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

The System Of National Finance - IIa

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

objection is taken by the financial staff, it should
be in the power of no executive and spending
officer, except the minister, finally to overrule it.
Thus the position of the financial officers working
in connection with the executive branches of the
department should be that of ambassadors from
the financial chief; and the financial chief should
be the Minister's alter ego for economy. In this
way may be secured the greatest possible inde-
pendence in the internal and parallel financial con-
trol which is consistent with a necessity greater
than the necessity for economy, the necessity that
the work of the office should be got done. That pre-
eminent necessity is secured by the subordination


of the financial chief to the Minister. An absolute
power of veto, it must be recognised, he cannot
have, or a power of appeal to an external authority
such as the Treasury. By the first the public
service might be brought to a standstill. The
second might be the cause of infinite friction, and
would impair in the most undesirable manner the
responsibility of the actual spenders for economy
in their expenditure. There must be full responsi-
bility for expenditure in the department and its
minister ; but under the minister, the financial staff,
although dovetailed with the executive staff in
its daily work, should be independent of it in

The conditions for efficiency here described are
found at present best exemplified in the organisation
of the War Office and the Department of the Finance
member of the Army Council. The Principals,
Assistant Principals, and other officers of that
department work in and with the various executive
branches as representatives of their permanent
chief, the Assistant Financial Secretary ; and he,
under the Parliamentary Financial Secretary, is
in direct communication with the Secretary of
State. They help with advice and criticism in
the preparation of estimates, hammering the iron
in the interests of economy while it is still
malleable. In other departments the financial
staff has less to say to the executive work of the
office; it is confined more strictly to the work of
accounting and book-keeping, and is in consequence
of less use as an instrument of economy.

Finally, great as may be the influence of a
strong and well-organised departmental financial


staff, let us not exaggerate it, or suppose that it
can do much without the good will towards
economy of the supreme head of the office. It is
his watch-dog, and no more, and the best of watch-
dogs is of little worth if its master refuses to be
awakened by its barking. Unless the minister
realises that economy is the better part of effici-
ency, his financial staff is working at a lever
without a fulcrum. But even so it serves a pur-
pose of a sort. It makes him effectually respon-
sible for his decisions on questions of expenditure ;
it prevents him at least from running blindly into
extravagance at the bidding of the spenders.


Having calculated what it will have to spend
in the course of the coming year, the prudent state,
like the prudent householder, must calculate what
income it will have with which to meet its out-
goings. It must estimate its revenue as well as its
expenditure. For the plan of campaign to raise
revenue to meet the estimated expenditure the
Chancellor of the Exchequer and, under him, the
Treasury are responsible. The plan is called by
the familiar name of the Budget. Estimates of the
revenue to be derived in a coming year from
existing taxes and any proposed increases therein
or new taxes are prepared for the Treasury by the
Revenue departments. Their preparation is work
for those with expert knowledge and especially for
statisticians, and the greater part of it is done by
the Statistical Office of the Board of Customs and


Excise. There they have records of the yields of
all taxes for many years, which show their normal
rates of increase with growing wealth and popula-
tion, the effect of any change in rates, and that of
any special circumstances such as strikes, wars,
and unusual weather. By taking last year's yields
as a basis, adding or subtracting a normal amount
for the regular increases or decreases which the
records show to be in progress, and making a
correction for any abnormal disturbing influence
which it is possible to foresee, a very exact estimate
can be made of the revenue in the coming year.
Armed with that, the Chancellor knows as well as
man can know how he stands, and how he may
best meet the demands of the spending departments.


One great advantage of the' work done for
economy by the financial branch within an office
over that done from without is that, being done with
intimate knowledge of the needs of the executive
and in close personal contact with it under one
roof, it can be treated as a friendly help rather than
as a hostile check. Something of the latter element
must always enter into the external control of the
Treasury. It is inevitable that there should be
some institutional jealousy i between the spending
departments and the saving department over the
way. To reduce the friction as much as possible,
the sphere of Treasury intervention must needs be
defined by rules and limited to matters of first im-
portance, and those which lie within its special


sphere, such as scales of salary. An outside office
interfering unnecessarily in the details of the ad-
ministrative work of other offices would soon create
friction enough to bring the machine of government
to a standstill. Another mischievous effect which
it would have would be to deprive the actual
spenders of responsibility for their expenditure, and
to transfer it to a body without the means of
information or control necessary to enable it to
exercise that responsibility with efficiency.

The Treasury's province in financial control is
then, and ought to be, clearly defined. Within that
province, it may be repeated, its operations go on
all the year round by correspondence and daily
personal consultations with the departments, and
the decisions arrived at are embodied in the next
estimates. Its first and foremost function is to con-
sider and judge any proposal made by a department
which would have the effect of imposing a new or an
increased charge on the public purse. New charges
and changes of the sort divide themselves into two
chief classes. One includes charges for establish-
ments ; the other includes charges for grants, and
purchases. Over the latter class the control of
Treasury must in the nature of things be weak.
Grants of the larger size, such as education grants
and grants in relief of local taxation, are for the
most part fixed by special Acts of Parliament
and are thus removed from the sphere of the
Treasury's influence. Amongst purchases are in-
cluded such big affairs as the outlay for naval
construction, which are decided in principle in the
Cabinet, and over which the control of the Treasury
is thus reduced to a formality. Moreover, about


the expediency of fresh grants and fresh purchases
during the coming year the responsible executive
officers alone can have the knowledge necessary for
judgment. If somebody at the War Office says
that the future of the race depends on having Smith's
range-finders at ten guineas instead of Brown's at
five, who at the Treasury shall say him nay ?

In contrast with such affairs as these, the class
of establishment charges is that over which the
control of the Treasury and its influence for economy
are most close and efficient. Every change in the
organisation of the public service which involves a
present or future increase in the charge on the
public purse needs the assent of the Treasury. If
for instance a new post is to be created, or a salary
is to be increased, the Treasury must be consulted
and its assent obtained. That is perhaps the
Treasury's most characteristic activity. It is the
taskmaster of the servants of the state, charged with
the necessary but ungrateful task of requiring from
each a fair day's work for a fair day's pay. This is
however but a single instance of its general function
in financial control, which is to see that the rules of
financial order are kept by the departments of the
Civil Service, and that there is no negligence,
indolence, or obliquity in their observance by the
servants of the public. Other characteristic
instances of the functions performed by the Treasury
are its duty to see that no claim once advanced by
a department is abandoned, and that no stipulation
in any contract made on behalf of the state is waived
without its express permission. No payment, for
instance, may be made to a contractor in contraven-
tion or beyond the terms of a contract without



reasury sanction. In considering questions of
the sort the Treasury must of course be guided in
technical matters by the executive officers of the
department which makes an application for its
sanction ; but it adds to their special knowledge its
own special care for the interests of the public purse.
Suppose that the Admiralty, in its contract for the
construction of a warship, has stipulated that the
ship must pass certain trials before payment is made
for it, and suppose that it has changed its mind and
wants to accept the ship and to pay for it without
insisting on the trials : here there is a contract to be
varied, and the sanction of the Treasury is needed.
It is true that the Treasury cannot be expected to
judge the merits of the case and to have an expert
opinion whether the ship ought to be accepted with-
out the trials or not : but the need to obtain its
sanction in order to dispense with the trials serves
one good purpose : it secures that the Admiralty's
reasons for dispensing with them shall be placed on
record, and that they shall be at least good enough
to convince the ordinary and inexpert man that the
sole motive for dispensing with them is the public
interest. In general indeed the object of the
Treasury's control is not mere obstruction, it is not
to say " no " whenever " no " can be said, and to cut
down anything and everything. Rather is it a
means to secure that whenever a department sees
fit to take something in the nature of a financial
liberty its reasons for taking it shall be recorded
and that they shall seem good on the face of them
to an onlooker who is prejudiced, if at all, in favour
of economy. Day by day throughout the year the
Treasury is discussing and deciding questions of


this kind raised by applications from the depart-
ments. When the time for the preparation of the
estimates comes round, the increased charges which
it has allowed in its decisions are included in the
estimates, and those which it has refused are


It has already been observed that the form in
which the estimates are cast has a special im-
portance, because it is the foundation of the whole
system of public accounts for the year. Expen-
diture is accounted for according to the system
and the classification that are established in the
estimates considered by Parliament. Generally
speaking, the form of an estimate is that of a
double column. In the first a service is described ;
in the second the sum to be spent upon that service
is specified. The services are classified in groups,
called Votes. They are called Votes because each
group of the sort is made the subject of a special
vote of the House of Commons in Supply. Votes
are the units of the national accounts. In the Civil
Service estimates there are some 120. For con-
venience, sake they are grouped in 8 Classes of
Votes, and each vote is subdivided into numerous
Subheads of Account. Thus Class i of the Civil
Service estimates, headed "Public Works and
Buildings," consists of 17 Votes, beginning with
that for the Royal Palaces and ending with that for
the Palace of Peace at the Hague. Vote No. i,

1 An example of a Vote in the Estimates will be found in.
Appendix A.


Royal Palaces, is divided into n Subheads of
Account, specifying the sums to be spent on such
headings as Repairs, Police, Furniture, etc. In
the printed form of the estimates parallel columns
show increases or decreases in each item of ex-
penditure in comparison with those for the pre-
ceding year. For the Revenue Departments
there are separate estimates divided into three
Votes, one for the Board of Customs and Excise,
one for the Board of Inland Revenue, and one for
the Post Office. Each has its Subheads of
Account. Navy and Army estimates are based
upon the same unit, the Vote ; but there are fewer
Votes and they are altogether larger affairs. Navy
estimates are divided into about 15 Votes. There
is no grouping in classes as in Civil Service
estimates, but because of the size of the Votes
there are many more Subheads of Account in each.
In both Navy and Army estimates, before the
ordinary Votes of Account which estimate ex-
penditure and are numbered from i upwards,
stands a special vote called Vote A, which
estimates, not expenditure, but the number of
men to be required for the Navy and Army
respectively in the coming year. There are
plenty of summaries, explanations, comparisons,
and analyses bound up with each bookful of
Estimates ; but the essential feature of an Estimate
is that it consists of a series of Votes, each of
which specifies a service (or group of services) and
the amount to be spent upon it.

Changes in the form of the Estimates affect the
whole subsequent business of accounting through-
out the year ; and were changes to be made by the


departments too frequently, without notice, or in
an ill-considered manner, it would introduce great
uncertainty and confusion into the nation's accounts.
It would impede also the process of direct com-
parison with the estimates of preceding years, and
that is one of the most valuable safeguards of
economy. For that reason it is a rule that no
substantial change in the form of its estimates may
be made by any department without the previous
sanction of the Treasury.


For clearness* sake we must consider here a
certain special feature in the estimates, although
strictly speaking it is a matter rather of accounts
than of estimates. T? es are collected by the
great Revenue departments alone, but in addition
to that almost every other department receives
various small sums in the course of the year which
are paid to it as casual incidents of its administra-
tive work. Formerly the greater part of these
was paid by the receiving departments into the
Exchequer Account at the Bank of England. A
small part of them is still dealt with in that
manner. But in the belief that it is simpler and
more economical to use these funds where they
come to hand the departments are now, for the
most part, allowed to retain them and to appro-
priate them in aid of their expenditure. 1 Appro-
priations in Aid is the name which is given to
them accordingly. There is no absolute uniformity
in this matter. In the cases of the Admiralty and
Cf. Public Accounts and Charges Act, 1891.


War Office and most of the Civil departments the
whole of the minor receipts of the department are
thus appropriated. Minor receipts of a few of
the Civil departments are still paid straight into
the Exchequer Account. When estimating its
expenditure for the year, each department which
receives appropriations in aid has also to esti-
mate, Vote by Vote, what sums it will receive
in the course of performing the services included
in that Vote. Its estimated receipts are entered in
the Estimate for the Vote as a final subhead of
account under their name of Appropriation in Aid.
Estimated receipts are deducted from estimated
expenditure, and the balance is the sum to be
voted by Parliament.

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