context of NAO auditing of government accounts at the end of the financial year.

6. The sessionality rule: expenditure resolutions must, subject to certain exceptions, be given statutory effect in the parliamentary session in which they are passed (although this has been disapplied from time to time, including in relation to the post-2011 shift in the start and end of parliamentary sessions from autumn to spring. The rule is now regarded as far less important than it used to be).

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Since 1997, multi-year Spending Reviews have set out headline spending plans for each government department. Drawing on the plans outlined in the Spending Review, each year the government then makes formal requests to Parliament for funds for departments for the financial year ahead. These requests are made in at least two and sometimes as many as four stages throughout the year in a process known as the ‘Estimates Cycle’:

(i) Vote on Account: this is normally published each February and approved by the House of Commons in March (alongside the Supplementary Estimates – see (iii) below), in time for the start of the next financial year in April. It is a request from the government for advance funding to cover departmental spending plans for the first four months of the next financial year. The calculation of this sum is usually based on 45% of spending in the current financial year (the year during which the vote takes place). This sum is intended to be sufficient to tide the government over until the Main Estimate is approved in the summer (see (ii) below), but not to be so large as to reduce entirely the importance of Parliament’s consideration of the Main Estimate.

(ii) Main Estimates: these set out the government’s formal annual spending plans for each department, and their agencies and arms-length bodies. The Main Estimates are normally presented to Parliament in April for approval by the House of Commons in early July (in the event of a general election in the Spring/early Summer the Estimates are usually presented to Parliament in July). The advance funding approved through the earlier Vote on Account is deducted from each departmental estimate and the remainder (known as the ‘balances to complete’) is approved through Supply resolutions. These Resolutions are then given legal effect through a Supply and Appropriations (Main Estimates) Act. This legislation provides the legal basis for the issuing of money from the Consolidated Fund in accordance with the requested sums and spending limits set out in the Main Estimates.

(iii) Supplementary Estimates (if required): these are the government’s additional requests to Parliament to authorise new funding levels (or amend existing ones) and/or authorise changes in the purpose for which money is sought by departments. Supplementary Estimates are used, for example, to address costs arising from transfers of functions in machinery-of-government changes. Supplementary Estimates are usually published in February for approval by the House of Commons in Supply resolutions by 18 March, to enable the funds to be spent before the end of the financial year. The Supply resolutions are then given legal effect in a Supply and Appropriation (Anticipation and Adjustments) Act.

(iv) Statement of Excesses (if required): these are exceptional requests made by the government if a department spends money beyond the level or purpose approved by Parliament. In effect, MPs are asked to grant retrospective approval for the spending. Statements of Excesses are exceptional spending requests, not the norm, and usually arise as a result of an error, or where unavoidable spending has been incurred. Any such Statement automatically triggers a qualified audit opinion by the National Audit Office and a Public Accounts Committee report.

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Each government department produces its own annual Estimate, and HM Treasury compiles and publishes them together in a single Estimates report for presentation to Parliament. Treasury rules define the spending categories contained in the Estimates. Each departmental Estimate is made up of three key parts:

(i) The ‘ambit’: this is the high-level description of what the money will be spent on in each department. If a department spends money outside the scope of the ‘ambit’ approved by Parliament, then that spending is unauthorised and therefore illegal. In such circumstances a department will require a Statement of Excess to provide retrospective approval for the spending.

(ii) Departmental expenditure limits (DELs): these cover net spending, subject to the limits set out in the Spending Review process, in areas of activity that departments can generally forecast and over which they are therefore expected to exercise control. In each annual Estimate, the DELs are divided into two sub-categories:

• Resource DEL, or current ‘day-to-day’ spending: this includes, for example, costs for staff, purchasing goods and services, rents, maintenance and other administrative costs, depreciation and the sale of assets.
• Capital DEL, or investment spending: this includes capital grants, loans, and the purchase, disposal or improvement of major assets.

(iii) Annually managed expenditure (AME): this covers net spending in areas that are less predictable and therefore more difficult for departments to forecast and control:

• Resource AME: this includes benefits, state pensions, and other welfare costs, as well as provision for liabilities.
• Capital AME: this includes areas such as student loans.

Generally, departments cannot switch funds from DEL to AME, or from resource to capital spending categories, once the Estimate has been approved. However, within each category, a breakdown of proposed spending is provided, and this does not bind the government. Here, the government can ‘vire’ money from one heading area to another, provided that neither the ambit nor the overall spending limit is breached.

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Scrutiny of the relevant departmental Estimates and accompanying Estimates memoranda largely falls to House of Commons departmental select committees. One of the committees’ core tasks is to “examine the expenditure plans, outturn and performance of the department and its arm’s length bodies, and the relationships between spending and delivery of outcomes”.

Explanatory memoranda on the Estimates for each department are also laid before Parliament. These explain the expenditure headings in the Estimates, any changes from previous years, and new areas of spending. They also explain the Barnett formula calculation of the block grant for the devolved governments.

Within the House of Commons, the Scrutiny Unit was formed in 2002 to support select committees, particularly in the area of financial scrutiny. The Scrutiny Unit provides select committees with briefing material on each departmental Estimate, as well as support with any follow-up scrutiny, including questioning of ministers or senior departmental officials.

One of the problems facing MPs in scrutinising the Estimates is that the documents are dense, complex and difficult to understand. Expenditure is set out under very broad headings and is rarely linked directly to identifiable projects, programmes or familiar outputs.

It is therefore difficult for MPs to focus on particular areas of spending other than in very broad terms, and even more difficult to target particular projects or programmes, should they wish to reduce spending via an amendment to the Estimate. The presentation of Estimates information in the UK has been criticised by the Organisation for Economic Co-operation and Development (OECD), and some academic observers contend that the high-level aggregation of financial information means that UK government ministers have far more discretion in implementing public spending than ministers in other OECD countries.

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Three days (other than Fridays) are allotted in the House of Commons in each parliamentary session for the consideration of Estimates. These are known as Estimates Days. One day is allotted for consideration of the Main Estimate, and two days for the Supplementary Estimates and Vote on Account (if needed). One of the total three days may be taken in the form of two half-days of debate.

An Estimates debate may be linked to a department’s full spending programme or a particular aspect of it, and it may draw on a relevant select committee report.

Previously, the Liaison Committee selected topics for Estimates Day debates, based on applications from select committees. Now, however, under an arrangement recommended by the Procedure Committee in April 2017 and then introduced on a pilot basis, any backbench MP can bid, via the Backbench Business Committee, for an Estimates Day debate on one of the departmental Estimates. The Backbench Business Committee considers all the bids and then submits formal proposals to the Liaison Committee as to the Estimates debates that should take place on the allocated days. Under the power set out in Standing Order No. 145, the Liaison Committee then recommends these proposals to the whole House, which must agree them.

In deciding on the bids made for an Estimates debate, members of the Backbench Business Committee take into account factors such as demonstrable levels of cross-party support, gender balance, and evidence of speaker demand.

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Approval of the Estimates (Main or Supplementary) must come first in the form of a resolution of the House of Commons. When a Supply motion is agreed, it becomes a Supply resolution; it means that the House of Commons has considered the government’s spending plans and expressed support for them. However, Supply resolutions have political force, but are not law. Consequently, legislation is also required before the departmental expenditure set out in the Estimates is legally authorised by Parliament. This legislation takes the form of a Supply and Appropriation (Main Estimates) Act (for the Main Estimates) and a Supply and Appropriation (Anticipation and Adjustments) Act (for the Supplementary Estimates and Vote on Account).

Supply motions take two forms:

• (i) Amendable motions on the individual departmental Estimates. These are debated on Estimates Days on the recommendation of the Backbench Business Committee and Liaison Committee. The motions are usually tabled between one and four days after the proposals for Estimates Day debates have been approved by the House.
• (ii) Non-amendable ‘roll-up’ motions. These provide for parliamentary approval of the other departmental Estimates (i.e. those which are not chosen for debate on Estimates Days).

MPs may propose a reduction in an Estimate selected for debate, via an amendment to a Supply motion of type (i) above. However, MPs cannot propose an increase in the Estimate. Only a government minister may move a Supply motion, and the government establishes the upper limit on spending, so any amendment to increase that limit is prohibited. This reflects the constitutional principle that only the Crown may initiate expenditure.

Because the Supply motions provide the foundation for subsequent legislation (which is subject to neither debate nor amendment) the form and content of the motions (and of any proposed amendments to them) are strictly policed. Once the motions are agreed as resolutions, they:

• must provide a clear legal basis for action;
• cannot cover matters unrelated to the Estimates;
• cannot include statements of opinion; and
• should not impose conditions on the authorisation of expenditure.

The approval of the Estimates must be clear and unambiguous, in relation to both the amounts involved and the purposes for which the spending is designated. Any amendment to the Estimates motions which does not meet these requirements will be deemed disorderly and is therefore unlikely to be selected. (The Speaker of the House of Commons does not have to set out reasons for his decisions on the selection of amendments.)

If a government were to lose a vote on the Estimates, this would have political, but not necessarily constitutional, implications and consequences.

Timing issues when approving the Main Estimates

The government can request approval of expenditure at any time. However, if approval of the Main Estimates is not sought before 5 August each year, then the government cannot benefit from the abbreviated procedure set out in Standing Order No. 54 which enables all the Estimates to be approved in a single ‘roll-up’ motion. If approval is not sought before 5 August each departmental Estimate has to be approved separately.

Why 5 August? This dates back to a Sessional Order of 1896, proposed by the-then Leader of the House of Commons, Arthur Balfour MP. Prior to 1896 the House of Commons had often sat through August and early September to debate the Estimates and grant approval to the related Appropriation Bill. The Speaker had few formal means to bring the debates to a close on what, in the late nineteenth century, were often up to 200 individual Estimates motions. The 1896 Sessional Order provided that all outstanding questions relating to the Main Estimates must be put to, and resolved by, the House by 5 August, with proceedings on the Appropriation Bill then to be taken the following week. It was alleged during the debate on the Order that this timetable was established with the demands of grouse shooting on the Glorious Twelfth in mind.

In practice, the 5 August deadline could be altered if MPs wished. A motion could be moved, for example, to amend the Standing Order and substitute a date other than 5 August for consideration of the Estimates in any given year. A motion could also amend the Standing Order provisions requiring the Speaker to put the questions ‘forthwith’.

Such an approach has never been tested. MPs would have to weigh the political advantages of doing so against the risks involved in potentially withholding funding for critical economic and social programmes of benefit to their constituents.

If MPs declined to approve the Main Estimates by August, then by early autumn the government would likely run out of money, having used up the 45% advance funding secured through the earlier Vote on Account, and having exhausted all options to redeploy funds from other sources such as the Contingencies Fund or the National Insurance Fund.

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The Supply motions, if approved, become resolutions of the House. These resolutions are the parliamentary foundation for:

• the Supply and Appropriation (Main Estimates) Bill, which – when passed – provides formal statutory authority for the Main Estimates;
• the Supply and Appropriation (Anticipation and Adjustments) Bill, which – when passed – provides formal statutory authority for the Supplementary Estimates and the Vote on Account.

Only once a Bill receives Royal Assent does the spending set out in the Estimates, and approved by Parliament, have legal effect.

A Supply and Appropriation Bill is usually introduced by the Chief Secretary to the Treasury once the House has resolved to support the Supply motions. The Bill is usually introduced immediately after the Supply motions are agreed, with Second Reading set for the following sitting day.

As the House has already agreed the Supply resolutions, a Supply and Appropriation Bill is not subject to debate or amendment at any stage. There is no Committee stage, and thus no Report stage, and under Standing Order No. 56 the questions on Second and Third Reading are put ‘forthwith’.

The Bill is certified as a Money Bill by the Speaker and goes to the House of Lords, where it is passed unamended (in accordance with the Parliament Act 1911).

Once the Bill receives Royal Assent, the government has the legislative approval necessary for the monies sought by each department to be released from the Consolidated Fund.

Once enacted, the Supply and Appropriation (Main Estimates) Act and the Supply and Appropriation (Anticipation and Adjustments) Act provides the basis on which the National Audit Office will audit the government’s accounts.

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A Money Bill is defined in Section 1(2) of the Parliament Act 1911. It is a public bill which in the opinion of the Speaker of the House of Commons contains only provisions dealing with all or any of the following:

• the imposition, repeal, remission, alteration, or regulation of taxation;
• the imposition for the payment of debt or other financial purposes of charges on the Consolidated Fund or the National Loans Fund, or on money provided by Parliament or the variation or repeal of any such charges;
• Supply;
• the appropriation, receipt, custody, issue or audit of accounts of public money;
• the raising or guarantee of any loan or the repayment thereof;
• subordinate matters incidental to those subjects or any of them.

For a bill to be certified by the Speaker as a Money Bill, it must have the sole purpose of creating or extending the scope of a charge on public expenditure.

Finance Bills may be certified as Money Bills but not always, because they sometimes include provisions dealing with matters other than those listed above.

The Speaker is advised by officials about the certification of bills as Money Bills. (On a few rare occasions, certification has been done by the Deputy Speaker if the Speaker was unavailable.) Section 1(2) of the 1911 Parliament Act also imposes a ‘duty’ on the Speaker to consult, if practicable, two senior members of the Panel of Chairs.

Panel of Chairs At the beginning of each parliamentary session, not fewer than 10 Members of the House of Commons are nominated by the Speaker to serve on the Panel of Chairs. The Chairman of Ways and Means (the principal Deputy Speaker) chairs the Panel and the other two Deputy Speakers are also members. The Panel members are appointed to chair Public Bill Committees, other general committees (e.g. Delegated Legislation Committees) and Westminster Hall debates. They may also act as temporary chairs of Committees of the Whole House.

The Speaker only considers certification when the bill in question has reached the final form in which it will leave the House of Commons. This is because the inclusion of an amendment could have a significant bearing on the certification decision. When MPs have attempted to assess whether an amendment is likely to prevent a bill being certified as a Money Bill, at the bill’s committee or report stage, then the committee chair or the Speaker has always declined to give an opinion.

According to Erskine May, once a bill is certified as a Money Bill the Speaker’s decision is “conclusive for all purposes and may not be questioned in a court of law”.

Under the terms of the 1911 Parliament Act, a Money Bill can be presented for Royal Assent with or without the agreement of the House of Lords one month after it was sent to the Upper House (providing that the Bill was sent to the Lords at least one month before the end of the parliamentary session). (In contrast, all other public bills passed by the House of Commons may be delayed by the Lords for a minimum period of 13 months, under other provisions in the 1911 Act.)

The House of Lords is not debarred from amending a Money Bill, provided that the amendments are passed within one month, but there is no obligation on the Commons to consider the Lords amendments. In practice, therefore, a Money Bill is rarely considered in committee by the Lords; the legislative stages on the bill are usually (although not always) treated as a formality.

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