The Financial Procedures of the United Kingdom and Colonial Governance

Codified vs uncodified constitution: how does the UK control public money?

The author notes that the United Kingdom has no codified constitution, so, unlike countries with written constitutions, it has no specified constitutional mandate for financial procedure. The principle of no taxation without representation is still followed, but on spending he finds the UK government faces less scrutiny than in other democracies.

The financial procedures of the United Kingdom a) The United Kingdom has no codified constitution. Unlike countries governed by written constitutions, there is no specified constitutional mandate for financial procedure. Nevertheless, the principle of no taxation without representation was strictly followed. That is why the House of Lords plays only formal role with respect to money bills. Regarding spending powers, the government of UK has relatively wider latitude and is subject to less scrutiny as compared with other democracies. According to the report by Dr. Ruth Fox, Director, Hansard Society: “Despite the importance of the Estimates, their treatment by MPs has long been akin to a ‘rubber stamp’. The UK is considered to have among the weakest systems for parliamentary control and influence over government expenditure in the developed world.”

How strong is Parliament's power of the purse in the UK?

Weak in practice, the author argues. He cites the Commons Procedure Committee, the OECD and the Institute for Government, all of which found Parliament's role in approving spending too weak, and an example of hundreds of billions of pounds approved over three Estimates days with little discussion of the sums.

b) The House of Commons Procedure Committee, OECD and the Institute for Government have argued that Parliament’s role in authorising government spending is too weak. In 2017, the then chair of the Procedure Committee, Charles Walker, stated: “In the financial year 2016/2017, the House authorised Government expenditure of £638.6 billion over three Estimates days, with barely a mention of the sums which were formally under consideration.”

What does North Sea oil reveal about UK and Norwegian financial procedures?

The UK and Norway began offshore production at about the same time and produced similar volumes. The author says Norway saved its surplus in its oil fund while Britain spent the windfall on short-term policies, and he attributes the wide gap in their later fortunes largely to the strength of their financial procedures.

c) The weakness of UK’s financial procedures with respect to public purse may be seen in the comparative performance in availing North Sea Oil boom. UK’s former Secretary of State for the environment, Michael Heseltine said that Britain under Prime Minister Margaret Thatcher “squandered the windfall” on short-term consumerist policies such as subsidised housing and mortgage tax relief policies while Norway invested its surplus revenues in the “Oil Fund”, which owns one percent of world’s stocks, valued at more than US$ one trillion and, according to the Economist, is the largest fund of its type in existence. Today, the economic fortunes of the two countries differ vastly. Norway is currently the second wealthiest country of the world while the UK ranked the 20th with a GDP per capita of about exactly half of Norway’s, according to projected figures of 2022. In the words of Nick Smith, the author of “North Sea Oil: A tale of two countries”. “The UK and Norway both began offshore exploration and production in the mid-1960s. Since then, both countries have produced similar amounts of hydrocarbons. The UK has produced 42.8 billion barrels of oil equivalent and Norway 40 billion barrels.” However, economic performance of both countries widely varied largely due to efficacy of their respective financial procedures.

d) Even in UK, theoretically power of purse fully vests in the UK Parliament through the enactments of supply and appropriation laws. Although in some cases of roll-up supply motions’ voting in Parliament is not strictly followed by departmental select committees because the National Audit Office and House of Commons Public Accounts Committee have already undertaken in-depth scrutiny of budget estimates. All the same, if the MPs of the House of Commons require voting in the House, every estimate of public expenditure may be subjected to Parliamentary vote.

How did colonial financial procedures differ from the British model?

The author argues that the colonial model set out in the Government of India Acts did not have even the formal safeguards used in Britain. Real financial decisions sat with imperial institutions, and more than 80 percent of spending charged on federal revenues was made non-votable, leaving the Governor General and governors with overriding power.

e) Seen in the historical perspective, even the original financial procedures of the UK were not safe system of financial framework for former colonies after their independence. The colonial model of financial procedures embedded in the Government of India Acts lacked even formal safeguards applicable in UK because real financial decision-making vested in the Imperial institutions and not in the institutions of India.

f) In a speech in the Central Legislative Assembly on the motion regarding “Increase in the Indian defence charges”, at Simla on August 9, 1938, M. A. Jinnah pointed out how the British War Minister controlled the Government of India and its legislature: “I would like to know whether the Government of India knew about this (Increase in the Indian Defence Budget) before the decisions were taken by His Majesty’s Government. I would like to know if they were informed before and consulted. I see there is silence on the part of the Government and so far as this House is concerned, we are not in a very enviable position. We can only influence the Government. We do not enjoy responsible Government. Were we given any inkling beforehand about this elkase, this firman issued from the great Secretary of the State for war, which was sanctioned by the Cabinet and passed by Parliament, that India should be burdened in a most arbitrary manner…?” Spillover of arbitrariness into the post–Independence financial governance had much more far-reaching negative impact on the economies of the emerging states.

g) Evidently, the colonial financial procedures were markedly different from even the feeble financial controls in practice in the UK. Contrary to conventions of British financial governance even in pre-Partition India, more than 80% expenditures, which were charged upon the ‘Revenues of the Federation’ (present Consolidated Funds), were made expressly non-votable. Thus, overriding powers vested in the British Government for determining the salaries and allowances payable to the officers of imperial institutions. Such institutions were practically under the control of the British Government. Authorization of expenditures charged upon the revenues of the Federation vested overwhelming powers in the Governor General and in the case of provinces, in their governors. The colonial legacy of arbitrary financial procedures played fateful role in shaping the history of the region.

Why do Pakistan's legislatures play such a small role in the budget?

In the author's view, Pakistan carried colonial financial management forward after independence, so its legislatures rarely acted even in an advisory role on public money. He blames that dependent habit, along with elite capture of economic resources and a vested interest in keeping the old system.

h) The history of Pakistan reveals that not to speak of acting independently, the legislatures in Pakistan have rarely exercised even effective recommendatory role in financial governance. Due to the continued colonial financial management in Pakistan, legislatures’ role in financial governance practically atrophied. In pre-Partition era, Quaid-e-Azam outshined his peers even in budget speeches; other members, too, made formidable contributions in highlighting the flipside of budget proposals for checking arbitrariness and squandering of public funds. After independence, the parliamentarians were expected to exercise independence and protect the financial interests of the people, yet they hardly played any significant role, mostly due to the hangover of dependent mode of financial governance and partly due to the elite capture of economic resources and their vested interest in continuing colonial financial governance

Frequently asked questions

What is the difference between a codified and an uncodified constitution for public finance?

The author's comparison is this: countries with written, codified constitutions set out a constitutional mandate for financial procedure, while the UK, with no codified constitution, has none. Britain relies instead on long-followed principles such as no taxation without representation. The book does not offer a broader general definition.

What role does the House of Lords play on money bills?

Only a formal one. The author links this to the principle of no taxation without representation, which leaves decisions on taxation with the elected House of Commons.

What did Jinnah say about India's defence charges in 1938?

Speaking at Simla in August 1938, M. A. Jinnah protested that the defence budget increase had been decided by His Majesty's Government in London. The author cites him to show that the Indian legislature could only try to influence the government and did not enjoy responsible government.

Why did Norway gain more from North Sea oil than the UK?

The author, drawing on Michael Heseltine and Nick Smith, says Norway invested its surplus oil revenue in a sovereign oil fund while Britain spent its windfall on short-term consumer policies. He ties the different outcomes mainly to how well each country's financial procedures worked.

Related Minds

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• The NFC Award and How Federations Share Revenue
• Why Nations Fail: A Fiscal Answer
• Does Trickle-Down Economics Work? Tax, Inequality, Growth

Read the full argument in the book How Constitutions Flourish or Fail by Mian Ashiq Hussain.