Joint committee on Conventions

Joint committee on Conventions Report

7 Financial privilege

235. In our Special Report, we said, "We take the financial privilege of the House of Commons as a given. We will not consider

a) The special status of Supply Bills, including the rule against tacking

b) The special status of Money Bills

c) The "privilege amendment" convention, which permits Bills with financial implications to start in the Lords."[345]

236. Nonetheless, the Government said, "The Government believes that there would be benefit in greater clarity about the extent of financial privilege ... The Government would welcome a clear statement from the Joint Committee on the proper scope of financial privilege".[346]

Lords Economic Affairs Committee

237. In 2002 the Lords agreed that each Finance Bill would be scrutinised by a sub-committee of its Economic Affairs Committee.[347] Reference has been made throughout the history of this to Commons financial privilege (see Appendix 6). Erskine May says, "The Lords also express their opinion on public expenditure, and the method of taxation and financial administration, both in debate and by resolution, and they have investigated these matters by their select committees". [348]

238. The Government say, "the appointment of a Finance Bill Sub-committee, albeit one which has so far been concerned only with tax clarification and administration, risks intruding on Commons financial privilege".[349] In oral evidence, the Leader of the House of Commons used stronger language: the exercise is "incompatible with the conventions"; it is "a quite deliberate claim to additional powers"[350] He was not persuaded by the restriction to administrative matters. In supplementary evidence, the Government add that it is "highly irregular" for the Lords to scrutinise the Bill while it is in the Commons.[351]

239. Lord Strathclyde found the Government view "extraordinary and inexplicable".[352] He recalled that the exercise was part of a package of reforms negotiated by the late Lord Williams of Mostyn when he was Leader of the House of Lords. Likewise the Liberal Democrats "cannot understand - and certainly do not share" the Leader of the House of Commons' view.[353]

240. Lord Wakeham, writing as Chairman of the Economic Affairs Committee,[354] sets out the history in detail, including the fact that the Leaders of the two Houses consulted the Clerks in 2002 and were advised that there was no breach.[355] He describes how the Committee has worked, and concludes that it "has played a helpful part in supporting Parliamentary debate on such legislation, that it neither poses a risk of intrusion on Commons financial privilege nor has been guilty of such intrusion in practice and that the initiative introduced four years ago should continue".[356]

241. Lord Howe of Aberavon points to the Tax Law Rewrite process as demonstrating that "the Lords' input (stopping well short of any 'right to block or delay financial provisions') has already been of real value in the fiscal field and could well be more so".[357]

242. The Clerk of the Parliaments said that, while it was for the Commons to define and defend its privileges, in his view there was no breach.[358] The Clerk of the Commons said that there was no breach of the letter; but he could see why the Government might feel there was a breach of the spirit.[359]

CONCLUSION

243. The Government consider Lords committee scrutiny of the Finance Bill to be a breach of privilege; most others do not. The House of Lords agreed in 2002 "to prohibit the sub-committee from investigating the incidence or rates of tax, and to allow it only to address technical issues of tax administration, clarification and simplification".[360] The Government were advised that on these terms there was no infringement of privilege, and on this basis they agreed to the exercise at that time. In 2004 the House of Lords agreed, on the recommendation of a Group chaired by the Leader of the House, that "the Sub-Committee should continue to conduct its activities with full regard to the sensitivities involved and in particular to the traditional boundary between the two Houses on fiscal policy". [361]

244. We endorse this position. The Lords Committee should continue to respect the boundary between tax administration and tax policy, to refrain from investigating the incidence or rates of tax, and to address only technical issues of tax administration, clarification and simplification. Provided it does so, we believe there is no infringement of Commons financial privilege, and no need to reopen the issue. If the House of Commons believe that their primacy or their privileges are being infringed, it is for them to act to correct the situation.

National Insurance

245. The reason why National Insurance has not been treated as privileged is that when it was set up in 1946 it was contributory, like ordinary insurance: contributors paid into the National Insurance Fund, and could then draw benefits from the Fund. By contrast, general taxation, which is privileged, is paid into the Consolidated Fund and used to fund general public expenditure. But these distinctions have been eroded over time.

246. "[P]rivilege has, in the past, not been claimed in respect of charges on the National Insurance Fund; but the new statutory arrangements for supplementing the National Insurance Fund out of money provided by Parliament make such a claim more likely in future."[362]

247. The Government say, "there is an argument that [financial privilege] should encompass National Insurance".[363] They suggest that the Lords partially acknowledged this in 2002 when they gave accelerated passage to the National Insurance Contributions Bill[364]; this Bill was in fact certified by the Speaker as a Money Bill, so the Lords had no choice.

248. The Leader of the House of Commons commented that National Insurance is "inextricably intertwined with overall taxation and economic policy"[365]; but he avoided the question of whether National Insurance contributions are a tax.[366] The Clerk of the Commons said that governments until now had insisted that National Insurance was not.[367] But in his view it was, and accordingly the situation should be reviewed.

CONCLUSION

249. If the Government are prepared to describe National Insurance as a tax, then they can seek to bring it within the scope of financial privilege. But this would be a definite change, not a codification of the status quo. It would restrict the rights of backbenchers and opposition parties in the Commons, because of the rules regarding Ways and Means resolutions; and it would arguably require the agreement of the Lords.

Amendments in lieu

250. The Lords Companion says:

Privilege reasons

6.165 If the Commons disagree to a Lords amendment that infringes their financial privileges, the disagreement is made on the ground of privilege alone, and not on the merits of the amendment, even though the Commons may have debated the merits. The Commons communicate in their message to the Lords that the amendment involves a charge upon public funds ... ; and they add words to the effect that the Commons do not offer any further reason, trusting that the reason given may be deemed sufficient. In such cases the Lords do not insist on their amendment. But they may offer amendments in lieu of amendments which have been disagreed to by the Commons on the ground of privilege.

251. The Clerk of the Parliaments said, "In recent years, there have been several examples of the Lords sending bills back to the Commons with amendments in lieu of earlier Lords amendments which have been disagreed to on grounds of privilege."[368] If the Amendment in lieu would clearly infringe Commons privilege again, this amounted to a breach of convention; Lords staff advised members against it, and this advice was usually accepted.[369] The Clerk of the Commons agreed that, if the Amendment in lieu clearly invited the same response as the original Amendment, the conventions would be strained.[370]

CONCLUSION

252. If the Commons have disagreed to Lords Amendments on grounds of financial privilege, it is contrary to convention for the Lords to send back Amendments in lieu which clearly invite the same response.

345 Op cit, para 12. Back

346 Ev 10, para 72. Back

347 Q 253. Back