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

The System Of National Finance - VII

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



PARLIAMENT, in the Appropriation Act which com-
pletes its financial labours for the year, lays down
a cut-and-dried scheme of expenditure for every
service in every department throughout the year.
Votes are the lengths into which it cuts the scheme
of appropriation to dry it. Each specifies a service
or a group of services and grants a sum therefor.
Parliament says to the department in the Act,
" here is the amount which you are authorised to
spend on each Vote; you must not spend more
nor must you spend money granted to you for one
Vote upon another for which it was not granted."
A Vote and its grant are water-tight. It will be
remembered that the grant of Parliament on each
Vote is a net grant ; it is equal to the gross sum
estimated to be necessary during the year for the
services included in the Vote, less the minor
receipts which the department estimates that it
will collect during the year in connection with
those services, and which Parliament authorises
the department to appropriate in aid of its estimated
gross expenses. To avoid a possible mistake it
will be useful to remind ourselves here of another
circumstance. Owing to the fact that the Pay-
master General keeps a general balance and not a


special balance for each Vote or even for all the
Votes of each department, credit issued from the
Exchequer for the spending departments, although
it is specified to be on account of a particular Vote,
is not earmarked in the hands of the Paymaster
General for the Vote on account of which it is
issued ; it is drawn upon for any Vote on account
of which payments may legitimately be made.
There is thus a sharp distinction between issues
and grants. As a matter of banking, once an issue
of credit from the Exchequer is merged in the
Paymaster General's balance, it is as impossible to
follow and earmark as a lucky sixpence which an
old lady pays into a bank. It can be used for any
Vote. But as a matter of account, money granted
for one Vote may not be accounted for on another.
What is meant when it is said that a Vote and its
grant are watertight is that at the end of the year
or at any other intermediate season at which it is
thought useful to adjust the Vote Accounts, the
department must show that no more has been
spent on each Vote than Parliament has granted
for it. It must not in the first place spend more
than the total amount which it has to receive and
so run itself into debt; that is the highest crime
and misdemeanour of all. Further, even though
it has received more in respect of minor receipts
than it estimated that it would receive, it must not
take advantage of that to spend more in gross upon
its services than is authorised in the Appropria-
tion Act, even though it would not, under the cir-
cumstances, run into debt. It is authorised to
appropriate in aid of its expenditure the amount
specified in the Appropriation Act, and no more.


These rules apply to the total of its grants, and
they apply to them also Vote by Vote. A depart-
ment must not overspend one Vote, and avoid
running into debt by transferring to the overspent
Vote credit which has been saved upon another.
In accounting for its expenditure it must show,
Vote by Vote, that no more has been spent on the
services included in each out of Exchequer issues,
and that no more has been appropriated in aid of
them out of minor receipts, than the Appropriation
Act authorised. This rule of the watertightness
of the Vote is that which underlies the whole
system of accounting, and the various details of
the system, with which we have now to concern
ourselves, can best be understood as modifications
of the rule, and as exceptions.

In the Appropriation Accounts, which follow
the form of the estimates, Votes are grouped in
classes and sub-divided into subheads ; but it is
the Vote that is the watertight unit, not the sub-
head or the class. A department may save money
on one subhead and spend it on another. When
the public service requires it, the details of the
subheads may thus be varied and credit may be
transferred from one to another within the limit of
the total Vote. To do so, the sanction of the
Treasury is needed, and in the case of the Civil
Service estimates the Treasury sees that it is
obtained. In the case of Navy and Army estimates,
the sanction of the Treasury for such transfers is
little more than a formality, unless the transfer
involves some question of principal or of change of
policy. In the case of some Votes there is a still


more minute division of the form of the Vote into
sub-divisions of subheads ; but these are merely
explanatory; they do not limit appropriation and
the leave of the Treasury need not be obtained, in
any case, to spend upon one money saved upon
another. 1

There is a good reason for allowing to the de-
partments this power of transfer within the limits
of the Vote. If they are allowed to enjoy the benefit
of a saving on one subhead to cover a deficiency on
another, they have a motive for economy. Were
the power to be denied them, it would tend to
make them over-estimate every subhead in order
to avoid the danger of a deficiency on any. It
would have another ill effect also ; it would make a
much greater number of Supplementary Estimates
necessary to authorise unexpected increases of ex-
penditure. The need for Treasury sanction is an
adequate check to prevent the abuse of the power,
and the Treasury's exercise of its power is itself
subject to the criticism of the Auditor General and
of the Public Accounts Committee.


Absolute rigidity in the scheme of appropria-
tion by Votes is the ideal, but it is an ideal not to
be attained in a world of surprises, and owing to

1 There are some exceptions to this rule, of cases in which
Treasury sanction is needed for an excess upon an item in the
estimates, although that would not lead to an excess upon the
whole subhead. They are cases of new expenditure which would
tend to increase charges permanently. For example, Treasury
sanction is needed for an excess in respect of extra clerical


unexpected increases in the expenditure or unex-
pected deficiencies in appropriations in aid, Parlia-
ment commonly finds it necessary in practice to
make some provision for alterations and additions
to the scheme during the year, to provide for over-
spending of the Votes. It does so in the first
place by Supplementary Estimates, those necessary
evils. By their means provision is made for the
chief additions to expenditure which are found to
be unavoidable. After presentation they pass
through all the stages of procedure through which
the original scheme of expenditure passed, and by
their inclusion in the next Appropriation Act they
are grafted on to the general scheme of appropria-
tion. Grants for services included in Supplementary
Estimates have then to be accounted for in the same
manner as those included in original estimates.
Both are rigidly appropriated and both are sub-
jected in appropriation to the limitations already
defined, and to the exceptions with which we deal
later. A Supplementary Estimate, it is to be
observed, needs the assent of the Treasury as
much as an original estimate. As soon as a
department sees that probably it will have to
spend in excess of the amount which it was
authorised to spend, it is its duty to call the matter
promptly to the attention of the Treasury. There
investigations are made to see whether the call to
excess expenditure is really so urgent as the
department supposes, whether in particular by
hook or by crook the expenditure cannot without
detriment to the public service be postponed to
the coming year, so that it may be included in
that year's ordinary estimates. If it cannot, the


Treasury authorises a Supplementary Estimate,
and in making it up credit is given for any excess
in the Appropriations in aid of the department's
Votes over those originally estimated. It may be
that the excess in appropriations in aid is so big
that it is enough to meet the whole of the excess
expenditure. All the same, since the department
cannot appropriate in aid more than it was
authorised so to appropriate, a Supplementary
Estimate is necessary. It is drawn up so that
there is a nominal excess of 10 or 100 or so of
excess expenditure over additional receipts, and
that nominal sum is voted by Parliament, so that
the matter may be brought into the structure of
the scheme of appropriation. Once a Supple-
mentary Estimate is authorised by the Treasury,
the department is not kept waiting for its money
until the cumbrous business of its ratification by
Parliament has been completed. It is allowed by
the Treasury to incur expenditure in anticipation
of the final ratification, so long as it does not
actually spend in excess of its total grants
authorised until the supplementary expenditure
is authorised.

If events involving additional expenditure un-
foreseen in the original estimates happen so soon,
as they sometimes do, that when they happen the
Vote for the service affected has not yet been taken
in the Committee of Supply, it is possible to avoid
a Supplementary Estimate altogether. All that is
then needed is that the Minister responsible for
the Vote should withdraw the original estimate
therefor and substitute a new one to meet the
altered circumstances, or that he should simply lay


a statement before the House of the additional
expenditure to be voted. 1


Changes in the original estimates before they
are voted make a difference in the ultimate scheme
of appropriation, and Supplementary Estimates
make additions to it ; but it is to be observed that
both are embodied in it and are no exceptions to
the rule that the scheme is invariable. In the case
of the Civil Departments, that rule holds absolutely.
They have no authority to vary the cut-and-dried
schedules for the Civil Service Votes in the Appro-
priation Act, and nobody has any power to give
them such authority. In their case, therefore, it
remains only to consider what is to happen if, as
the year draws towards its close, and it is too late
to present a Supplementary Estimate, it is found
that some negligence or perhaps some unavoidable
mistake has led a department into overspending
itself in a manner unforeseeable perhaps and at
any rate unforeseen. It is not until some six
months after the close of the financial year that the
Appropriation Accounts are made up and audited,
and that is the time at which regrettable incidents
in the way of unforeseen and unauthorised over-
spending of Civil Service Votes will in general
come to light. There can then be no more Supple-
mentary Estimates for a year the accounts for which

1 In the case of^Army and Navy Votes, in conformity with the
practice explained later in this chapter, if it is already apparent
that there will be savings on other Votes of the same department,
a minute is presented at this stage to specifiy them an4 to shqw
how they will cover the additional expenditure.


are closed, so some other steps have to be taken.
Excess expenditure of the sort is brought to the
light of day by a special entry which has to be
made in the Appropriation Account of the depart-
ment concerned, and by the report of the Auditor
General thereon to the Public Accounts Com-
mittee. The first step usually taken is for all
parties concerned, the Auditor General, the Public
Accounts Committee, and the Treasury, to remind
the peccant department that it is a canon of the
public service that an excess of the sort is a
financial offence, and that it would do well to read
the Resolution of the House of Commons of March
30th, 1849, that: " When a certain amount of ex-
penditure for a particular service has been deter-
mined upon by Parliament, it is the bounden duty
of the department which has that service under its
charge and control to take care that the expenditure
does not exceed the amount placed at its disposal
for that purpose." After some such suitable
admonition, the Executive and the Legislature
dry their eyes and set to work to mop up the
spilt milk. Parliament has formally to regularise
the excess. For that purpose, after the Public
Accounts Committee has reported on the cause
and cure of the administrative ailments that led to
it, a resolution is proposed in Committee of Supply,
authorising the application to meet the excess of
any savings that have been made on other votes
and the appropriation in aid of it of any minor
receipts in excess of the estimated receipts already
appropriated. . It is in most cases out of these
extra receipts that the excess expenditure has
already been met by the department, so that the



resolution only regularises accomplished facts.
After being passed in Committee of Supply, the
resolution goes through all the numerous stages of
ratification which every resolution for the expendi-
ture of money has to go through, and finally, and
before the end of the year, it gets the force of law
in the Consolidated Fund Act, and credit to cover
the excess is issued to the department from the
Exchequer. The grants are appropriated in the
next Appropriation Act. It will be observed that
the issue from the Exchequer thus takes place at
the end of the year following that during which
the excess expenditure was incurred, and the
appropriation is not made until well on in the
financial year following that again.


Thus in the case of Civil Service Votes ex-
penditure unforeseen in original estimates is dealt
with by Supplementary Estimates ; and any excess
expenditure unauthorised by a Supplementary
Estimate is regularised by an Excess Grant.
Navy and Army Votes stand on a different foot-
ing. Admiralty and War Office have far more to
spend. Civil expenditure is for the most part of a
routine sort : the expenditure of the Admiralty and
War Office is that of two great manufacturing and
contracting businesses which are big employers of
labour and buyers and sellers of goods. They
have markets to study, those uncertain things,
and are less able than the Civil Departments to
foresee exactly what they will have to spend and
when. For those reasons it is impossible to tie


them down so rigidly to their Votes. Parliament
does not attempt to do so : it exacts from them a less
precise obedience to its scheme of appropriation.
Supplementary Estimate and Excess Grants may
be made use of for the Naval and Military Votes as
for the Civil, but a certain freedom is allowed to
the Admiralty and War Office to disregard the
theoretical water-tightness of the Votes which
makes an excess grant, at least, seldom necessary.
The rule that the total of the grants to the
Admiralty and War Office respectively must not
be overspent is enforced with absolute rigidity.
If the melancholy fact becomes apparent that that
total will be insufficient for either department, it
must take steps to obtain a Supplementary Esti-
mate. But into the instrument by which Parliament
defines its scheme of appropriation, the Appropria-
tion Act, it slips a provision which gives the two
departments a large measure of liberty to readjust
expenditure within the limit of the total sum
granted to each. Civil departments, it will be re-
membered, are allowed with Treasury sanction to
transfer the savings on one subhead of a Vote to
meet expenditure on another subhead. Admiralty
and War Office are allowed to make similar trans-
fers from Vote to Vote. A section found in every
Appropriation Act, year by year, provides that:
" (i) So long as the aggregate expenditure on naval
and military services respectively is not made to
exceed the aggregate sums appropriated by this
Act for those services respectively, any surplus
arising on any vote for those services, either by an
excess of the sum realised on account of appropria-
tions in aid of the vote over the sum which may be


applied under this Act as appropriations in aid of
that vote, or by saving of expenditure on that vote,
may, with the sanction of the Treasury, be tem-
porarily applied either in making up any deficiency
in the sums realised on account of appropriations
in aid of any other vote in the same department, or
in defraying expenditure in the same department
which is not provided for in the sums appropriated
to the service of the department by this Act, and
which it may be detrimental to the public service
to postpone until provision can be made for it by
Parliament in the usual course.

"(2) A statement showing all cases in which
the sanction of the Treasury has been given to
the temporary application of a surplus under this
section, and showing the circumstances under which
the sanction of the Treasury has been given, shall
be laid before the House of Commons with the
appropriation accounts of the naval and military
services for the year, in order that any temporary
application of any surplus sanctioned by the
Treasury under this section may be submitted
for the sanction of Parliament."

In a field of expenditure so wide as that in which
the Admiralty and War Office move, savings in one
region or another are sure to be made. All then
that the department in question has to do when
it finds that overspending of some Vote is inevi-
table is to look around for some equivalent or
greater saving on some other Vote, and to get leave
from the Treasury to meet the overspending out
of the saving. No Supplementary estimate is
necessary, and no excess grant, as long as the total
of the department's grants is not overspent.


It will have been noticed that according to the
wording of the Act the savings may, with the sanc-
tion of the Treasury, be applied to the deficiencies
temporarily. That does not mean that the savings
are ever repaid ; what it does mean is that the
Treasury's sanction is not final, and that the ratifi-
cation of Parliament must be got for it before the
end of the financial year. Things take the following
course. As the year draws towards an end and
the Admiralty and War Office begin to see how
they stand as regards expenditure, they tell the
Treasury of the excess expenditure that there will
probably be on some of their Votes and of the
surpluses on others. They send to the Treasury
a schedule of the items of excess expenditure and
surplus, made out in detail, Vote by Vote, with
explanations. Surpluses may be the result of a
saving on the total expenditure estimated for a
Vote, or of bigger receipts for appropriation in aid
than those allowed for in the estimates; and con-
versely excess expenditure may be the result of a
total expenditure on a Vote greater than that esti-
mated, or of a disappointment in respect of appro-
priations. Authority to make the transfers is then
given by the Treasury under the power given to it
by the cited clause in the Appropriation Act. It
sets out in detail in a minute the probable excess
over grants, Vote by Vote, sets against the excesses
the probable surplus in a lump, and authorises the
temporary application of the one to meet the other. 1

A copy of the minute is laid before Parliament
before the end of the financial year, and there

1 Sometimes the Treasury sanctions an excess conditionally,
subject to a surplus being subsequently realised on another Vote.


the matter rests for a space. It is the Appropria-
tion Accounts that bring it again to the light of day.
Their chief end and object is to show how far the
departments have kept to and how far they have
strayed from the scheme of Appropriation. Above
all things, therefore, they must show on the face of
them the excesses and surpluses with which we
are dealing, and how one has been applied to meet
the other. In his scrutiny and audit it is the duty
of the Auditor General to make sure that Treasury
authority has been obtained for all such transfers,
and the Public Accounts Committee takes retribu-
tive action if he reports that it has not been obtained.
When the Public Accounts Committee has examined
into and reported on these matters, the transfers
are ripe for their final authorisation by Parliament.
The House of Commons resolves itself into a
Committee of the whole House on Navy and Army
expenditure. A Resolution is presented to it, for
instance, "that whereas it appears by the Army
Appropriation Account for the year ending March
3ist, 1911, that the aggregate expenditure on Army
Services has not exceeded the aggregate sum
apportioned for those services, but that the total
difference between the Exchequer grants for Army
Services and the net expenditure are as follows :

* d.

Total Surpluses (on Votes) 320,000 o o

Total Deficits 118,000 o o

Net Surplus ... 202,000 o o

and whereas the Treasury has temporarily
authorised the application of so much of the said
total surpluses as is necessary to make good the


said total deficits, the application of such sums
be sanctioned." After being passed in Committee,
the resolution is reported to the House. Finally
it is incorporated as a clause in the next Appro-
priation Act, which gives it the force of law, and
there is annexed to it a schedule setting out the
details of the deficits and of the surpluses appor-
tioned to meet them, Vote by Vote. Thus the
transfers receive at least a posthumous incorpora-
tion in the scheme of appropriation. Since the
House waits for the Appropriation Accounts before
it deals with the matter, the incorporation does not
come until long after the transfers were made and
approved by the Treasury. For instance, the
transfers referred to in our example were those
shown in the Appropriation Accounts for the year
ending March 3ist, 1911. That means that they
were sanctioned by the Treasury in that month.
But since the Appropriation Accounts for that year
are not presented to Parliament until the beginning
of the session of 1912, the transfers cannot be dealt
with in the Appropriation Act of 1911 and have to
wait for that of the following year.

Such is the course by which excess expenditure
on Naval and Military Votes is set off against
savings, within the limit of the total grants to each
department. If the Appropriation Accounts show
that either department has exceeded its total
grants then, as in the case of a Civil department,
there is nothing for it but an Excess Grant. The
Public Accounts Committee is careful to report
upon any case, Civil, Military, or Naval, in which a
vote for an Excess Grant is required, in time to
enable the vote to be passed by the House before


the end of the financial year following that in which
the excess expenditure was made. As in the case
of the Civil departments, against Naval and Military
excess expenditure is set in the Excess Vote any
surplus in appropriation in aid over that allowed
for in the estimates and original Appropriation

To settle the sediment of confusion which so
technical a business is apt to leave in the mind, it
may be useful by way of summary to repeat that
for a Civil Department an Excess Vote is needed
when the total grant of a single Vote is exceeded.
For the Admiralty and War Office, owing to the
machinery for the authorisation of transfers, an
Excess Vote is only needed when the total of the
grants on all of the Votes of the department is
exceeded. Coming so long after the events with
which it deals, the Parliamentary ratification of
transfers by resolution and inclusion in an Appro-
priation Act is more of an empty formality than a
practical check. If Parliamentary revision of the
Treasury's decision is worth while at all, it must
be worth while that it should be made promptly.
There seems no reason why the Public Accounts
Committee and the House of Commons should not
take up the matter as soon as they receive from the
Treasury the minutes of the transfers which they
have sanctioned, so that legal authority might be
given to them at least in the next Appropriation
Act, instead of, as now, in the next but one. The
Appropriation Accounts add little that is material
to enable Parliament to come to a decision on the
matter ; and if those accounts or the audit of them
should disclose anything new, the fresh material


could always be made the subject of a fresh dis-
cussion. Power to make transfers of the sort is
subject to certain temptations, and no suitable
control that can be exercised over it is unnecessary.
It tempts those responsible for the preparation of
the estimates to over-estimate the expenditure to
be required on certain Votes, in order that the
grants for those Votes may be used as a pool to
draw upon for other Votes. When'it is found that
a certain Vote is in fact constantly being over-
estimated and showing big savings, a critic may
suspect that the department is regarding it as a
milk-cow for its other Votes. It needs no argument
to show the impropriety of a practice of the sort.
In plain words, it is deceiving Parliament; it
conceals from it at the time at which it is consider-
ing the estimates the true intentions of the depart-
ment, and enfeebles Parliamentary control. On
the other hand the existence of the power of
transfer, legitimately used and subject to proper
limitations, makes for accuracy in estimating and
for economy in expenditure. That has already been
pointed out in connection with transfers between
the subheads of the Votes of the Civil Depart-
ments. It is equally true of transfers between the
Naval and Military Votes. Without the liberty to
transfer, the Admiralty and War Office would be
tempted to over-estimate every Vote in order to
prevent the possibility of troublesome excesses,
and they would not have so strong a motive for
making savings.

Another specific temptation to which the power
of transfer subjects a department is the temptation
to invent something to do with savings when it


finds that it has some, whether that something is
really necessary or not, just in order to find a use
for the money. Obviously the Treasury ought to
be, and no doubt it is, on the qui vive to prevent so
extravagant a practice. On the other hand, if a
department does happen to have savings in hand
at the end of the year, it may be that the state of
one or other of the markets in which it buys goods
for the public service may make it very desirable,
in the interests of economy, that it should make use
of its savings in buying at once for its requirements
in the coming year. It may not be in any sense
necessary that it should do so, and yet it may be
quite prudent that it should ; and under those
circumstances the Treasury will in general make
no objection to the department looking round and
seeing whether it cannot make an ultimate economy
for the taxpayer's pocket by using up its savings.

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