home | authors | books | about

Home -> E. Hilton Young -> The System Of National Finance -> Va

The System Of National Finance - Va

1. Preface

2. I

3. Ia

4. II

5. IIa

6. III

7. IIIa

8. IIIb

9. IV

10. IVa

11. V

12. Va

13. VI

14. VIa

15. VIb

16. VII

17. VIII

18. VIIIa

19. VIIIb

20. IX

21. IXa

22. X

23. Xa

24. Xb

25. XI

26. XIa

27. XII

For a class of payments known technically as
payments for non-effective services the Pay Office
is itself directly responsible. Generally speaking
non-effective payments are pensions. It is the
duty of the Paymaster General to see that no one
gets any money by way of a pension to which he is
not entitled, and especially to guard against the
personation of defunct pensioners. With other
creditors of the state it is the Secretary of State or
other head of some department that is their debtor ;
the Paymaster General stands to them in no such
relation. But his relation to a state pensioner
is that of a debtor to his creditor. Standing
authorities for the payment of the pensions are
prepared at the Pay Office itself, and in checking
the payments these take the place of the authorities
received from the departments in the case of
effective payments. Otherwise the business follows
the same course.

We have now followed the manner in which


the great bulk of the Government's disbursements
are made; and we may pause here to observe
how neatly the modern system of banking works.
The public money has been traced from its cradle
in the pocket of the taxpayer to its grave in
the pocket of a creditor of the state, and in the
whole course of its life's history no cash payment
has been necessary, and, as likely as not, only one
negotiable instrument of credit has had to be
drawn. An importer of dutiable goods, for in-
stance, pays the customs duty by a guaranteed
cheque drawn on a local bank. The tax-collector
pays the cheque into his local bank. It is cleared
by that bank at the local bankers' clearing-house,
the bank on which it is drawn writing the amount
off, and the bank which receives it writing it on to
its books. A second cross-entry in the books of
the recipient bank and of the Bank of England in
London transfers the credit to the account of the
Commissioners of Customs and Excise. A third
cross-entry in the books of the Bank of England
sees it safely into the Exchequer Account. A
fourth sets it free again in the Exchequer Credit
Account of the Paymaster General. A fifth
transfers it to his Drawing Account. A sixth
brings it out of the public purse into the account
of the payee's bank at the Bank of England, and a
seventh and last transfers it to the account of the
payee at whatever branch of his bank he keeps his
private account.

Such is the method of making direct and final
disbursements. To give a full account of the
matter one small elaboration is needed as to


payments which are not direct and final. There
is a large class of payments which has to be made
locally and in cash. Soldiers for instance have to
get their pay in gold and silver in scattered camps
and garrisons. To provide for that, money is
issued by way of imprest to local paymasters.
They receive from their departments drafts for
lump sums upon the Paymaster General, and pay
them into their local banks. The local banks clear
the drafts with the Bank of England through their
London Officers or agents, and set the proceeds to
the credit of the local paymasters. A balance is
thus put at the paymasters' disposal, out of which
they make their disbursements, and for which they
have to account. In accordance with the principle
already discussed these balances are, or at any
rate ought to be, kept down to the least sum
needed to meet the immediate and current require-
ments of the local services.

Payments for Consolidated Fund services, as
distinguished from Supply Services, also require
special mention. All except those for the service
of the National Debt are made by the Paymaster
General. Quarterly schedules of payments to be
made are received at the Pay Office from the Trea-
sury, and on these standing authorities for the
payments are prepared. The disbursement, for
instance, of money provided for the King's Civil
List is made by the Paymaster General in the form
of imprests issued to the Paymaster of the Royal
Household and to the Keeper of the Privy Purse.
Payments on account of interest and principal of
the National Debt are not made by the Paymaster
General, but by the Bank of England and the


National Debt Commissioners, and we will deal
with them later.


Parliament grants fixed sums for definite
purposes; votes in Committee of Supply follow
the Votes of the estimates, each of which specifies
a particular service and the amount to be spent i
upon it. Each Vote is a watertight compartment ; i
money granted for one Vote must not be used for
another. All Credit issued from the Exchequer is
allocated by the Treasury to a particular purpose.
In the case of the Navy and Army Votes, leave to
make transfers between the Votes can be obtained ;
but in general at the end of the year the ex-
penditure on each Vote must not have exceeded
the amount granted therefor. To maintain this
appropriation of grants in the most rigid manner is
one of the chief objects in financial administration.
How, it may be asked, is it consistent with the fact
that the credit in the hands of the Paymaster
General is kept as one general balance, any part of
which may be used for any service? To answer
the questions we must consider more closely the
system of accounts kept at the Pay Office as a
record of money spent on each Vote. These
accounts of record have no connection at all with
the Paymaster General's banking accounts, kept at
the Bank of England.

Once more it will be useful to remind ourselves
of the difference between an account and a balance.
In what we have been saying hitherto of the
business of the Paymaster General we have dealt


principally with his balance : it is one and in-
divisible, and all but the few thousand pounds in
cash at the Pay Office and the balances in the
hands of local paymasters is kept at the Bank of
England. That general balance of his at the Bank
is the sum of the four balances standing to his
credit on the four banking accounts which are
kept for his convenience; his Exchequer Credit,
Drawing, Bill, and Cash Accounts. Now we have
to consider a separate and parallel system of ac-
counts, kept at the Pay Office, to show what the
balance is being spent on. For simplicity's sake
we will consider in the first place the more rigid
system of account-keeping applied to Civil Service

As soon as Parliament has granted Ways and
Means to cover Civil Service Votes and a Royal
Order has been issued putting the grants at the
disposal of the Executive, the Treasury notifies the
Paymaster General of the amounts and purposes
of the grants. For each Vote for which a grant
has been made the Paymaster General then opens
a separate account, noting the total amount granted
for each. The department which is to have the
spending of the money voted is also told. Depart-
ment and Paymaster General both now know that
Parliament has granted certain money for certain
purposes. They need not wait for money to be
issued from the Exchequer on account of the
grants to begin their spending. There is the
Paymaster General's general cash balance to go
on with : and in the interests of economy that is to
be used up before fresh issues are called for from
the Exchequer. Forthwith then the Department


proceeds to draw upon the Paymaster General for
the service of the Votes for which grants have been
made. The Paymaster General meets the draft out
of his general cash balance, and debits the account
of the Vote in question with the amount.

Here then are the Departments spending public
money wholly free from all the elaborate restraints
of Treasury Orders and Credits from the Comp-
troller General on the Exchequer Account. But
the liberty to do so reaches a very small way only,
for the Paymaster General's cash balance at any
given time will not go very far : it would soon be
exhausted and payments brought to a standstill
were it not refreshed by issues from the Consoli-
dated Fund to his Exchequer Credit Account.
Issues of the sort are made almost daily by the
Treasury in order to enable the Paymaster
General to keep pace with the payments autho-
rised. Each issue for Civil Service Votes, by the
form of the order making it, is appropriated piece-
meal amongst the several Votes. The Paymaster
General credits to the account of each Vote the
amount issued therefor. Sometimes, by the use of
the general cash balances, that amount may be
overdrawn in respect of a particular Vote. Such
an overdrawing leaves a debit against the account
of that Vote. The next Credit issued from the Ex-
chequer for the Vote then goes to wiping off that
debit. Once a month in the case of Civil Service
Votes the Paymaster General balances the Vote
Accounts ; and if there is a probability of a debit
against any one of them at the end of the month,
in consequence of his spending on its services
more than has been issued for it from the


Exchequer, he notifies the Treasury and the
Treasury makes an Exchequer issue to meet
the probable deficit. At these times the expendi-
ture on account of each Civil Service Vote is
completely covered by Exchequer issues, and the
Paymaster General's disbursements are fully
regularised. It will be observed that one result
of this system is that it is only at the end of the
month, when the accounts of the Votes are
squared, that Exchequer issues correspond with
the actual expenditure on Civil Service Votes. At
other times the use of the Paymaster General's
General Cash Balances as described prevents any
close approximation between the amount of Ex-
chequer Issues and that of the actual expenditure
on account of the individual Votes.

The Navy and Army Votes are dealt with at the
Pay Office in a somewhat different manner. In
consequence of the practice of allowing grants for
one Vote for the Navy to be used temporarily for
any other Navy Vote, and so also in the case of
Army Votes, issues from the Exchequer on account
of Navy and Army Votes are made under those
general headings and not on account of particular
Votes. 1 In their case, therefore, the unit for account-
ing purposes is not the Vote, but the sum of the
Votes for each. By an enlargement of the special
liberties of the Executive in this matter it is now
not unknown even that the Admiralty and War
Office should by indirect means help each other out
of credits issued for Army and Navy Votes respec-
tively. There is no monthly balancing of the two
totals, but every quarter a reckoning is made, and

1 Exchequer and Audit Act, 1866, 15.


issues are made by the Treasury to wipe off any
debit and thus regularise the whole of the payments
made by the Paymaster General on account of each
Vote. Since these Votes are by far the largest, it is
only at the quarterly periods that the total Ex-
chequer Issues correspond closely with the total
national expenditure. The discrepancy, however,
between issues and expenditure is never very

Finally at the end of the financial year there is
a close and thorough examination of the state of all
the Vote Accounts, and every precaution is taken
to make the total Exchequer Issues for each Vote,
Naval, Military, and Civil Service, correspond with
the utmost accuracy with the actual expenditure on

Credit issued for the Votes of the expiring year
is available to meet orders for payment dated
before April ist; but for economy's sake the Pay-
master General may use after March sist what is
left of his old balance issued for the expired year
for the services of the new year, as soon as notice
is received from the Treasury that Parliament has
made grants for the services in question. On the
3ist March the accounts are closed, but the balance
runs on.


Were the rule that all revenue is credited at
once to the Exchequer Account absolute and in-
variable, we should now have finished the story
of the process of spending. But unfortunately it


is not. Already we have had to deal with one im-
portant exception to the rule, the interception of
revenue by the Revenue-collecting Departments,
to meet the expenses of its collection. Now
we have to deal with another in connection with the
business of the Pay Office.

A small part of the revenue is received, not
through the great Revenue-collecting Departments,
but in the form of casual sums paid to other offices.
At the Admiralty and at the War Office, for instance,
sums are received in payment for the sale of old
stores. With few exceptions, these sums received
by departments other than the great Revenue
Departments are paid over by them to the Pay-
master General. It might be supposed that the
departments would have to follow the general rule
and pay the revenue so received by them into the
Exchequer Account : but it is not so. An exception
is made (in this case as in the case of the intercep-
tion of revenue by the great Revenue Departments
for costs of collection) for the sake of simplicity and
economy, on the principle that revenue should be
used where it comes to hand. For this reason the
Paymaster General is allowed to take these receipts,
to credit them, as he receives them, to a special
account of his at the Bank of England, which is
called his Cash Account, and to use the balance on
that account, as part of his general cash balances,
to pay the departments' bills with.

Thus to the Cash Account are credited all sums
received by the Paymaster General other than those
issued to him from the Exchequer Account. It is
an account parallel to his Exchequer Credit
Account, and it is used for the same purposes.


No payments are made out of it; it is used to
refresh his Drawing and Bill Accounts. Here then
is revenue which never enters the Exchequer
Account at all. It gets as far as the Paymaster
General's Cash Account, and then doubles back
into his Drawing and Bill Accounts and so out into
the pockets of the state's creditors.

There is another source of contribution to the
Paymaster General's cash balances. In the course
of their business the Government departments
receive large sums, not as final payments, but on
deposit. These are not revenue in any sense, and
could not be paid into the Exchequer Account
without falsifying the total of the nation's income.
They are paid over by the departments to the
Paymaster General and fall into his general cash
balance as part of the balance on the Drawing
Account. A convenient part only of the total
amount so received is left as a free balance; the
rest is invested through the National Debt Com-
missioners. In this category also may be included
the balances of two other funds held by the Trea-
sury which for the present are only names to us
but which will be explained later, the Treasury
Chest Fund and the Civil Contingencies Fund.

Nothing has yet been said as to the way in
which the receipts from Departments which are
credited to the Cash Account are dealt with in
the Vote Accounts. We have seen how the
money so received is used, but not how it is ac-
counted for. As has already been mentioned,
Parliament in dealing with the estimates in Com-
mittee of Supply allocates such minor receipts as
Appropriations in Aid of particular votes. As,


therefore, they are received and paid into the Cash
Account, credit is given for them on the account of
the Votes to which they are allocated, just as if
they were Exchequer Issues. The more a Vote
Account receives in this way, the less it needs
to receive from the Exchequer at the periodic

Very roughly, as we have seen, every month,
more fully every quarter, and with great accuracy
every year, the Paymaster General's disbursements
are brought under the review of the Treasury and
subjected to the check of the Comptroller General,
and matters are squared up with the Votes of
Parliament. But let it be recognised that between
whiles the power of drawing upon his general cash
balances for payments on a Vote in excess of issues
actually made in respect of that Vote from the
Exchequer Account transfers from the Treasury to
the Paymaster General part of the high and heavy
responsibility of seeing that the grants of Parlia-
ment for any particular Vote are not exceeded.
Obviously it would be quite possible for him by
the use of his general balance to allow a Depart-
ment to exceed the total sum granted by Parliament
for any Vote. Neither the Treasury nor the Comp-
troller General could stop him. It is true that
he would be brought up sharp by the Treasury
as soon as it became necessary to apply for
an Exchequer issue to balance the debit against
the Vote Account. The Treasury would then
answer, " there is nothing more to be issued from
the Exchequer for that Vote," and the fat would
be in the fire. But to prevent the possibility of


so gross an irregularity the Treasury lays upon
the Paymaster General a direct personal duty to
see that the total sum granted by Parliament for
any Vote is not exceeded. He has a note of the
total on his Vote Account, and he must see that the
payments authorised by a department on account
of any Civil Service Vote do not exceed that total,
and that those authorised for Naval and Military
Services do not exceed the totals of their respec-
tive grants. "The Paymaster General," says the
Treasury, 1 "will not make a payment under any
head of service exceeding the balance remaining
on the grant of Parliament for that service; and
will keep in his books separate accounts of the
grants remaining in the Exchequer and in his
hands, under the several heads of the service, that
he may be prepared to exercise an efficient check
upon the accounts of the application of the Votes
of Parliament, and to submit to this Board any
order for payment which may be drawn upon him
in excess of the available balance of the grant
unissued from the Exchequer, or in his hands, to
which such order may relate." Thus for the all-
important purpose of preventing departments from
spending more upon a Vote than Parliament has
granted for it the control of the Paymaster General,
who does the spending, is the first line of defence,
and that of the Treasury and of the Comptroller
General are the second only.

The system of a generalised balance and that ex-
ception to a good rule which allows minor receipts
to escape the control of a passage through the
Exchequer Account allows plenty of opportunity
1 Treasury Minute. 22/12/1848.


for irregularities. To prevent them the chief check
is the rule that the Paymaster General, although he
may make disbursements in advance of Exchequer
Issues, must make no payment for any service
until he is notified that Parliament has granted
money for it, and that the money has been placed
at the disposal of the Executive. It is, therefore,
of importance to grasp at what point in the process
of parliamentary authorisation of expenditure the
Treasury is at liberty to notify to the Paymaster
General that money is available for the service of a
Vote. The critical point is the issue of the Royal
Order which sets funds voted at the disposal of the
Treasury. As already stated, the Royal Order can
be issued as soon as a Vote has been passed in
Committee of Supply, without waiting for the reso-
lution in Committee of Ways and Means or for
the final statute, Consolidated Fund Act or Appro-
priation Act, that gives the proceedings of the
Supply Committee the full force of law. But that
is on one condition. The Order can only be issued
on the strength of the resolution in Supply if there
are grants enough to cover the expenditure still
unexpended, which have been authorised for the
service of the year by some previous Consolidated
Fund Act. Funds voted in Ways and Means and
legalised by a Consolidated Fund Act, it will be
remembered, are voted generally; they are not
appropriated to any particular Vote. The Consoli-
dated Fund Act authorises the Treasury to issue a
certain sum and apply it towards making good the
supply granted for the service of such and such a
year. According to this wording, it matters not
whether the supply be granted before or after the


Act is passed. A Royal Order may, for instance,
be made to set at the disposal of the Treasury
Ways and Means voted in respect of the Votes on
Account and legalised by the Consolidated Fund
Act, for use in respect of grants voted by the
Committee of Supply after the Consolidated Fund
Act became law, and that is often done.

© Art Branch Inc. | English Dictionary