Financial Scrutiny Uncovered How the Government Manages Its Finances and How Parliament Scrutinises Them

Financial scrutiny uncovered How the Government manages its finances and how Parliament scrutinises them A guide for Members by the Committee Office Scrutiny Unit March 2007 This guide was written by staff of the Scrutiny Unit. The Scrutiny Unit forms part of the Committee Office in the House of Commons. It exists to strengthen the scrutiny function of the House. It provides specialist expertise to select committees, especially (but not exclusively) on financial matters and draft bills. Contact details: Committee Office Scrutiny Unit, 7 Millbank, London SWP 3JA. Telephone: 0207 29 8365 Email: [email protected] http://www.parliament.uk/about_commons/house_of_commons_scrutiny_unit.cfm er O temb ctob Sep er Au tum n P N er o st fo ve u rm m g a b u n e A ce r W R in e e t p st e o im r r ac su t c at p s ou es p p n le re t & m s p v e e P re o n n r s te t t e e s a e -B n r d u t o y d e n p g d re e 1 se t e R t n te e 1 a t d p s b c o C t D e A r t o E e d ) n s c t y 2 s e o i a m o l m f i y D d a l N o b ( p a t s l u l e e 6 g i a t J e e s t n n l r d i B l s o d a e i s D i d e t s e B F a c a m d a s i e g u n 7 y r e d s 2 t a r r a n n c e i a s p p e d d n s w d o i n d y E r s e e r F a n i 3 a - A 3 b p e v d n 2 i p c a r e p y p r F t t e 3 S R A v e e d i a l s t e e n t t u i o J m c a c n m A o u c e a e d c n r n i r e y t l u u l i n J o B e s s e e e c R r n P u s a p b e l i n s e h s i e d t s F t F t a i i S n r m a n p p 5 o c m d e i a B r r i l l e p t e i r t t s n e e l s e l n i e g e s B e R n e m s y c & f s l n t a e r o n i u e F r m a a g & d e t n p p t i u d d x e a n p b n s e a r c t 3 e d e B n l e 2 e e u & d s m m g m s e e t n t l s i e p v r e e p c h n a o a p t t e u a M p s s r e y D A p a p F s p s e r d e o p b r 4 a t i r o n u ( 2 N y o n 1 a ) A c t d a r E y s M t i m a t e s D a y d e b a t e r a e y l a i c n a n ﬁ f o t r a t s M a r c Planning cycle l i h r p A Budget cycle 1 Must be approved by 6 February 2 Consolidated Fund Act authorises winter supplementary estimates and vote on account 3 Must be approved by 18 March Estimates cycle 4 Appropriation (No. 1) Act authorises spring supplementary estimates and excess votes 5 Main supply estimates is for the coming financial year Must be approved by 5 August Reporting cycle 6 Appropriation (No. 2) Act authorises main estimates and summer supplementary estimates 7 The Spending Review process takes place every two to three years It occurs over a number of months and its outcome is usually published in July Based on Dod's Handbook of House of Commons Procedure, page 109 Timings are approximate and may vary year on year Foreword by the Rt Hon Alan Williams MP, Chairman of the Liaison Committee and Chairman of the Public Accounts Commission Parliament’s scrutiny of government finance is a vital part of its role in holding the Government to account. This is because, ultimately, weaknesses in financial and performance management will lead to failures in formulating and implementing Government policy. The work of select committees is the most important way in which Parliament carries out its financial scrutiny. The core tasks of departmental select committees include examining and reporting on the Government’s estimates, annual expenditure plans and annual resource accounts, as well as monitoring performance against targets in Public Service Agreements. Effective financial scrutiny by Parliament requires Members to have a sound and up-to-date knowledge of how the Government manages its finances. I therefore warmly welcome this booklet as a clear and accessible guide to the way the system operates. I hope it will encourage Members—in their work on select committees and otherwise—to play a greater part in the scrutiny of the Government’s financial and performance management. Contents . Introduction 5 2. The financial cycles – parliamentary scrutiny of finance 6 3. The planning cycle - the Spending Review 9 4. The Budget cycle 3 5. The estimates cycle 5 6. The reporting cycle 9 7. The efficiency programme 24 8. The Private Finance Initiative 27 9. Initiatives in financial management and scrutiny 3 Glossary 33 Bibliography 42 Acronyms 43 Scrutiny Unit Introduction 5 Introduction Why financial scrutiny matters Each year, Parliament authorises around £500 billion of public expenditure and the taxes necessary to fund that expenditure. The amount of money that the Government spends, how it spends that money and the value for money achieved strongly influence the effectiveness of the Government’s policies. Parliament and select committees have a crucial role to play in financial scrutiny and in holding the Government to account in this respect. What financial scrutiny involves Effective financial scrutiny has wide implications. It involves understanding how the Government decides on its strategic priorities and the levels of expenditure required to achieve those priorities, how it measures performance and how cross-departmental initiatives such as the Gershon efficiency programme affect departments. What this guide provides This guide aims to provide Members’ with an outline of the Government’s financial management and parliamentary scrutiny of it. It looks specifically at: • The role of Parliament and other bodies in • The Private Finance Initiative: how the private scrutinising government finances and performance; sector has been involved in financing and manag- • The planning cycle: the Spending Review – the ing public sector capital investment projects; framework within which the Government plans its • Initiatives with an impact on financial management finances in the medium term; and financial scrutiny, including capability reviews, • The Budget cycle: how Parliament approves the financial management reviews, Regulatory Impact Government’s taxation plans each year; Assessments, and Whole of Government Accounts. • The estimates cycle: how Parliament approves the Government’s expenditure plans each year; • The reporting cycle: how departments report on their expenditure and performance; • The efficiency programme: the implications of the efficiency programme for departments; 6 Scrutiny Unit The financial cycles 2 The financial cycles – parliamentary scrutiny of finance An overview The chart inside the front cover shows how government finances are planned and managed and how the House engages with different aspects of finance over the parliamentary year. The process can be described in terms of four cycles: • The planning cycle: The Government plans its • The estimates cycle: The estimates cycle (some- finances in the medium term through the Spending times known as the supply cycle) is the process Review process. Reviews take place every two or by which Parliament approves departments’ three years. Departments agree three-year plans resources and cash provision for the year. Depart- for expenditure and performance targets. The re- ments submit Supply Estimates which set out how sults of the Review are presented to Parliament in they plan to spend their funding and seek approval July (see chapter 3 for details). The Spending Re- from Parliament for the necessary funds. A few view for 2007 will take place three years after the of the Supply Estimates are debated in three previous Review. It is a Comprehensive Spending Estimates Day debates in each parliamentary year Review, which involves a more detailed review of (see chapter 5 for details). departments’ expenditure than the usual Spending • The reporting cycle: The reporting cycle is Reviews. the process through which the performance of • The Budget cycle: The Budget cycle is an annual departments is reported to Parliament and other process through which the Government makes stakeholders. Departments’ resource accounts give its assessment of the state of the economy and details of departments’ financial performance.

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