House of Commons - Liaison

Select Committee on Liaison Second Report

5 Making financial scrutiny worthwhile

62. Financial scrutiny is unlikely to flourish unless Members see it not only as important but also as a worthwhile use of their time. For that, we consider the following is needed:

a sensible division of tasks between select committees and the House itself, with the detailed work of select committees contributing to proceedings on the floor of the House;
ability to engage with financial issues under discussion within Government before decisions are made;
adequate opportunities to debate and vote on financial decisions, including specific spending proposals, after the Government has made them; and
expert assistance for Members on financial matters.

Greater interest in the media in financial issues would also be helpful, but as we cannot influence this directly we say no more about it here.

63. We have already stated that improved financial scrutiny is not about forcing through major changes in the Budget and spending plans.[34] It is almost universal in parliamentary systems, whether Westminster-style ones or not, that the Government not only proposes the Budget (which in most other countries includes the spending plans), but, regardless of whether the scope allowed for amendments is large or small, has its Budget authorised with little or no change.[35] The Budget debate in the Commons is partly symbolic (though an important symbol of the Commons' authority) and partly an occasion for the parties to explain their financial policies, rather than an opportunity to amend the Budget provisions. The quality of a Parliament's financial processes depends much less on whether the tax or spending plans for the next year can be changed than on the extent to which those plans are exposed to scrutiny. The main problem with Estimates, for example, is not that they remain unaltered but that they are not adequately scrutinised.

64. Parliament is more likely to be able to influence tax and spending plans for future years than for the immediately ensuing year, so there would be advantage in focusing financial scrutiny on a somewhat longer period, such as the three years of Spending Reviews.

Spending Reviews

65. These issues are thrown into sharp relief by the Spending Review process, and especially the recent Comprehensive Spending Review (CSR). The CSR encompasses the Government's most important spending decisions, determining Departments' spending for the forthcoming three years. It was intended to be a zero-based review of spending, requiring Departments to justify all expenditure rather than largely rolling it forward from one year to the next. Subsequent Estimates will reflect decisions already made in the CSR. And yet only limited information was available about the process. Two documents were published in 2006, described by the Treasury Committee as "one focused principally on departmental efforts to secure improved value for money, and one concentrating on very long-term issues with little direct reference to spending decisions within a three-year timeframe".[36] Some Public Service Agreements and Departmental Strategic Objectives were sent in draft to select committees.[37] Decisions on several Departments' spending totals were announced in advance of the results of the CSR as a whole. The announcement was, as is usual for Spending Reviews, made as a ministerial statement (jointly in this case with the Pre-Budget Report), allowing only an hour and a half of statement and questions and answers on the Government's main spending decisions for a three-year period. The Government agreed with the Treasury Committee that "a debate on the [Comprehensive Spending Review] should be held in the House of Commons",[38] but no such debate has yet taken place.

66. The CSR is of course a negotiating process within Government, and it would be unrealistic to expect the details of that process to be made public as it proceeds. Nevertheless, there is scope for the House to be engaged in the process. We make the following recommendations:

In future Spending Reviews the Treasury and other Departments should publish information about the framework within which the negotiations are taking place, and this should include the draft Public Service Agreements and Departmental Strategic Objectives setting out what the spending is intended to achieve. We note the Treasury Committee's recommendation, made before the results of the CSR were published and not accepted by the Government, that each Department should inform the relevant select committee about "the Government's emerging views on those past objectives which have been achieved and those supporting programmes from which spending is potentially available for reallocation",[39] and we endorse it.
It is absurd that the outcome of the Comprehensive Spending Review was discussed for only an hour and a half in the Chamber, and makes a mockery of the House's right to scrutinise government expenditure. We recommend that the results of Spending Reviews be the subject of a day's debate on the floor of the House some weeks following the initial announcement, and that the timing be such that select committees can report on the outcome in order to inform that debate.
Following the completion of Spending Reviews, select committees should consider examining how the Department is allocating its spending total across its various programmes. This will depend on Departments making the necessary information available earlier, well before the start in April of the Spending Review period, instead of committees having to wait for the next Departmental Annual Report in May.

67. The Alignment Project may make further changes necessary, particularly if the departmental budgets determined by Spending Reviews were to form the basis of the House's control of expenditure.

Select committee activity

68. Examination of Departments' finances is already a core task of departmental select committees, and virtually all of them examine the Department's Annual Report, with nearly half producing their own report on it. We believe they have three main roles in financial scrutiny:

examining the Department's main reporting documents, as most already do. This role may be simplified and made more rewarding by the outcome of the Alignment Project;

specific tasks, including examining how the Department allocates its spending totals across its programmes, identifying any weaknesses in the Department's financial management,[40] and examining significant changes made by the Department in its spending plans; and
taking account of finance and performance in inquiries mainly concerned with policy or administration.

Some of this work can be done at staff level, with only the significant issues identified by staff needing to take up Members' time.

CO-OPERATION BETWEEN COMMITTEES

69. The Public Accounts Committee and departmental select committees have different roles: the former examines the implementation of policy rather than the merits of policies, whereas the latter can examine both implementation and merits. Another major difference is that the PAC covers the whole of Government, whereas the departmental select committees focus on a single Department and so can spend more time on an inquiry. We believe there is scope for greater co-ordination between the work of the PAC and the departmental select committees, with each strengthening the impact of the other's work without interfering with the other's remit or its discretion in choosing inquiry subjects. In particular, the PAC could pass on issues of concern to departmental select committees, with commentary, to alert them to such issues, especially if these issues were outside the PAC's remit or current programme or the departmental select committee were better placed to follow up the issue because of its previous work. We note two circumstances when the passing on of issues by the PAC would be particularly beneficial: when lessons drawn from past activity are relevant to a Department's future plans and policy-setting, and when conclusions drawn from the activity of one Department are relevant also to other Departments. The departmental select committee to which an issue is referred could request supporting information from the NAO, and could, if it so decided, follow up the issue.

70. In the other direction, it is possible for departmental select committees to refer matters to the Comptroller and Auditor General (C&AG) as possible subjects of inquiry, though we suggest that they copy any such proposals to the PAC. The C&AG has, by statute, absolute discretion in discharging his functions and selecting matters for examination, but is required, in making his selection, to take into account any proposals made by the PAC.[41]

71. One of the most important recent changes has been that the NAO now provides assistance to select committees other than the PAC. We welcome the fact that the NAO is increasingly assisting select committees other than the PAC, and we are keen to see this work develop further.

CHANGES IN THE STRUCTURE OF COMMITTEES

72. We have not looked in detail at proposals for new types of committee or sub-committee because we do not regard changes in structures as one of the more important or urgent issues. As regards the proposal in the report published by the Hansard Society that finance and audit sub-committees of departmental select committees be piloted,[42] there are varying views among chairmen, but it is already within the power of those committees to set up finance and audit sub-committees if they wish.

Financial matters on the floor of the House

73. We have already indicated that financial scrutiny is likely to have most impact when the detailed work of select committees is combined with the higher profile of a debate in the Chamber.[43] The Modernisation Committee has recently reviewed the use of time on the floor of the House. It noted that "annual set piece debates" (financial and non-financial together) accounted for 45 sitting days a year and were "a pretty eclectic mix". Although it did not make comprehensive proposals for change, it recommended "rebalancing the current allocation of days and mix of subjects", including at least a day less for the Budget debate and the addition of a day for the Pre-Budget Report.[44]

74. Two issues are likely to reopen the question of the allocation of days:

The Modernisation Committee is currently inquiring into the Government's proposal that "the annual objectives and plans of the major Government Departments" should be debated on the floor of the House, "in order to strengthen further Parliament's scrutiny of the executive".[45] Any such debates will presumably displace other business rather than adding to the number of sitting days.
In the longer term, changes resulting from the Alignment Project may link the House's approval of expenditure to different types of control total set out in different documents published at different times and with a different frequency. They may also bring together in a single publication a wider range of information than Estimates currently provide, with a consequent impact on Estimates Days in particular.

ESTIMATES DAYS

75. The only days available on the floor of the House for debating select committee reports are the three Estimates Days a year (introduced in 1982) for debates on specific Estimates chosen by committees.[46] The Liaison Committee chooses between the bids, if necessary, and makes recommendations to the House. The days are normally divided into two, so that there are six opportunities per year. In practice some debates relate closely to an Estimate and some are more general debates for which the Estimate is a convenient peg. On days when the Estimates are Supplementary Estimates even committees with a recent report on departmental finances may find there is not a relevant Supplementary Estimate.

76. When the Procedure Committee examined the procedure for debate on the Government's expenditure plans in 1999, it noted that:

Estimates now contained even less information than when the Expenditure Committee in 1978 described them as "of little use as an instrument of either parliamentary scrutiny or parliamentary control";
Estimates Days tended in practice to focus on policy rather than expenditure;
tying debate to an Estimate meant that "the House's intervention is placed too late in the Government's expenditure planning process cycle to be effective";
Estimates related only to a single year's expenditure; and
the motion was either one to approve the Estimate, in which case the committee concerned had put nothing before the House, or a motion from the committee to reduce the Estimate, which was necessarily confrontational.[47]

77. The Procedure Committee considered that "there should no longer be a requirement that motions on days set aside for the consideration of expenditure plans be linked to the Estimates themselves"; instead the select committee concerned could propose its own motion for consideration by the Liaison Committee, and this might relate to departmental plans or reports rather than the Estimates themselves. It provided examples of the sort of motion which would be acceptable. The Committee also considered that, when motions related to future plans, rather than the Estimates themselves, motions recommending that "in the opinion of the House" increased expenditure or transfers between budgets were desirable should be allowed.[48] The Government rejected the former proposal because "there is an important linkage between debating and granting Supply on Estimates days", and the latter because it "would be a radical departure which would serve to undermine the financial initiative of the Crown".[49]

78. We agree with the points made by the former Procedure Committee. Estimates Days have failed to achieve their potential because of the artificiality of the link with Estimates, which in their present form relate to decisions already taken, are confined to a single year, do not cover the whole of a Department's expenditure and are in themselves uninformative. The only reason given by the Government for retaining the link is misconceived, because the link with Estimates does not in fact ensure that the debates relate to expenditure and the granting of Supply.

PROPOSALS

79. The Government's recent proposals relating to debates on Departments' objectives and plans and the Modernisation Committee's inquiry into the proposal provide an opportunity for remedying this situation, but not, in our view, if the result is a piecemeal addition to the opportunities for debate without considering the wider context. Also there is a risk that debates on Departments' objectives will be very general ones, for example on foreign policy. Any debate on a Department's objectives and plans ought to cover expenditure and performance management as well as policy. Indeed what the Departmental Annual Reports (which would presumably form the basis for the debates) contain for future years' plans is usually only the spending plans. Therefore we suggest that the opportunities for debating Departments' future plans, including spending plans and Estimates, be considered by the Modernisation Committee together, with the aim of devising a coherent set of opportunities for debate.

80. Any parliamentary assembly needs a balance between general debates, in which a range of issues can be raised, and opportunities for more detailed scrutiny. In our view the House of Commons has the balance wrong: it has too many general debates in which the Government is rarely challenged and public attention is usually not engaged at all, and too few opportunities to challenge the Government on specific aspects of its work. In particular, while we would not suggest recreating line-by-line scrutiny of Estimates on an unselective basis, we consider it essential that the House take back the right to debate and vote on individual government programmes or items of expenditure.

81. We envisage this working as follows:

Selection of programmes or items of expenditure for debate would be by select committees, which would need sufficient time for this purpose before the debate took place. Committees would not necessarily conduct a full inquiry on each subject: their role would be to identify proposals which required justification and to ensure that enough background information was available to the House.

Subjects for debate could be spending proposals, programmes or objectives. The select committee concerned would determine what level of detail was appropriate. Debate could cover future spending within the planning period rather than just a single year. Debate would not need to relate to a decision on an Estimate currently before the House, but it would be possible (as now) to vote on an Estimate selected for debate.

A motion would be proposed by the relevant select committee. The motion might be that the spending proposal, programme or objective be approved, that spending be reduced, that a programme or objective be altered, or (as discussed below) that spending in future years should, in the opinion of the House, be increased.

There would be flexibility in the timing: not every matter selected would need three hours or so, as is currently made available for debates on Estimates. The proceedings could have the character of proceedings on a bill, with a series of short debates.

There would be more than the current three days for debates on Estimates, which would be made possible by reducing the number of general debates.

82. We agree with the former Procedure Committee that "opinion of the House" motions proposing increases in future expenditure or transfers between budgets in the future should be permissible. Without this change it will be harder to link the work of select committees (which sometimes propose reducing expenditure and sometimes propose increasing it) with debates on the floor. Such motions would no more undermine the Crown's financial initiative than similar recommendations by select committees do at present, and we regard any "thin end of the wedge" argument suggesting otherwise as absurd. We recommend that it should be permissible to put forward "opinion of the House" motions proposing increases in future expenditure or transfers in the future between budgets, in addition to motions proposing reductions in expenditure.

83. The connection between the subject chosen for debate on an Estimates Day and the figures in the Estimate itself is not always clear at present, even when the subject clearly involves large amounts of public money.[50] We recommend that the Government provide an explanatory memorandum for each Estimates Day debate explaining how the figures in the Estimate relate to the subject under discussion.

84. We note the disparity between the five days used for the Budget and the handling of both Spending Reviews and the Pre-Budget Report as ministerial statements allowing only a short period of questions to the Minister.[51] We endorse the Modernisation Committee's call for the Pre-Budget Report to have a day's debate on the floor of the House.[52] In addition we have recommended above that the results of Spending Reviews be the subject of a day's debate on the floor some weeks following the initial announcement.[53]

Expert assistance and training

85. The ability of select committees to conduct effective financial scrutiny has been greatly increased by the establishment five years ago of the Committee Office Scrutiny Unit. We note the view expressed in the Hansard Society report that the Scrutiny Unit's establishment "has improved select committee performance in this area", and the conclusion of the recent review of the Committee Office's resources that the Unit has "played an important role in ensuring that financial scrutiny … is undertaken by Select Committees".[54] The Unit is on a very small scale compared to the Government Accountability Office in the United States, but it operates in a completely different system. This Report seeks to increase the amount of financial scrutiny undertaken by select committees, and implementation of its proposals would probably increase the need for specialist advice and also change the nature of the advice required. Less time would be spent merely interpreting what the Government's reporting documents are saying, and more explaining the significance of what they contain. More significantly, greater expertise would be needed in the scrutiny of budgets and budget management, including expertise relating to the setting and profiling of planned expenditure and outcomes, activity-based costing and analysis of variance between planned and actual spending.

86. This points to an enlarged Scrutiny Unit. However, additional demand for its services needs to be demonstrated before extra staff can be justified, and it will be some time before the proposals in this Report, such as better information on departmental budgets, could be implemented. Incremental growth as demand increases is likely to be the best option. But planning for that growth, and particularly for increased expertise in scrutiny of budgets and budget management, should begin as soon as possible, and the Scrutiny Unit should monitor any change in the volume of assistance requested from its financial analysts. The recent review of Committee Office resources will need to be taken into account.

TRAINING FOR MEMBERS

87. Another way of increasing Members' capacity for financial scrutiny would be to make more training available for them. The Scrutiny Unit has done some work in this area, notably its seminars on Resource Accounts, which a number of Members have attended. For more specialised areas such as the Private Finance Initiative, the National Audit Office or the Audit Commission could provide training. The Treasury has made training in government finance available on the internet,[55] and the Scrutiny Unit has produced a handbook to the financial system and how it is scrutinised, entitled Financial Scrutiny Uncovered.[56] We would like to put training in this area on a more systematic basis, and we call on the Scrutiny Unit to provide a financial scrutiny training plan for 2008-09 for us to consider. The Unit could liaise with the House of Commons Library in developing such a plan, given the Library's commitment to providing training for Members and their staff. We would welcome suggestions in this respect from any Member of the House.

34 See para 7 above. Back

35 David McGee, The Budget Process: a Parliamentary Imperative (2007), pp. 77-8 Back

36 Treasury Committee, Sixth Report of 2006-07, The 2007 Comprehensive Spending Review: Prospects and Processes, HC 279, para 97 Back

37 Treasury Committee, First Report of 2007-08, The 2007 Comprehensive Spending Review, HC 55, Ev 21-34 Back

38 Treasury Committee, Seventh Special Report of 2006-07, The 2007 Comprehensive Spending Review: Prospects and Processes: Government Response to the Committee's Sixth Report of Session 2006-07, HC 1027, response to recommendation 2 Back

39 HC (2006-07) 279, para 104; HC (2006-07) 1027, response to recommendation 20 Back

40 See para 52 above. Back

41 National Audit Office 1983, s.1(3) Back

42 Brazier and Ram, Fiscal Maze, paras 4.18, 5.20, 15.5 Back

43 See para 26 above. Back