home | authors | books | about

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

The System Of National Finance - VIIIb

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


In the course of the year the Civil Departments
often find that the rigid system on which their
grants are appropriated confronts them with one
or other of several difficulties. Either there is an
urgent need that they should begin to provide
money for some established service for which
Parliament has not yet voted anything, or some
wholly new and urgent little service turns up to
be performed, for which Parliament has made no
provision, or it becomes urgently necessary to
overspend to a small extent the total Vote for a
grant, and no excess has been received by way of
appropriations in aid out of which, with the help
of a Supplementary Estimate, to meet the over-
spending. Multifarious small payments have also
to be made which are not appropriate to any
Vote and are individually too small to be voted
separately. Sooner or later parliamentary authority
must be obtained for all these small payments, and
for any departure which emergency obliges depart-
ments to make from the scheme of appropriation ;
but meanwhile, what is to be done ? To provide
for such cases the Treasury keeps a nest egg in
the form of a little loan-fund out of which it can
make temporary advances to the civil departments,
and this is the Civil Contingencies Fund. It has
a fixed capital which has been raised from time
to time as the turnover of the civil departments

has increased. In 1913 it was raised by a Sup-
plementary Estimate from 120,000 to 300,000,
which is its present figure. Out of the capital the
Treasury makes advances to the civil departments
in anticipation of the grants of Parliament, when
there is urgent need that payment for an established
service should be begun before a grant is made.
Advances of the sort are repaid to the Fund by the
department when it gets its grant. Other advances
are made to departments out of the fund to meet
payments for small services for which Parliament
has made no provision in the estimates of the year,
and which cannot possibly be postponed until the
next year. Others again are made to provide
funds for such small overspendings of grants as
the Treasury may agree to be inevitable. These
last two forms of advance are repaid to the Fund
out of grants of Parliament made specially for the
purpose on Supplementary Estimates or Excess
Grants. Thus the capital of the Fund is restored
and maintained intact from year to year. At the
financial year's end it is outstanding in the form of
a balance in the hands of the Paymaster General,
and it is carried forward into the new year to the
account of the Fund. Owing to the wide powers
of transfer between Naval and Military Votes, the
Admiralty and War Office need no special machinery
of the sort to enable them to deal with their similar
emergencies. An annual account of the Fund is
audited by the Auditor General and presented to
Parliament through the Public Accounts Com-
mittee. The Committee watches with some
jealousy to see that the Treasury does not make
use of the Fund to release the departments to any

substantial extent from the limitations of the
scheme of appropriation.


A purpose wholly different from that of the
Civil Contingencies Fund is served by the Treasury
Chest Fund. On the British Empire the sun never
sets, and the British Government has to follow it
round the world to make payments for the services
which it requires in four continents and one
continental island. Soldiers have to be paid and
fed in a hundred scattered garrisons; warships
have to be provisioned, coaled, and repaired, and
the sailors paid, at a hundred naval bases, and
civil staffs have to be maintained there to do the
work. At Hong-Kong and Gibraltar the hand of
the Government has to be as busy with disburse-
ments as in Whitehall. There are payments to be
made on account of the Diplomatic Service, and
lor pensioners resident abroad. In general the
business of payment is administered at foreign
stations in the same manner as at a home station.
Imprests are issued by the departments to local
paymasters (sub-accountants) in the form of orders
upon the Paymaster General, for the use of which
the local paymasters account. But there is an
additional step that has to be taken in the case of
payments abroad, and that is the transfer of credit
to the foreign place at which it is to be used.
Credit is transferred to the account of local pay-
masters at home, as has been seen, in the simplest
way. The paymaster gives his order on the Pay
Office to his local bank, which presents it to the

Paymaster General through its London head office
or agent, clearing it against the head office or agent
by a mere entry in its books. But credit cannot
be transferred abroad in that simple way. An ex-
change is involved of the currency of one country
for the currency of another. Even though the
exchange is of sovereigns in London for sovereigns
in Cape Town, owing to their distance apart
sovereigns are very unlikely at any moment to
have exactly the same value in the two places, and
so an exchange operation is in fact involved
although the currencies seem to be the same.
Exchange business of the sort involves some risk
of loss : you may not be able to exchange a thou-
sand pounds in London for a thousand at the
Cape ; you may be able to get only nine hundred
and ninety-eight for them. It also takes time and
locks up a certain amount of money in the actual
course of transfer from place to place. But
Parliament grants in general for the public services
no more than they need, without allowance for the
difficulties of transferring credit from place to place.
Rates of exchange are as varying and unforeseeable
as the wind. It would be impossible to estimate
the allowance to be made for them beforehand,
and wisely enough no attempt is made to do so.
Yet if no provision were made for the matter, the
departments involved would inevitably find them-
selves embarrassed by losing a fraction of their
grants in transferring them abroad, and by always
having a certain part of them locked up in the
course of transfer. They might also be found
bidding against each other in the exchange market,
and so making the business more expensive for

each other. To prevent that the Treasury keeps
a special fund, and this is the Treasury Chest
Fund. It is a little banking capital by means of
which the Treasury carries on the business of
exchange for the departments. Acting as banker
for them, by the use of this fund, it makes good
losses on exchange, 1 and provides the margin of
money which is always locked up in the course of

Since Civil Contingency Fund and Treasury
Chest Fund are often confused, sometimes even by
the authority that administers them, we may take
special notice of the differences between them.
The Contingency Fund is a loan fund for the use
of the Civil departments at home ; the Chest Fund
is a banking fund for the use of the naval and
military departments in particular, and always
abroad. Advances from the Treasury Chest Fund
can be made legitimately on the credit only of
money actually granted by Parliament and available
for repayment ; advances from the Civil Contin-
gencies Fund are never made on the credit of
money actually available, but in anticipation of
money to be granted later on. In one circumstance
do the two funds resemble each other; out of
neither must any final payment be made. Every
payment made out of the Treasury Chest Fund, as
out of the Civil Contingencies Fund, is repaid to
it before the end of the year, and any loss of the
capital of the fund in the course of the year is repaid
to it by a special grant of Parliament. Thus the
capital of the Treasury Chest Fund, as of the Civil

1 Not the whole of such losses, however ; a part is provided for
in the Votes, e.g. Vote II. of the Navy Estimates.

Contingencies Fund, is maintained intact from year
to year, and is carried forward undiminished at the
end of the year to the accounts of the next year.
At the present time the capital of the Fund is
maintained at 700,000.

It will throw some light on the machinery of
financial administration if we follow in detail the
way in which the Treasury Chest Fund is used.
Its purpose, be it remembered, is to put credit at
the disposal of persons authorised to make
payments on behalf of the spending departments
at foreign stations. The Treasury advances money
for the local services out of the Fund to officers at
the foreign stations, called officers of the Treasury
Chest, and the advances are repaid to the Fund in
London by transfers of credit at the Pay Office
from the accounts of the Votes against which the
services are chargeable to the account of the Fund.
The transfers of credit to the officers of the Chest
abroad are made by regular exchange operations
of several sorts. According to one, the officer
draws a bill on the Treasury, which is an order to
the Treasury to pay a fixed sum stated in the bill
on a certain day to a certain person mentioned in
the bill. He takes that bill to his local bank at the
foreign station, which buys it from him, or, in the
commercial phrase, discounts it. In discounting
it the bank takes into consideration the fact that it
will only get payment for the bill on the specified
future day, which may be three months, or two, or
a week, after the bill is presented, and that it will
in the meanwhile be standing out of its interest on
the money it has paid for the bill. In calculating
the price of the bill it deducts interest on its money

for the specified time from the full value of the
bill. It also takes into account that whereas it is
giving the officers sovereigns, it may be, in
Alexandria, it will get in return sovereigns
in London. Now it may also be that sovereigns in
London happen at the time to be worth less than
sovereigns in Alexandria, and if this be so, in fixing
the price of the bill, the bank will deduct something
also from its face value to make up for that. So
the officer would get something less for his bill
than the sum which it directs the Treasury to pay
to the person mentioned in it. The difference is
called the rate of discount, and depends on the
general rate of interest for loans and on the rate of
exchange. Having discounted the bill, the local
bank posts it overseas to its London agent, who
presents it to the Paymaster General. If he is
satisfied that there is credit with which to meet the
bill available >on the Vote against which the
payment is chargeable, the Paymaster General
accepts the bill on behalf of the Treasury and notes
on it that it is to be payable at the Bank of
England. When the day comes on which the bill
is expressed to be payable, the holder presents it
at the Bank and gets payment out of the Paymaster
General's bill account. A debit for the amount is
entered against the account of the Treasury Chest
Fund. Subsequently a transfer in repayment is
made to the amount of the Treasury Chest Fund,
from the account of the Vote concerned, of
the amount actually received for the bill by the
officer abroad. The result of the transaction is
that the officer abroad is put in credit by his-bank
to the amount which he needs ; that the Treasury

repays the bank's representative in London out of
the Treasury Chest Fund ; that the Treasury Chest
Fund is repaid, out of the grants of Parliament,
the amount actually received by the officer abroad ;
but that the expenses of exchange and of keeping
the money locked up during the transfer are borne
by the Fund.

Another and more up-to-date method of putting
the local officer in credit is by a telegraphic
transfer. In that case the officer abroad informs
the Treasury of how much he requires. The
Treasury goes to the London agent of the local
bank and buys a telegraphic transfer of the amount
required, paying probably rather more than the local
officer will receive, in consideration of the rate of
exchange which measures the difference in the
value of money in London and at the foreign station,
and as a remuneration for the bank's services. The
London agent then simply cables out to the local
bank to put so much credit at the disposal of the
local officer. By saving time in transit this method
saves interest, and is therefore altogether more
economical and satisfactory. Its growing use has
enabled the Treasury to reduce the capital of the
whole Fund. The shorter time the transfer takes,
the less money is locked up by the process and
the less capital the Fund needs, just as reducing
the average life of the individual would reduce the
total population of a country. There are other
and still more economical ways in which the
transfer can be made in special cases. The Union
Government of South Africa, for instance, gets its
revenue in South Africa, but has large payments
to make in London for stores which it buys for its

railways and so on. The Treasury has its money
in London, but has payments to make in South
Africa, through the Treasury Chest officers there.
Clearly the two can help each other, and so they
do. In South Africa the Union Government gives
some of its money to, the Chest Officers for their
purposes, and in London the Treasury gives an
equal amount to the representatives of the Union
Government for their purposes, and so each gets
what it wants without trouble or expense.

In its conduct of this banking business, the
Treasury in an ordinary year may make use of its
capital of 700,000 for a total turnover of round
about 10,000,000. In an ordinary year its net
loss, which is principally made up of the discount
on bills and costs of telegraphic transfers, may be
a sum of the order of about 50,000. That is the
sum which has to be made good by a vote of Parlia-
ment, taken on a Supplementary Estimate, in order
to maintain the capital of the Fund undiminished in
the following year. If the rates of exchange run so
much in favour of the Treasury that it makes a
profit on its transactions, that is paid into the
Exchequer account. At the end of the year the
Fund is represented by balances in the hands of
the Paymaster General at home and of the officers
of the Fund abroad.

A special account of the Fund, and its balance
sheet at the end of the year, are audited by the
Auditor General and submitted to the Public
Accounts Committee. There is one possible mis-
use of the Fund for which the Committee is on the
look out. It exists for the purpose of laying down
funds abroad, and they are prompt to protest if


the Treasury makes use of it at home. It might

thereby greatly loosen the bonds of the scheme of

appropriation in which Parliament has confined

the departments. Any loosening of those bonds

which is absolutely unavoidable is to be made by

the use of the Civil Contingencies Fund under the

prescribed limitations ; and the Treasury Chest

Fund is not to be used as a reserve to that. Once

upon a time the Treasury drew upon the Treasury

Chest Fund for 340,000 to enable the Post Office

to meet current expenses when its first Vote on

Account was exhausted before a second could be

taken. Horror is written large on the Committee's

report on the irregularity, relieved only by an

intimation from the Treasury that it had "no

intention, in the event of future emergencies, of

repeating the procedure in this case " ; in other

words, that for the future it would be good.

Owing, however, to the very general nature of the

uses to which the Fund may be put, it is one which

needs careful watching on behalf of the scheme of

appropriation and of the rigidity of Parliamentary

control. It is surprising, for instance, to find that

in 1901-2 the Fund was made use of in anticipation

of a vote of Parliament to provide a sum of 40,000

for the Government of Crete, and again in 1911-12

and 1912-13 to provide 70,000 for the Persian

Government. Undoubtedly the payments to be

made were abroad; but with no less doubt they

were not of the sort for which the fund is intended

to provide, and its employment for the purpose by

the Foreign Office and the Treasury was an

innovation and an extension of the powers of the



We have now dealt with the system on which
the nation keeps its accounts, in all its essential
features. Before we leave it, it will be useful in
aid of memory to turn back, to strip off detail and
elaborations, and to arrange the bones of the
structure into a skeleton.

The departments prepare Estimates, setting out
what is to be done and the money to be spent in
doing it, and dividing the services and the grants
therefor into Votes.

Parliament considers and approves the Esti-
mates, Vote by Vote, grants the money needed for
each and appropriates it thereto, and provides for
the raising by taxation of the money which it has

The Revenue Departments collect the taxes foi
which Parliament has provided and pay them into
the Exchequer Account.

The Treasury and the Comptroller General
issue funds from the Exchequer Account to the
Paymaster General for the departments, according
to grants of Parliament for the Votes.

The departments spend the money through the
Paymaster General.

On March 2ist the Exchequer Account is
closed and a balance is struck of issues and

After an interval to allow outstanding orders to
be paid, Accounting Officers prepare Appropriation
Accounts, showing how the money granted for each
Vote has been spent.

The Appropriation Accounts are audited by the

Auditor General, who reports upon them to the
Public Accounts Committee of the House of

The Public Accounts Committee reports on
the Appropriation Accounts to the House of

Thus the financial business of the year and the
accounts thereof begin and end in Parliament ; and
through the Treasury, Comptroller General,
Accounting Officers, Auditor General, and Public
Accounts Committee, the circle of Parliamentary
control is completed. And to that satisfactory con-
clusion we add a rider that the object and effect
of the control thus completed is to secure legality
in expenditure, and that legality therein is a very
different matter from economy. The control that
will secure economy is that which is exercised over
the vital process of the preparation of the estimates,
to prevent extravagance, and later over the practical
details of expenditure, to prevent waste ; and for
the exercise of that, Parliament has made express
provision for no such system as that by which it
secures legality. The work is done by the Treasury,
by the Estimates Committee struggling against
difficulties that so far it has found insuperable, by
the Auditor General in his administrative audit,
and by the financial branches of the departments
themselves ; but the authority under which they
do their work is derived more from custom and
established rules of practice than from Acts of

© Art Branch Inc. | English Dictionary