Accounting for democracy: making sure Parliament, the people and ministers know how and why public money is spent Contents

4Accounts and Parliamentary accountability

The importance of Parliamentary Scrutiny

75.There was a consensus amongst our witnesses that Annual Reports and Accounts are vital for Parliamentary scrutiny of the executive. The Comptroller and Auditor General told us that the purpose of Accounts was to provide “a credible record to all interested parties of how the resources voted by Parliament have been used”.118 John Pugh MP contended that

Parliament, who are also answerable to the taxpayer for the use of their resources, need to be able to understand what any Government has done, what Government expenditure has turned out like and what has happened within the basic administration of Government.119

76.This Chapter analyses Parliamentary scrutiny of the Annual reports and Accounts. Specifically Parliament is responsible for scrutinising whether the expenditure it granted has been spent in the way it approved. However scrutiny goes beyond that as well.

The origins of Parliamentary scrutiny of Government Accounts

77.Finance has been central to Parliamentary control of the Government since the Middle Ages. In Magna Carta (1215), King John granted that “no… ‘aid’ may be levied in our kingdom without its general consent”.120 In the Petition of Right (1628), Parliament petitioned Charles I that “your subjects have inherited this freedom, that they should not be compelled to contribute to any tax, tallage, aid or other like charge, not set by common consent in Parliament”.121 In the Grand Remonstrance (1641), the House of Commons condemned Charles I’s advisors for promoting the “arbitrary power pretended to be in His Majesty of taxing the subject or charging their estates without consent in Parliament”.122

78.After the Civil War and the Glorious Revolution, the Bill of Rights (1688) confirmed Parliament’s position in the civil war that “levying Money for or to the Use of the Crowne by pretence of Prerogative without Grant of Parlyament for longer time or in other manner then the same is or shall be granted is Illegall”.123

79.From 1688 onwards, the power of the House of Commons over taxation has been unquestioned and consequently the focus in the House turned to scrutiny of expenditure. There had been earlier attempts to do this; in 1406, the House of Commons first demanded audited Accounts to assist them in approving taxation.124 These demands arose again in the English civil war.125 After the Bill of Rights, in the 1690s, the House of Commons started regularly requesting and properly scrutinising the Government’s annual expenditure plans - the Estimates.126

80.In the 19th century, the House of Commons created public sector audit to ensure a check on whether Departments had spent money in accordance with the Estimates. In 1866, the House passed the Exchequer and Audit Act which made “provisions for the more complete examination [and audit] of the public Accounts of the United Kingdom”.127 This act created the office of Comptroller and Auditor General to audit the Accounts.

81.The creation of the office of Comptroller and Auditor General completed the cycle of Parliamentary accountability, from taxation, to approval of spending plans in the estimates, to audited Accounts reporting against those plans. William Gladstone, in 1891, confirmed the importance of these new arrangements and their relevance to our constitutional rights

The finance of a country is ultimately associated with the liberties of a country. It is a powerful leverage by which English liberty has been gradually acquired… If the House of Commons by any possibility lose the power of the control of the grants of public money, depend upon it, your very liberty will be worth very little in comparison. That powerful leverage has been what is commonly known as the power of the purse - the control of the House of Commons over public expenditure.128

For Gladstone, Parliament was “the real authoritative steward of public monies” and from this it derived its supremacy over policy.129

82.In 1983, the National Audit Act extended Parliament’s control over public expenditure by making the Comptroller and Auditor General (C&AG) an independent officer of the House of Commons.130 Prior to this date, the C&AG had been an officer of the Treasury. The Act also formally created the concept of value for money audit, defined as the audit of the efficiency, economy and effectiveness of public spending.131 We have discussed the value for money scrutiny of the accounts in Chapter 3.

Current Parliamentary Scrutiny

83.Currently, financial scrutiny is one of the key functions of the House of Commons. The Liaison Committee, in the last Parliament, said that

Effective monitoring of Government expenditure—and ultimately the exercise of effective control over it—is one of the core functions of the House of Commons. This function is pursued day in and day out by the House, through inquiry and debate on the policies underlying expenditure, on priorities, and on overall Government spending, and through examination by the National Audit Office (NAO) and the Committee of Public Accounts (PAC) of past expenditure.132

84.In order to exercise this control and scrutiny, the House of Commons has, historically, insisted on the provision of Accounts. The accounts inform the Commons about how much Departments have spent and what they have spent it on. They are (as discussed in Chapter 5) audited by the Comptroller and Auditor General. These Accounts are scrutinised in two ways.

a)The Public Accounts Committee: this committee is established “for the examination of the Accounts showing the appropriation of the sums granted by Parliament to meet the public expenditure, and of such other Accounts laid before Parliament as the committee may think fit”.133

b)Select Committees: The Liaison Committee set out in 2013 the core tasks for select committees. These tasks include examining “the expenditure plans, outturn and performance of the Department and its arm’s length bodies, and the relationships between spending and delivery of outcomes”.134

85.Tom Scholar, the Permanent Secretary to the Treasury, told the Public Accounts Committee that

There are three main routes through which information is provided [to Parliament for scrutiny]. The first is through Estimates [ … ] The second process is the Annual Report and Accounts that each Department provides, and that also includes a wealth of information. The third process, which is still relatively in its infancy, is the Single Departmental Plan. Taking those three together, I would hope that there would be a great deal of information to meet any reasonable requirement.135

Estimates and the Spending review

86.Originally, Government Accounts were introduced in order to ensure that Departments would only spend the money Parliament had allocated for them, in a given year, for a given purpose.136 This requirement survives. Present day Annual Reports and Accounts are part of the cycle whereby the House of Commons controls and authorises expenditure. This begins when the Government announces the outcomes of multi-year Spending Reviews. These reviews are effectively statements of policy by a Government with no formal or statutory effect. Instead they form the basis for subsequent annual Estimates, presented to the House for formal authorisation of spending plans by the House of Commons each year.137 The Procedure Committee have recently published their separate report into the format and process of the Estimates.

The Estimates

87.The Main Estimates, usually published in April, set out the Government’s requests for each Department’s funding for the new financial year. They are prepared on a consolidated basis - so that each Department includes not only its own spending, but that of its agencies and arm’s length bodies. Each Department sets out in its Estimate its proposed spending limits and what it plans to spend the money on (the “ambit”). Towards the end of the year, Departments may, if they need to, submit plans to Parliament for changes to these plans through an additional Supplementary Estimate. The Supplementary Estimate may request new money (for example to respond to an unanticipated event like the floods of the winter of 2015), reduce spending limits where the full amount is no longer required that year (for example if construction on a project such as a road is running late), reallocate money to reflect machinery of Government changes (as the Supplementary Estimates did in 2016–17 to reflect the creation of new Departments such as the Department of International Trade) or reallocate money internally between priorities.

88.The Annual Report and Accounts report back on this process. Consequently, the C&AG told us in his evidence

The financial statements (the Accounts) are a main accountability document forming the statutory, publically audited record of a Department’s financial conduct in its use of public money to deliver public services, and of its compliance with parliamentary authorities. Government Accounts are the bedrock of the parliamentary accountability cycle.138

89.Dr Wehner from the London School of Economics linked the quality of the Annual Report and Accounts to the quality of the Estimates

the quality of the annual Accounts is inextricably linked to the quality of the Estimates and of the appropriations based on them. Put differently, accountability to Parliament through the scrutiny of the Annual Report and Accounts will only be effective if the Estimates and the appropriations are designed to support this.139

90.The Estimates follow a format and structure determined by the Treasury’s budgeting framework which in turn is based largely on the National Accounts. Annual Reports and Accounts, on the other hand, as discussed above (Chapter 2) are prepared on the basis of International Financial Reporting Standards.140 Back in 2009, a Treasury led project known as “Clear line of Sight” or “alignment” (see Paragraph 13c) sought to reduce the inconsistencies between treatment in the Estimates and Accounts and as a result many of the differences in reporting were removed. Nevertheless, some inevitably remain141. Consequently in the Annual Reports and Accounts, Departments offer a reconciliation between the totals reported in the core financial statements and the totals set out in the Estimates. Dr. Josette Caruana, Lecturer in Accountancy at the University of Malta, criticised the differences between the Estimates and the Accounts, saying they leads to ‘technical’ reconciliations in the Accounts that politicians and officials do not understand. She said that

it is important for subsequent financial reports provided to Parliament to be compatible with the format of the Estimates.142

91.Annual Reports and Accounts should be a cornerstone of Parliamentary accountability. The House of Commons should, through the Accounts, have the ability to hold the executive to account for its spending, against plans announced in the Estimates and Spending Review.

92.The Annual Reports and Accounts should continue to report on spending against the Estimates. The Treasury should consider whether future Annual Reports and Accounts need to be adjusted to reflect any changes suggested by the Procedure Committee in its report on the Estimates process. Given that the Accounts report against what the Government promised to do in the estimates, it is vital that the link between the two documents is completely clear. The Treasury should continue to review how the Estimates and Accounts can be made more consistent with each other (greater “alignment”).

Excess Votes

93.Departments are expected to spend in line with the Estimates. However, if a Department spends more than Parliament granted it through the Estimate, it is subject to a process called an excess vote. The Public Accounts Committee scrutinises excess votes on behalf of Parliament to examine why the excess vote occurred and to approve them in retrospect.

94.In her evidence to the Procedure Committee, Meg Hillier, Chair of the Public Accounts Committee argued that the Public Accounts Committee were not given enough time to scrutinise excess votes effectively. According to Meg Hillier, “on one [excess vote] in particular we [the Public Accounts Committee] would have liked to have asked questions of the permanent secretary or somebody in the Department”. However she said that “the timetable was too fast to be able to do that” and consequently the Committee have complained and asked the Government to change its practice for future years.143 The Public Accounts Committee said in their report on the excess votes in 2014–15, that they would, as they judged appropriate, “request evidence from the accounting officers of the bodies that exceed their allocated resources” in 2015–16.144

95.The Estimates and Accounts process only works if the House of Commons has sufficient time for scrutiny. We support the Public Accounts Committee and its Chair in their intention to take evidence from senior civil servants about excess votes where the Committee deem it necessary. We urge the Government to consult with the Public Accounts Committee to ensure it has enough time to do this.

The Spending Review

96.The Procedure Committee, in its Estimates inquiry, received evidence from the Study of Parliament Group. They called for greater transparency in the links between the Spending Review and the Estimates so that Parliament can see how plans have altered over time.145 Sir Stephen Laws, former First Parliamentary Counsel, in his evidence to the Procedure committee told them that

The really important thing is to put the Estimates in context so that you can see how they fit in with the Spending Review and how they fit in with expenditure last year, the year before and the other years in the same Spending Review period, because that gives Parliament the opportunity to say, “Why have things changed over that period? What is the difference?”146

97.The Institute for Government complained that “it is often difficult to establish how spending changed from the Government’s original plans”. Consequently, it is difficult to hold the Government to account for the commitments they made in the Spending Review or the Budget. The Institute suggest a note in the Accounts “that shows how expenditure changed from the level first announced in a Spending Review to the final outturn figure” with a narrative which describes why the changes have happened.147

98.The Treasury disagreed. Julian Kelly, the Director General, Public Spending and Finance told us that they announced budgets at the Spending Review and that these were updated at each fiscal event (for example the annual budget). He argued that “you can track [ … ] that number [from the Spending Review or the Budget]” in the Estimates. He then argued that the Accounts showed changes between the amount Departments said they would spend (disclosed in the Estimates) and the amount that Departments actually spent (disclosed in the Accounts).148 Consequently by comparing the Spending Review totals to the Estimates and the Estimates to the Accounts, the Treasury asserted Parliament could compare the Accounts to the Spending Review.

99.The House of Commons is responsible for the scrutiny of public expenditure. The Procedure Committee has recently conducted an inquiry into the Estimates process and we expect that the Government will accept and implement its recommendations for reform. Currently the Accounts report back against the totals in the Estimates. We think Annual Reports and Accounts should go further, showing also how actual spending related to the original plans in the Spending Review and how those plans changed over time. While it may be possible, as the Treasury argues, to trace how spending plans have altered from Spending Review to Estimates through to Accounts under the current arrangements, the entire story is not an easy one to follow and is contained in a number of different documents. Annual Reports and Accounts do not directly report against the Spending Review and show how plans have evolved through to final actual spending reported in the Accounts, or what might be the causes of those variations.

100.In our view, the Annual Reports and Accounts should enable the reader to see how final outturn compares to the original plans, set out in the Spending Review as the Institute for Government has suggested. To do this currently involves tracking figures between several documents (the Spending Review, Main Estimates, Supplementary Estimates and Accounts) and is complicated and technical. Annual Reports and Accounts should provide a simple summary of why the figures have changed from the Government’s original plans in the Spending Review or the Budget. This should be incorporated into the annual analysis that we recommend above. This will enable the House of Commons to hold the Government to account for changes to its spending plans.

Specific ministerial commitments

101.The Government’s formal means of proposing and announcing spending totals is through the Estimates process. But the Government also makes specific spending commitments not only in set piece events such as the Spending Review, the Autumn Statement and the Budget, but also throughout the year, not only in ministerial statements to the House of Commons, but through ad hoc press releases, speeches and Ministerial visits. David Kilpin told us in his evidence that Annual Reports and Accounts currently do not say, when this happens, “where this funding comes from (more money from HM Treasury, underspends in other areas or cuts to other areas) or how and when it was spent”.149

102.Ed Poole of Cardiff University and David Kilpin both suggested that the Annual Report and Accounts should separately report on these commitments, how much was committed, how much was spent and any related outcomes data. Ed Poole suggested in his evidence that there should be a “ministerial statement reconciliation statement, giving the date, description and spending commitment pledged by the Minister, and whether and where these funds were spent during the reporting year”.150 He said that commitments from the Spending Review and Autumn Statement should also be included.151 David Kilpin agreed, saying that “the financial and non-financial outcome of each announcement could be reported in a new section of the Annual Report and Accounts”.152 Dr John Pugh MP told us that it was “bizarre” this did not already happen.153 On behalf of the Treasury, the Minister said that he was “more than happy to look at that”.154

103.Parliamentary scrutiny of the Government’s commitments to Parliament should not be limited to the announced spending limits. The House of Commons should be able to scrutinise, through the Annual Reports and Accounts, how actual spending and activity compared to any financial commitments announced to Parliament, in press releases, or through the media to spend on or cut particular programmes or policy priorities. The Annual Report and Accounts should include an audited statement reconciling, as far as reasonably practicable, the financial commitments made with what eventually happened. This would include financial commitments made in ministerial announcements to Parliament (either in select committees or in debates), the Spending Review, the Budget, the Manifestos of the elected parties and Departmental press releases.

The success of Parliamentary Scrutiny

104.Experts have criticised the House of Commons’ scrutiny of the Government’s finances. The Chartered Institute of Public Finance and Accountancy said

Over the years financial scrutiny has not been taken seriously enough [in Parliament] nor seen as strategically important. A key challenge is to make the parliamentary financial scrutiny system work. Given the significance of public spending and the challenges involved in meeting austerity targets more attention should be given by Parliament to this area.

105.Select Committees usually hold an oral evidence session on the Annual Report and Accounts every year, in the autumn after the Annual Report and Accounts is published. Only 13 of the 17 main Government Departmental Annual Reports and Accounts from 2014–15 formed the subject of a dedicated select committee oral evidence session in 2015–16.155 The accounts are often not covered in depth during these sessions even when they are held. Across the 13 evidence sessions, the average number of questions asked by the Committee per session was 103, but the average number of questions relating to the accounts per session was just 12. 7 of the 13 committees asked fewer than five questions about the Accounts in their hearing on the Annual Report and Accounts. Committee members consequently used this session to explore other topics, apart from the Annual Report and Accounts. Committees often will write to Departments with queries about Accounts instead.

106.Committees appear most interested in the Annual Report and Accounts when those Accounts had been qualified and/or were published late - and rarely take much interest where the auditors have said that the Accounts are free from material errors. For example, 48% of the questions asked by committees about Accounts in 2015–16 were those by the Education committee when the Department for Education’s Accounts were qualified in a number of respects and published three months beyond the usual statutory deadline. Whereas it is obviously important to scrutinise the failures in financial management that lead to qualified accounts, unqualified accounts should contain information that MPs and others find useful for the purpose of scrutinising the government.

107.Since 2002, the House of Commons Scrutiny Unit has been supporting select committees in their core financial scrutiny task. Analysts in the Scrutiny Unit review all the Accounts of the major Departments, and where requested smaller bodies too, providing written and oral briefing, and suggested questions for briefs and for correspondence for Committees. The unit also comments upon and follows up as requested responses received.

108.Current Parliamentary scrutiny of Government’s annual reports and Accounts is limited. While committees frequently engage in correspondence with Departments on the Annual Reports and Accounts, based on Scrutiny Unit advice, the focus of hearings held is often only loosely connected to the Annual Reports and Accounts themselves. Where committees do refer to the information in these documents, the Committee interest is strongest where Annual Reports and Accounts show clear evidence of failure, for instance through being qualified - often indicative of deeper underlying problems. Committees’ reluctance to conduct detailed analysis of Annual Reports and Accounts is likely to stem, in part, from the nature of the information those documents provide, and the difficulties of using them as they stand to, for instance, monitor performance over time, value for money, or how efficient and effective the Department has been.


109.Many witnesses to our inquiry suggested that MPs should be trained to carry out their financial scrutiny role. The Chartered Institute of Public Finance and Accountancy said “there should be training and professional development of parliamentarians to promote a culture of financial awareness and to empower politicians to ask more searching questions on financial matters”.156 Craig Mackinlay MP agreed, “I think there is a role to be had for some training sessions to get a better understanding of what we are all looking at”.157 The C&AG said that “MPs could be better trained in understanding accounting, and we are willing to play a part in that”.158 David Gauke MP for the Treasury agreed, saying “improved training for parliamentarians” was necessary and said “from a Treasury perspective, if there are steps that we can take to help that, then I am sure that we would do that”.159

110.Formal training may not always be enough. MPs and journalists may also need specific guidance on the Accounts when they are published. Will Moy from Full Fact told us that in statistics

The rule is—and this is part of a statutory code of practice—that every statistical release should have a named statistician on it so that you know who to ring up and say, “What does this mean?160

Mr Moy told us that this enabled statisticians to discuss any caveats needed to understand the numbers. As he said, the wider community of those who use statistics “depend on access to that expertise”.161 The Kings Fund told us that they found published Annual Reports and Accounts difficult to understand but that this had been mitigated by the “the generally supportive and co-operative nature” of staff at the Department of Health.162

111.MPs have found help and guidance in using the accounts useful. In the debate about Supplementary Estimates in February 2017, Karin Smyth, the MP for Bristol South said

I thank the National Audit Office for the support that it has given to me and many other hon. Members to help us understand and interrogate this year’s Accounts [ … .] Helping Members to understand the Accounts and what they mean for our constituents is an important and oft-neglected part of what the public hear about Parliament.163

Likewise, Sir Alan Beith described the Scrutiny Unit’s assistance as “extremely valuable”.164

112.In-house specialists like the Scrutiny Unit and external experts in the National Audit Office have a key role to play in explaining and helping Members understand what financial documents like the Annual Reports and Accounts can tell us. Members may not have the time to carry out detailed examination of all that the Annual Reports and Accounts contain, and will continue to require the support of specialist accountants, economists and others like the Scrutiny Unit to provide detailed analysis, training and to direct them to matters of potential interest.

113.Many Members of Parliament will wish to continue to rely upon the work of the National Audit Office and the Scrutiny Unit to alert them to issues in the accounts. However, it is also clear that Members have welcomed the opportunity to understand more about what information is available within these documents and how they and their staff can use them. We therefore encourage the National Audit Office and Scrutiny Unit to continue to publicise the information contained in the accounts and to offer training to Members, their staff and other Parliamentary staff in how to use the accounts.

114.When Government statistics are published, the publishing Department names a statistician that MPs and journalists can approach with queries about the meaning of the published data. A similar practice should be brought into effect with Annual Reports and Accounts. We recommend that every published Annual Report and Account should in future contain the contact details of named individuals within the Department’s finance function whom journalists, MPs, House staff and members of the public can approach with queries about how the accounting data can be used for example to illuminate how much is spent on a particular policy priority or how much a department owes on a Private Finance contract.

121 ‘The Petition of Right in S.R. Gardiner ed., The Constitutional Documents of the Puritan Revolution 1625–1660, 3rd Edition, Oxford, 1968, p.67.

122 ‘The Petition of Right’ in S.R. Gardiner ed., The Constitutional Documents of the Puritan Revolution 1625–1660, 3rd Edition, Oxford, 1968, p.222.

124 C. Givens-Wilson, Henry IV, New Haven, 2016, p.294.

125 Council of the Army To the Supreame Authoritie the Parliament of the Commonwealth of England. The Humble Petition of the Officers of the Army... London, 1652.

126 D. Hayton, ‘The Politics of the House’, in D. Hayton, E. Cruickshanks and S. Handley ed., The History of Parliament: the House of Commons 1690–1715 (2002) online at the History of Parliament website

128 Gladstone quoted in P. Einzig, The Control of the Purse: progress and decline of Parliament’s financial control, London, 1959, p.3.

129 Hansard HC Deb, 01 March 1866, vol 181, col. 1373.

131 Value for money audits had been performed up until this date. The Exchequer and Audit Department published the results of these audits as reports upon particular Accounts. National Audit Act, 1983.

132 Liaison Committee, Financial Scrutiny: Parliamentary Control over Budgets, Session 2008–09, HC 804, June 2009, p.5.

133 Standing Order No.148 House of Commons, Standing Orders of the House of Commons, February 2016.

134 Liaison Committee Core tasks, January 2013.

135 Public Accounts Committee Spending Review Q76.

136 M.J. Daunton, Trusting Leviathan: the politics of taxation in Britain, 1799–1914, Cambridge 2001,
pp.58–71; W. Funnell, Accounting for War: Financial Control of the British Army, 1846–1899, New South Wales, 2003, p.75.

137 Main Estimates set out initial plans for spending, and Supplementary Estimates any subsequent revisions to those plans.

138 IGA29 (National Audit Office)

139 IGA11 (Dr Joachim Wehner)

140 IGA03 (Dr Josette Caruana)

141 For instance, research and development spending is treated entirely as capital spending in the National Accounts, Budgets and Estimates, whereas IFRS and hence the Annual Reports and Accounts split such spending into capital and resource depending upon whether the spending leads to the creation of an asset.

142 IGA03 (Dr Josette Caruana)

143 Meg Hillier later confirmed that this related to the Northern Ireland Office’s estimate and accounts. Qq95; 102 Procedure Committee Scrutiny of Supply Estimates.

144 Twenty Second Report from the Public Accounts Committee, Excess Votes 2014–15, Session 2015–16, HC 787, p.3.

145 EST09 (Study of Parliament Group)

146 Procedure Committee (Sir Stephen Laws) Oral Evidence 4 May 2016 Q31.

147 IGA15 (Institute for Government). They repeat this point in Institute for Government Whitehall Monitor, January 2017, p.12.

148 Q335 (Julian Kelly)

149 IGA22 (David Kilpin)

150 IGA26 (Ed Poole)

151 IGA26 (Ed Poole)

152 IGA22 (David Kilpin)

153 Q291 (Dr John Pugh MP)

154 Q343 (David Gauke MP)

155 This figure is based on committee staff analysis of committee hearings about departmental annual reports and Accounts from 2014–15. These hearings happened in 2015–16.

156 IGA08 (Chartered Institute of Public Finance and Accountancy)

157 Q274 (Craig Mackinlay MP)

158 Q92 (Sir Amyas Morse)

159 Q318 (David Gauke MP)

160 Q243 (Will Moy)

161 Q243 (Will Moy)

162 IGA20 (King’s Fund)

164 Hansard, Vol. 584, 16 July 2014, col. 901.

26 April 2017