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Limitations on Government Debt and Deficits in the United Kingdom

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Fiscal Rules - Limits on Governmental Deficits and Debt

Part of the book series: Ius Comparatum - Global Studies in Comparative Law ((GSCL,volume 20))

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Abstract

Control of taxation and of public expenditure is in principle a central function of the UK Parliament. However, the practical powers of Parliament are limited, especially in relation to borrowing and the planning of public expenditure. In the case of borrowing, there is some degree of scrutiny through the EU processes, and the creation of the Office for Budget Responsibility has greatly increased transparency. As regards expenditure, internal controls administered by the UK Treasury, in particular now through the process of the Spending Review, are in practice much more important than advance Parliamentary scrutiny.

A striking characteristic of the UK is the near-total absence of substantive legal constraints on the ability of central government to run deficits or increase debt. These currently take the form of provisions in the Charter for Budget Responsibility, but are not legally enforceable and remain largely symbolic.

Although the UK has privatised almost all its public enterprises it also has a variety of forms of extended government. Classification as public or private is complex and is the responsibility of the Office for National Statistics; it may have a substantial effect on the size of public debt. The financial autonomy of local government is severely limited. Scotland, after voting to remain part of the UK in September 2014, is being given substantial further taxation and borrowing powers, and further powers are being given to Wales.

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Notes

  1. 1.

    [1924] AC 318, 326–7.

  2. 2.

    See Daintith and Page, The Executive in the Constitution; Prosser, The Economic Constitution, chs 4–5.

  3. 3.

    Blackburn and Kennon, Griffith and Ryle on Parliament, 6–178. For detailed coverage of Parliamentary procedures on taxation see Erskine May, Erskine May’s Treatise on the Law, Privileges, Proceedings and Usage of Parliament, ch. 35.

  4. 4.

    See Jaconelli, ‘Tax Legislation, Forestalling and Economic Information’.

  5. 5.

    Finance Act 1998, s 156.

  6. 6.

    Brazier and Ram, The Fiscal Maze, para 3.7.

  7. 7.

    HM Treasury and HM Revenue & Customs, Tax Policy Making: A New Approach.

  8. 8.

    Office for National Statistics, Statistical Bulletin: Public Sector Finances November 2014.

  9. 9.

    I. Harden and N. Lewis, The Noble Lie, 95.

  10. 10.

    See European Commission, Communication from the Commission, Reinforcing Economic Policy Coordination.

  11. 11.

    Budget Responsibility and National Audit Act 2011, ss 3–9 and sch. 1.

  12. 12.

    See e.g. the Office’s Fiscal Sustainability Report 2012.

  13. 13.

    Office for Budget Responsibility, Working Paper No. 7: Crisis and Consolidation in the Public Finances, para. 6.34.

  14. 14.

    Blackburn and Kennon, Griffith and Ryle on Parliament, para. 6–178.

  15. 15.

    Brazier and Ram, The Fiscal Maze, para. 4.7.

  16. 16.

    Banking Act 2009, s 228.

  17. 17.

    Brazier and Ram, The Fiscal Maze, para. 2.4.

  18. 18.

    King, ‘The Justiciability of Resource Allocation’.

  19. 19.

    R v Secretary of State for Foreign and Commonwealth Affairs, ex part The World Development Movement Ltd. [1995] 1 All ER 611.

  20. 20.

    Harden, White and Hollingsworth, ‘Value for Money and Administrative Law’.

  21. 21.

    R (on the application of Luton Borough Council and Nottingham City Council v Secretary of State for Education [2011] EWHC 217 (Admin), [2011] BLGR 553.

  22. 22.

    La revisione delle spese (more usually, ‘La spending review’); Loi organique no. 2001/692 relative aux lois de finances du 1 août 2001 (LOLF); La revue générale des politiques publiques (RGPP), now replaced by the Comité interministériel pour la modernisation de l’action publique (CIMAP).

  23. 23.

    See HM Treasury, Stability and Investment for the Long Term, and Treasury Select Committee, ‘The New Fiscal Framework and the Comprehensive Spending Review’.

  24. 24.

    For the context see Prosser, ‘“An Opportunity to Take a More Fundamental Look at the Role of Government in Society”’.

  25. 25.

    516 HC Debs cols 949–965, 20 October 2010; HM Treasury, Spending Review 2010.

  26. 26.

    HM Treasury, Spending Round 2013.

  27. 27.

    Spending Review 2010, 7–9 and paras 1.18, 1.60, 1.76–7, 1.91.

  28. 28.

    Spending Review 2010, App. B; Equality and Human Rights Commission, Making Fair Financial Decisions.

  29. 29.

    See Treasury Committee, ‘Spending Review 2010’.

  30. 30.

    ‘The 2007 Comprehensive Spending Review: Prospects and Processes’, paras 96–100; ‘Spending Review 2010’, paras 33–8.

  31. 31.

    ‘Parliament and Government Finance: Recreating Financial Scrutiny’, paras 27–8.

  32. 32.

    ‘Parliament and Government Finance: Recreating Financial Scrutiny,’ para. 30.

  33. 33.

    HM Treasury, Alignment (Clear Line of Sight) Project, implemented by the Constitutional Reform and Governance Act 2010, ss 43–4.

  34. 34.

    See Equality and Human Rights Commission, Making Fair Financial Decisions; Public Administration Committee, ‘Strategic Thinking in Government: Without National Strategy’, para. 110.

  35. 35.

    See Prosser, ‘“An Opportunity to Take a More Fundamental Look at the Role of Government in Society”’.

  36. 36.

    Finance Act 1998 ss 155–6.

  37. 37.

    See e.g. Treasury Committee, ‘The 2006 Pre-Budget Report’, paras 27–39.

  38. 38.

    Darling, Back from the Brink, 268.

  39. 39.

    S 1.

  40. 40.

    HM Treasury, Charter for Budget Responsibility (March 2014 update).

  41. 41.

    Paras 3.1–3.3.

  42. 42.

    See George Parker, ‘Balls joins Osborne to vote for welfare cap despite trap claims’, Financial Times, 27 March 2014. The Parliamentary debate can be found at 578 HC Debs, cols 374–405, 26 March 2014.

  43. 43.

    Nottinghamshire County Council v Secretary of State for the Environment [1986] AC 240, per Lord Scarman at 250.

  44. 44.

    International Transport Roth GmbH v Secretary of State for the Home Department [2002] EWCA Civ 158, [2003] QB 728, para. 87. See also, in the context of the financial crisis, R (on the application of SRM Global Master Fund LP) v Treasury Commissioners [2009] EWCA 788.

  45. 45.

    European System of Accounts (ESA 95) and the accompanying Manual on Government Deficit and Debt (MGDD).

  46. 46.

    See C. Giles, ‘Britain’s official statistics are no longer to be trusted’, The Financial Times, 28 February 2013.

  47. 47.

    Office for National Statistics, UK National Accounts sector and transaction classification, para. 22.

  48. 48.

    ‘National Statistics: The Classification of Network Rail’, 2002–2003.

  49. 49.

    Office for National Statistics, Classification of Network Rail under European System of Accounts 2010.

  50. 50.

    See House of Lords Economic Affairs Committee, ‘Private finance projects and off-balance sheet debt’, esp. paras 92–101.

  51. 51.

    ‘Procuring New Trains’.

  52. 52.

    Public Sector Interventions in the Financial Crisis, para 1.5 (emphasis added).

  53. 53.

    Ibid.

  54. 54.

    For a general introduction to local government see see Leigh, ‘The Changing Nature of Local and Regional Democracy’ and, for more detailed treatment, Loughlin, Legality and Locality and Bailey, Cross on Principles of Local Government Law, ch. 12.

  55. 55.

    Localism Act 2011, s 72.

  56. 56.

    Local Government Act 2003, s 26.

  57. 57.

    Local Government Act 2003, s 26–9; see under earlier provisions Liverpool City Council v Ferguson, The Times, November 20, 1985.

  58. 58.

    For an account of these attempts, see Loughlin, Legality and Locality, 189–99.

  59. 59.

    Local Government Finance Act 1988 ss 114–115.

  60. 60.

    Local Government Act 1999, s. 15.

  61. 61.

    See National Audit Office, ‘Financial Sustainability of Local Authorities’, paras 3.33–42; Public Accounts Committee, ‘Financial Sustainability of Local Authorities’, 2012–2013.

  62. 62.

    See CIPFA, The Prudential Code for Capital Finance in Local Authorities.

  63. 63.

    Local Government Act 2003 s 4

  64. 64.

    Local Government Act 2003 s 6; see also Crédit Suisse v Allerdale Borough Council [1997] QB 306 and the Local Government (Contracts) Act 1997.

  65. 65.

    See in particular Hazell v Hammersmith and Fulham London Borough Council [1992] 2 AC 1, and for the general context Loughlin, Legality and Locality, ch 6.

  66. 66.

    Department for Business, Innovation and Skills, Cities’ economic power unlocked in radical power shift, Press Release 5 July 2012; HM Treasury and Greater Manchester Combined Authority, Greater Manchester Agreement: Devolution to the GMCA and Transition to a Directly Elected Mayor (2014).

  67. 67.

    See Tony Travers, ‘It is time to set London free to tax and spend its own money’, Financial Times, 16 May 2013.

  68. 68.

    For detailed description see the Scottish Parliament Information Centre, The Barnett Formula.

  69. 69.

    See House of Lords Select Committee on the Barnett Formula,’ The Barnett Formula’.

  70. 70.

    Scotland Act 2012, ss 23–33.

  71. 71.

    The Smith Commission, Report of the Smith Commission for Further Devolution of Powers to the Scottish Parliament, 23–7. Draft clauses to implement the changes are contained in HM Government, ‘Scotland in the United Kingdom: An Enduring Settlement’.

  72. 72.

    HM Government, Scotland Analysis: Financial Services and Banking.

  73. 73.

    HM Treasury, UK Debt and the Scotland Independence Referendum.

  74. 74.

    See Brazier and Ram, The Fiscal Maze (2006) 30–31 and the extremely useful summary of the process in Scottish Parliament Information Centre, Financial Scrutiny Unit Briefing: Guide to the Scottish Budget – Subject Profile.

  75. 75.

    See the recommendations of the Scottish Parliament Finance Committee, ‘Report on the Review of the Budget Process’.

  76. 76.

    Independent Budget Review Panel, Independent Budget Review 2010.

  77. 77.

    Scottish Parliament Finance Committee, ‘Budget Strategy Phase’; ‘Strategic Budget Scrutiny’.

  78. 78.

    Scottish Government, Scottish Budget; Draft Budget 2013–2014.

  79. 79.

    ‘Report on Draft Budget 2013–2014’.

  80. 80.

    See Brazier and Ram, The Fiscal Maze, 31.

  81. 81.

    HM Treasury and Wales Office, Empowerment and Responsibility: Devolving Financial Powers to Wales; Wales Act 2014 Part 2.

  82. 82.

    Leader, 7 March 2012. See also the criticisms of constitutional constraints on political decision-making from the ‘new constitutionalist’ school, e.g. Gill, ‘New Constitutionalism, Democratisation and Global Political Economy’.

  83. 83.

    For details see Buchanan and Dorf, ‘How to Choose the Least Unconstitutional Option’ and ‘Nullifying the Debt Ceiling Once and for All’.

  84. 84.

    See Office for National Statistics, 2013 Review of Public Sector Finance Statistics: Consultation Response.

  85. 85.

    For detailed analysis see Daintith and Page, The Executive in the Constitution, esp. pp 17–19.

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  1. University of Bristol Law School, Bristol, UK

    Tony Prosser

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  1. University of Minnesota Law School, Minneapolis, Minnesota, USA

    Fred L. Morrison

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Prosser, T. (2016). Limitations on Government Debt and Deficits in the United Kingdom. In: Morrison, F. (eds) Fiscal Rules - Limits on Governmental Deficits and Debt. Ius Comparatum - Global Studies in Comparative Law, vol 20. Springer, Cham. https://doi.org/10.1007/978-3-319-41205-4_11

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