Thursday, September 24, 2009

The evolution of parliament’s power of the purse

The finance of the country is ultimately associated with the liberties of the
country… If the House of Commons by any possibility lose the power of the
control of the grants of public money, depend upon it, your very liberty will be
worth very little in comparison. That powerful leverage has been what is
commonly known as the power of the purse – the control of the House of
Commons over public expenditure.
William Ewart Gladstone, 1891

How did parliaments come to exercise the budgetary roles they have today? Why do
they participate in the budget process in the first place? To answer these questions, and
as a background to the subsequent units, this unit provides a brief overview of some key
stages in the evolution of the role of parliament in budgeting. The following sections
look at the struggle to ensure parliamentary consent to taxation, how the rise of modern
budgeting helped parliament to control expenditures, and more recent developments
relating to the role of legislatures in budgeting.

The struggle for parliamentary control of taxation
The struggle to ensure consent to taxation was a central battlefield in the evolution of
parliament in medieval England. To guard against despotic royal rule, parliament sought
to limit the kings’ powers to impose taxes so as to curtail their ability to maintain a
standing army beyond times of war and immediate external threat (Harriss 1975). The
principle of parliamentary consent to taxation gained constitutional recognition when it
was enshrined in the Magna Carta – a list of concessions to the barons that King John
signed at Runnymede in 1215. But this agreement did not resolve the conflict over the
power to impose taxes, which continued to simmer throughout the following centuries.
Bitter contests between kings and parliaments in the seventeenth century precipitated
procedural innovations that advanced parliamentary control of state finance. In
particular parliament’s increasing use of a committee of the whole House brought
several advantages, due to the fact that the procedures of committees applied for such
deliberations, rather than the standard rules. This allowed the Commons to appoint their
own chairperson, which reduced the influence of the Speaker, who at the time was
generally regarded as aligned with the monarch. The committee procedure also allowed
each member to speak more than once and thus facilitated much freer debate. It
became easier for the Commons to delay passing the bill to grant subsidies to the crown
until the end of a session, a tactic that afforded time to extract concessions from the
monarch. But clever procedural devices were not enough to establish parliamentary
supremacy over taxation.
A crucial shortcoming of parliamentary control was that it did not extend to royal
borrowing on the monarch’s personal credit. After Charles II claimed the throne in 1660
parliament started to demand estimations of cost before voting money to be granted to
the king, who claimed to get short shrift. To evade expenditure control, a popular royal
tactic was to resort to borrowing and hope that parliament would later consent to the
raising of funds to repay such loans. But this practice was not sustainable when
parliament refused to oblige. In 1672 the government in effect declared the only state
bankruptcy in British history when payments on loans from City bankers were
suspended initially for twelve months, which was later renewed repeatedly. Only after
1688 was executive borrowing tied to parliamentary consent, which restored trust with
lenders and ensured large-scale access to finance over the following centuries.
The Glorious Revolution of 1688 brought a decisive victory for parliament, and it is a
landmark in the evolution of its financial role. The 1689 Bill of Rights captures the
outcome of the struggle. Most importantly, it firmly established the principle that only
parliament could authorize taxation by proclaiming ‘That levying money for or to the use
of the Crown by pretence of prerogative, without grant of Parliament, for longer time, or
in other manner than the same is or shall be granted, is illegal.’ Still, at this stage there
was still no such thing as an annual budget, and there was no comprehensive control of
Before the revolution the royals freely mingled public and private income. Following the
revolution parliament made a life-long grant to the king to cover expenditures on the
civil list and the monarch in turn relinquished control over most of his hereditary
revenues. Originally, the list was intended to cover the financial requirements of the king
and his household as well as the expenditure of the central civil government excluding
debt charges. Expenditure items for civil administration were gradually transferred from
the list to the supply services and, later, the consolidated fund, in a process that lasted
until 1830. The creation of this list was the first step towards the separation of public
and royal expenditures.
Paradoxically, in these early days of growing financial control by the Commons one can
also find the origin of limitations on parliament’s budgetary powers. Given the political
dynamics of the time, it made little sense for parliament to volunteer money to the
crown. The Commons proceeded to resolve in 1706 ‘That this House will receive no
Petition for any sum of Money relating to public Service, but what is recommended from
the Crown.’ The financial initiative of the crown has been enshrined in the standing
orders since 1713 and this limitation on parliament’s power of the purse is considered an
essential constitutional principle to this day. Therefore, while the British Parliament was
at the forefront of claiming budgetary rights, it was also the first parliament to
voluntarily restrict its powers to introduce and amend financial legislation (Inter-
Parliamentary Union 1986, p. 1093):
Parliament still respects this long-standing custom and practice and, as a result,
it may not vote sums in excess of the Government’s estimates. Consequently, the
only amendments that are in order are those which aim to reduce the sums
requested and have as their purpose the chance for Members to raise
explanations before the sums in question are approved.
After the Glorious Revolution, it was not long before parliamentary control over taxation
spread beyond Britain. Parliament proved to have a short memory for the passions that
could be incited by unilateral imposition of fiscal measures. As imperial finances were
exceedingly stretched by the task of protecting vast colonial territories, parliament
sought to force the inhabitants of the empire’s North American possessions to contribute
towards the defense of the territory. In 1765 it ordered the imposition of a tax on a
stamp affixed to a range of documents including newspapers and playing cards. This
gave rise to great discontent in the colonies, and led to a boycott of British goods by the
colonialists. Despite a partial retreat by parliament, which abolished the ‘stamp tax’ and
several other duties, the continued imposition of a duty on tea was sufficient to provoke
unrest and ultimately led to the war of independence. At the First Continental Congress
in 1774 delegates from the colonies rejected ‘every idea of taxation, internal or external,
for raising a revenue on the subjects in America, without their consent.’

The rise of modern budgeting
Parliamentary control remained incomplete as long as governments continued to enjoy
wide discretion in expending public revenues. Without detailed knowledge of
expenditure needs, requests for funds could not be properly evaluated. Following the
Glorious Revolution, it took the Commons two further centuries to put in place a
comprehensive system of expenditure control. There were some interim achievements,
notably the creation of the consolidated fund in 1787. But the development of modern
budgeting practices in the United Kingdom had to wait until the Gladstonian reforms in
the second half of the nineteenth century.
By the beginning of the nineteenth century, the United States Congress already
constrained executive discretion through detailed line item appropriations that
prescribed the exact use of authorized expenditures, for instance by setting strict limits
on specific expenses such as firewood and candles in particular offices. This tradition
has its origins in colonial times, when legislatures were distrustful of British rule and
invested much effort in scrutinizing administrative expenditures. The colonialists were
suspicious of governors they did not appoint and who were regarded as agents of the
king in distant Britain. They thus devised stringent and humiliating control mechanisms
including the annual voting of salaries, detailed specification of the object of spending
and the amount to be spent, and the reversion of unspent funds to the treasury at the
end of the fiscal period. This advanced level of congressional scrutiny of expenditures
was exceptional compared with other countries at the time.
In Europe, France was first in developing modern expenditure control mechanisms
based on reforms of state audit during the first half of the nineteenth century. Napoleon
put in place the institutional fundamentals of modern public audit when he created the
cour des comptes in 1807. In the initial years following the creation of the court the
benefits of the new audit system for the French National Assembly were marginal. To
ensure effective reporting to the assembly, the publication and distribution of audit
reports was made a legal requirement in 1832. The assembly also gradually broadened
its control over the approval of expenditures until the specification of detailed items of
expenditure for each ministry became a legal requirement in 1831. By the middle of the
nineteenth century, France had put in place many of the elements that are associated
with modern budgeting, notably a comprehensive budget encompassing all of the
activities of government, a standard fiscal year, the principle of annual authorization,
and a developed system of accounting and audit control.
Control of expenditures evolved differently in the United Kingdom. Parliament
appropriated money many centuries before the use of budgets became common. A first
known instance of parliamentary appropriation dates back to the fourteenth century,
when a grant to the Edward III was explicitly earmarked for ‘the Maintenance and
Safeguard of our said Realm of England, and on Wars in Scotland, France and Gascoign,
and in no places elsewhere during the said Wars’ (Einzig 1959, p. 79). Particular sources
of revenue were also frequently tied to specific expenses in order to exercise some
control over royal spending. However, parliamentary oversight of expenditures remained
patchy and incomplete. An important improvement was the creation of the consolidated
fund in 1787 for the purposes of collecting revenues and disbursing all monies for the
supply of public services, which ‘broke the disorder caused by assigning particular taxes
to special purposes and it provided the means of infinite expenditure control through
comprehensive appropriation schedules’ (Reid 1966, p. 57). But full expenditure control
had to wait until the rise of modern budgeting.
The decisive steps towards modernization of public finances in the United Kingdom are
inextricably linked to William Ewart Gladstone, who first became Chancellor of the
Exchequer in 1852. Gladstone was determined to force greater economy in public
finance and introduced reforms in the 1860s that made annual and comprehensive
estimates central to legislative oversight. In 1861 the Commons, based on the initiative
of Gladstone, resolved to establish a public accounts committee to examine the accounts
showing the appropriation of the sums granted by parliament for public expenditure.
The Exchequer and Audit Departments Act of 1866 required all government departments
to produce appropriation accounts for audit purposes. The act also created the
comptroller and auditor general by merging the ex ante function of authorizing the issue
of money to departments with a new ex post function of examining every appropriation
account and reporting the results to parliament. The committee developed a high
standard of scrutiny and contributed significantly to rapid improvements in the
disclosure of financial information in the following decades (Chubb 1952).
In the United Kingdom a final step towards the democratization of the budget was taken
when the hereditary chamber, the House of Lords, was stripped of its veto power over
financial legislation. The elected House of Commons considered the Lords unable to
amend tax and spending bills by the end of the seventeenth century. The formal
removal of remaining veto power was triggered by the dramatic struggle over the 1909
budget of Chancellor Lloyd George, who sought increased tax revenues in order to pay
for pensions and defense expenditures (Porritt 1910). When the Lords rejected the
entire Finance Bill, this prompted the passing of the Parliament Act of 1911, the purpose
of which was to debar the Lords from rejecting money bills – legislation strictly related
to taxation, borrowing or appropriations. Since then, the supremacy of the elected
chamber has been firmly established. Budgetary bicameralism of various forms
continues in countries where second chambers of parliament have democratic

More recent developments in legislative budgeting
Parliamentary fiscal power in the United Kingdom was at its peak in the second half of
the nineteenth century, when the Commons frequently amended spending and revenue
proposals (Einzig 1959). The spread of parliamentary democracy since the nineteenth
century ensured that the principle of parliamentary authorization of taxation and public
expenditure became a constitutional fundamental across democratic countries. However,
from a long term perspective the influence of national legislatures on budget policy
making has declined in most industrialized countries (Coombes 1976). The budgetary
decline of parliament is perhaps most evident in the United Kingdom, where the House
of Commons ceased to amend estimates almost a century ago.
Several developments contributed to reducing the budgetary activism of parliaments
(Schick 2002). The emergence of disciplined political parties has reigned in legislative
independence. Devolution of spending, and to a lesser extent of revenues, has chipped
away at the comprehensive control of public funds by national legislatures. In addition,
the massive expansion of entitlement spend in the twentieth century has substantially
rigidified budgets and commensurately decreased the remaining margin for active
legislative engagement in annual budgets. With the growth of public spending and the
increasing complexity of public finances, the executive budget proposal became the
standard against which legislative action was measured.
But the decline of parliamentary power over budgets is not universal. There are signs
that some parliaments are attempting a budgetary comeback. In France, for instance,
the National Assembly recently initiated a wide-ranging set of budget reforms. The
resulting changes include a reclassification of the budget in order to support
parliamentary oversight and an expansion of powers to amend expenditures (Chabert
2001). In developing and transition countries, a substantial number of legislatures are
moving towards budgetary activism. Perhaps the primary reason for this development is
that democratization and constitutional change have opened up possibilities for
legislature participation in many previously closed systems. A good example is the
Brazilian Congress, which historically played no significant role in the budget process.
Democratization in the 1980s led to constitutional changes that gave Congress powers
to modify the budget and have resulted in substantial levels of activism (Blöndal et al
In addition, there has been a recent shift in international financial institutions and donor
agencies towards participation in setting development goals and strategies. Developing
countries are now asked to access international finance on the basis of comprehensive
poverty reduction strategies that are meant to be compiled through an in-country
participative process. This shift is linked to renewed interest by the international donor
community in the quality of the budget process and the governance of the budget for a
variety of reasons, in particular the realization of the failure of conditionality in
development lending and evidence on the effectiveness of aid. This provides an
opportunity for legislatures in poor countries to reengage with development policy and
budgets (Stapenhurst and Pelizzo 2001).

The budgetary role of democratic legislatures is the outcome of a centuries-long
struggle for supremacy in public finance. Historically, parliaments first gained the right
to consent to taxation, and gradually they devised mechanisms to control the
expenditure of public funds. Modern budgets came to aid comprehensive legislative
oversight. Legislatures today exercise varying levels of budgetary influence. While some
parliaments have become less active in budgetary matters, others have maintained a
strong role in the budgeting process. Democratization and constitutional reform provide
opportunities for new parliaments to actively define an appropriate budgetary role.

Relevant internet resources
Bill of Rights (1689)
British Broadcasting Corporation:
A to Z of Parliament
California Department of Finance:
Development of Modern Budgeting
Magna Carta (1215)

Unit 1 Questions
Please answer each of the following questions. If you are taking this course in a
group you may then meet to discuss your answers.
􀂃 Why did Gladstone say that ‘the finance of the country is ultimately associated
with the liberties of the country’?
􀂃 Taking your country as an example, how would you describe the development of
legislative financial scrutiny over time? What factors have influenced this

Select bibliography
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Senior Budget Officials, Rome, Organisation for Economic Co-operation and
Chabert, G. (2001). ‘La Réforme de l'Ordonnance de 1959 sur la Procédure
Budgétaire: Simple Aménagement Technique ou Prélude à des Véritables
Bouleversements?’ Regards sur l'Actualité (275): 13-25.
Chubb, B. (1952). The Control of Public Expenditure: Financial Committees of the
House of Commons. Oxford, Clarendon Press.
Coombes, D. L., Ed. (1976). The Power of the Purse: The Role of European
Parliaments in Budgetary Decisions. London, George Allen and Unwin.
Einzig, P. (1959). The Control of the Purse: Progress and Decline of Parliament's
Financial Control. London, Secker and Warburg.
Ferguson, E. J. (1961). The Power of the Purse: A History of American Public
Finance, 1776-1790. Chapel Hill, University of North Carolina Press.
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1369. Oxford, Clarendon Press.
Inter-Parliamentary Union (1986). Parliaments of the World: A Comparative
Reference Compendium. Aldershot, Gower.
May, E. (1997). Treatise on the Law, Privileges, Proceedings and Usage of
Parliament. London, Butterworths.
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Premchand, A. (1963). Control of Public Expenditure in India: A Historical and
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Schick, A. (2002). ‘Can National Legislatures Regain an Effective Voice in Budget
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