CHAPTER VIII

THE ANNUAL BALANCING

WE have had a good deal to do in the pages that have
gone before with the Exchequer Account. The
importance of this, the account of the Consolidated
Fund of the United Kingdom of Great Britain and
Ireland, is so great that its nature and incidents
should now occupy us in more detail. We have
seen how, in theory, it is the account which receives
the whole of the nation's revenue, and out of which
the whole of the nation's expenditure is made; and
we have noticed several substantial exceptions to
the rule, such as the sums retained as Appropria-
tions in Aid and for the expenses of the Revenue
departments. We have seen how at ordinary times
the use for payments by the Paymaster General of
credit from his general cash balances prevents any
exact correspondence between issues from the
Exchequer Account and the nation's actual expen-
diture, and how in the same way the retention
of revenue for the expenses of the Revenue depart-
ments prevents any exact correspondence between
Exchequer receipts and the nation's actual revenue.
We have seen also how the periodical adjustment
of Vote Accounts makes Exchequer Issues and
Receipts roughly equal, and at the end of the year


equal with tolerable accuracy to the total of the
nation's incomings and outgoings.

THE EXCHEQUER ACCOUNT

Thus the ratepayer has in the Exchequer
Account a guide to the state of the public purse.
He is enabled to follow it from week to week in a
return published by the Treasury in the London
Gazette every Tuesday, a summary of which is given
in the financial columns of most of the newspapers.
On one side are shown the total receipts into the
Exchequer Account, from the beginning of the year,
in comparison with those for the same part of the
preceding year and with those estimated for the
whole year. Receipts are distributed under their
headings of Customs, Post Office, and so on, and
receipts on capital account are stated separate!}'.
On the other side is shown the expenditure since
the beginning of the financial year, compared as in
the case of the revenue, and distributed under the
headings of Debt Services, Development and Road
Improvement Funds, Local Taxation Accounts,
Other Consolidated Fund Services, and Supply
Services. Issues on capital account are stated
separately. Finally the amount of the balance in
the Exchequer is stated, and compared with that at
the corresponding period of the year before. By
deducting from the totals of revenue and expendi-
ture at the end of any week those at the end of the
week before, one can see what has happened during
the seven days in between. Once a quarter the
Treasury publishes a fuller record of its dealings
with the Exchequer Account. It is divided into


two parts, the first of which shows with a little
more detail than the weekly account the revenue
received into the Exchequer Account, both for the
quarter and for the whole financial year up to the
date of the return, in comparison with that for the
corresponding periods of the preceding year. In
the second part receipts into the Exchequer Account
including receipts on capital account, are set against
expenditure, including expenditure on capital
account, and a balance is struck which is the
" balance in the Exchequer. " At the end of the
financial year the weekly and quarterly returns are
developed into the Finance Accounts of the United
Kingdom of Great Britain and Ireland, which make
their appearance some time in June in the shape of
a blue pamphlet, price fivepence-halfpenny, which
every taxpayer ought to buy, read, and inwardly
digest.

At the end of the financial year, as the clock
strikes four p.m. on March 3ist, the Exchequer
Account for the year is closed. During the pre-
ceding weeks the Departments have been obtaining
from the Treasury issues from the Account calcu-
lated to make the total issues which they have
received equal to their actual expenditure, thus
repeating with increased precautions the process
gone through at the end of the three intermediate
quarters. On March 3ist in consequence the
receipts into the account and the issues therefrom
correspond to a very close degree of approximation
with the whole of the nation's incomings and out-
goings for the year. Nevertheless they are not
identical. A record of issues from the Exchequer
is always a record of imprests, or payments to the

department as agents on account, to be disbursed
by them for the Government. It never is nor can
be a record of actual expenditure in the form of
final payments. Owing however to this balancing
of the Accounts of each Vote, by special issues
made in March, and to the policy which keeps free
balances in the hands of the spenders as low as
possible, for all practical purposes the anxious and
curious taxpayer can look upon the record of
receipts and issues from the Exchequer during the
year as the record of the Government's actual
revenue and expenditure, and it is that which he
finds in the Annual Finance Accounts. He finds
there the nearest approach which the Treasury can
provide to the general account of outgoings and
incomings for the preceding year which the prudent
householder prepares for himself in those grim
days of reckoning that follow Christmas and the
New Year. As every citizen is part holder in the
house of the state, each is equally concerned to
study the record of the incomings and outgoings of
those who manage his house for him, which they
set down so conveniently in black and white and
sell to him at fivepence-halfpenny.

Let us see exactly what the Annual Finance
Account will tell us about the record of our national
finances for the year. It tells us about every opera-
tion on the Exchequer Account from four p.m. on
March 3ist to the same time and day in the year
following. In the first and principal account of
Exchequer receipts and issues, it tells us how much
we received under each heading of revenue during
the year, and opposite that it tells us how much we
spent under each heading of expenditure chargeable


against revenue. The same account goes on to set
against each other receipts and issues on capital
account, and strikes a final balance, which is the
balance in the Exchequer at the end of the year.
That is the grand record of the year's work in
getting and spending. By comparing it with the
estimates and with the Chancellor's calculations in
his Budget Speech at the beginning of the year, we
can see how far time has verified his forecast of re-
venue and the other ministers' forecasts of expendi-
ture. Next in our 5 \d. pamphlet follow tables which
tell us about the revenue receipts in great detail,
down to the fact that a drawback from custom
duties of i los. was paid on Beer, Rum, and
Spruce. Next come details of expenditure, under
the headings already mentioned in connection with
the weekly accounts of the Exchequer ; and here,
under the headings of Consolidated Fund Services
and Other Consolidated Fund Services, we get
detailed particulars of all payments made during the
year under the authority of continuing Acts of Par-
liament, as distinguished from those which come
under the annual review of Parliament in Committee
of Supply. National Debt Service ; the Civil List
of the Royal Family ; the expenses of the Courts of
Justice ; permanent pensions and annuities, such as
720 in perpetuity to the heirs of the Duke of
Schomberg and 2 in compensation to the clerical
Surrogate of an extinct Ecclesiastical Court ; an
odd assortment of special salaries from that of
the Speaker and of the Comptroller and Auditor
General to those of certain mysterious "six
trumpeters" in Scotland; and charges such as
8 35. 6d. for the University of Cambridge (purpose


unassigned) ; here can the taxpayer read about them
all and wonder whether it be not time that some of
them should run afresh the gauntlet of parliamen-
tary criticism. There follow particulars of issues
from the Exchequer on account of Supply Services,
summary in the case of the Navy and Army, detailed
by Votes for the Civil Service and Revenue depart-
ments. Statements relative to the National Debt,
with some of which we shall deal hereafter, wind up
the pamphlet. A study of it in June followed by a
glance at the Abstract Appropriation Accounts, when
they appear, is the least trouble that the good citizen
ought to take, to make himself acquainted with the
manner in which his household has been conducted
during the year. If more taxpayers would do that,
and thus acquaint themselves with the general
character of the sums that are being received and
spent on their account, their origins and destina-
tions, there would surely be less indifference to the
ceaseless increase in taxation and expenditure, and
less placid submission to the too often extravagant
habits of the more technical and specialised
spending departments. On the ears of a public
ignorant even of the general outlines of the nation's
accounts the appeals of economisers in Parliament
fall in vain. It is, for instance, of little use to argue
on grounds of economy against a 5,000,000 increase
in the Navy Estimates to one who knows and cares
not whether the national revenue is 200,000,000 or
2,000,000,000 or whether a battleship costs 300,000
or 3,000,000. To qualify ourselves to appreciate
and weigh arguments of the sort we must have at
least a rough and ready understanding of the
general nature of the financial transactions of the



state, and the best way to get it is to spend a few
minutes every year in turning over the Annual
Finance Accounts.

A look at the chief figures of the record of the
Exchequer Account for the year is all that is
needed to get a general idea of the state's getting
and spending ; but to get an exact idea of what the
Account does show and what it does not, it is useful
to study with more attention the conditions under
which it is made up at the end of the financial year,
at four p.m. on March 3ist.

THE CASH ACCOUNT SYSTEM

In the first place, it should be noticed, the
Exchequer Account is a cash account. It shows
receipts and issues actually made during the year,
not, as it would under some continental systems of
state accounting, rights accrued and liabilities
incurred. Liabilities appear on it only when they
are met by issue to the actual spenders, not
when they are incurred ; and revenue when it is
received, not when it is due. This is a principle
that is applied also in every other account that is
related to the Exchequer Account and in particular
to those of the great Spending and Revenue
Departments. Revenue Departments must bring
into account as revenue belonging to the year only
such revenue as was actually received during the
year. They must, not include revenue which was
due but was not actually received. Similarly
spending departments may bring into account as
chargeable against the grants of the year only
those payments which were actually made during


the year. They do not include payments for
which they became liable but which they did not
actually disburse. In the continental systems
referred to every liability is brought into the
accounts for the year that is incurred therein,
although no payment is made for it until long
after, and similarly all revenue is brought into
account that ought to have been received, although
it may not have been received in fact. In the
result, when the financial year ends, it is still quite
uncertain what the realised total of the expendi-
ture and revenue which are considered to belong
to the year will be, and the nation's accounts for
the year have to be kept open long after the year
is over. From that result great uncertainty and
confusion. It makes it impossible to determine
before embarking upon the finances of the suc-
ceeding year how those of the preceding year have
turned out; and obviously it is useful to know
where you are before you set out on a fresh
voyage. Theoretically the continental system is
better, if it be considered that it is of first
importance to treat fiscal operations as having a
specific character of their own simply because they
take place in one year rather than in another, and
to find out exactly what the result of each year's
fiscal operations is, as distinguished from those of
any other year. But it is difficult to see any good
reason why the fiscal year, as such, should be
endowed in this way with a character and person-
ality. The business of Government is continuous,
and there is no special interest or value in under-
taking laborious investigations and adjustments in
order to allot to a certain year or to any other fixed



period all the operations which can theoretically
be considered to have had their origin therein.
What is of value is that the accounts should be
nipped off sharply on a fixed date and a balance
struck, in order that the Chancellor of the
Exchequer may be able to start fresh on his
budget with exact knowledge of the nation's
financial position. This our system of cash
accounts enables him to do. By considering only
the realised receipts, and the realised expenditure
(by way of imprests to spending departments), and
by disregarding debts which may turn out good
or bad and liabilities which something may yet
happen to increase or diminish, the Treasury is
enabled to close the Exchequer Account im-
mediately the year ends on March 3ist. It is
enabled on the same evening to make a statement
of its position which shows not exactly indeed but
to a very close degree of approximation the whole
of the nation's revenue and expenditure for the
year and the difference between the two at its
close, surplus or deficit. If there is a surplus of
revenue for the year over the expenditure charged
against it, it is not left at large. As we shall
see in a later chapter, at once at that time and on
that day it is set to a separate account, which is
the account of the Old Sinking Fund for the
reduction of the National Debt.

Since issues from the Exchequer Account are
imprests and not final payments, at four o'clock on
March sist the money which the Government has
is in several hands. There is a balance on the
Exchequer Account, safe under the thumb of the
Treasury ; but there is also a balance of issues



from the Exchequer outstanding in the hands of
the Paymaster General, and other balances in the
hands of local paymasters as sub-accountants, who
have received them as imprests from the depart-
ments which they serve. For the purpose of
determining the revenue and expenditure for the
year, outstanding balances are disregarded : having
been issued from the Exchequer Account, they are
treated as if spent. Thus the return of the
Exchequer Account at the year's end shows as
spent a certain amount of money that is in fact still
in the hands of the Paymaster General and local
paymasters. In the same way it fails to show as
collected a certain amount of revenue that is
already in the hands of the officers of the revenue
departments. The account is cut off sharp on
March sist; but the business of government
cannot be cut off sharp too. It has to be carried
on continuously on the day of the closing of the
national accounts just as much as on any other
day, and that means that a certain amount of the
revenue at the moment at which the account is
closed is actually in course of transmission from
the collectors to its bourne in the Exchequer
Account. If the Government paid and received
the same amount every day, year in, year out,
there would be 3-^5 of the revenue received during
each year accounted for in the next year, and ^J 5
of the payments made in each year accounted for
in the preceding year ; and as the errors thus
introduced would be equal and opposite in each
case at the beginning and end of every year, it
would introduce no total error into the balance
between revenue and expenditure of each year as


shown in the Exchequer Account. But since there
is not that mathematical regularity in payments or
receipts, either day by day or year by year, there
is a slight error introduced into the accounts,
sometimes one year getting a little help from its
predecessor and sometimes the other way about.
There is, however, a constant tendency for the two
disturbances to accuracy, that at the beginning and
that at the end of the year, to correct each other,
and the error is quite small and unimportant in
comparison with the total sums involved.