WRITTEN SUBMISSION FROM ORGANISATION FOR ECONOMIC CO-OPERATION AND DEVELOPMENT (OECD) (CBC 05)

Introduction

Effective scrutiny by the legislature is a fundamentally important national concern, lying at the heart of issues such as transparency, inclusiveness and democratic accountability. In particular, the budget and associated estimates are central policy documents of government, showing how resources are going to be raised and allocated to achieve stated objectives. The OECD believes that an effective role for the legislature is a key ingredient in establishing and maintaining fiscal discipline, while providing a necessary link with civil society and fostering accountability by the executive (Blöndal 2003).  The OECD Recommendation on Budgetary Governance (2015) states:

“the national parliament has a fundamental role in authorising budget decisions and in holding governments to account”

and that governments should:

“provide for an inclusive, participative and realistic debate on budget choices, by offering opportunities for the parliament and its committees to engage with the budget process at all key stages of the budget cycle, both ex ante and ex post as appropriate”.

Across the OECD, each country has developed its own traditions, customs and procedures for parliamentary scrutiny in relation to government estimates. In general, a weak ex ante oversight tradition is observed in the UK relative to other OECD countries.  This is evidenced in the “Index of Legislative Budget Institutions” (Wehner 2010), a composite metric that compares legislative budget capacity across countries based on a range of objective criteria. The Index shows the UK and other countries with “Westminster-style” parliaments at the lower end of the scale.  In these countries, the government tends to have primacy, to the point of dominance, in budgetary matters.

However, there has been some momentum for reform observed, encouraged by various UK Parliament committees (such as the Liaison Committee and its 2008 report named “Recreating Financial Scrutiny”) as well as the 2011 Leigh-Pugh report commissioned by the then Chancellor of the Exchequer. Action to date includes the Treasury’s “Alignment Project” designed to reduce the differences between information presented in Spending Reviews, departmental budgets, Estimates and departmental Resource Accounts, so as to provide improved opportunities for scrutiny of departments’ finances. Another important development has been the reform of Estimates Day Debates, as recommended by the Procedure Committee’s 2017 report “Authorising Government expenditure: steps to more effective scrutiny”, to allow for debate on spending within particular Estimates, as selected by the Backbench Business Committee. In order to continue this momentum, the OECD welcomes the Procedure Committee’s inquiry into the “Should there be a budget committee?” 

The views expressed in the OECD submission are based on lessons and best practices drawn from OECD Member country experiences. In particular, we draw from our experience conducting OECD Budget Reviews as well as more specific projects such as the OECD Review of Budget Oversight by Parliament: Ireland (2015). Our submission is also informed by the OECD’s long and extensive involvement in public finances, including the annual meetings of the OECD Network of Senior Budget Officials and the OECD Network of Parliamentary Budget Offices and Independent Fiscal Institutions. Many discussions at these meetings have specifically focused on the core issues involved with budget oversight and spending authorisation and have been translated into OECD Principles of Good Budgetary Governance (2015), the OECD Best Practices for Budget Transparency (2002) and OECD Draft Best Practices for Parliamentary Budget Oversight (2017).

Topic 1: The requirement for a budget committee

Question: Whether a dedicated budget committee to examine Government spending plans for economy, effectiveness and efficiency is desirable

Parliamentary committees are the engine of a legislature and play an important role in the consideration of government spending plans. OECD best practice is for the legislature to maintain a Budget Committee with overall responsibility for budget scrutiny. In particular, budget committees are a useful forum for focused, in-depth scrutiny and effective engagement with how public money is proposed to be spent. Committee members can build up specialised knowledge of budget-related topics, and the committee itself can sustain an informed dialogue with government ministries and agencies throughout the annual budget cycle, and from year to year. In addition to serving as key democratic forum in its own right, a budget committee may also benefit from inputs directly from citizens, civil society bodies and independent experts, who can contribute to an inclusive, informed parliamentary discussion on budget-related issues.

Across the OECD there are a number of different ways in which the committee system is set up for oversight of the budget approval process, as set out in Figure 1. It shows that in the majority of OECD country legislatures, a budget committee exists as a key tool providing for in-depth budget scrutiny. The UK Parliament is the only national legislature across the OECD where there is no formal committee involvement in the budget approval process.

The establishment of a budget committee is a crucial step to facilitate a more effective role for the UK legislature in budget oversight and would bring the UK Parliament in line with international norms. However, the establishment of a budget committee would not on its own be sufficient to ensure oversight of government spending plans for economy, effectiveness and efficiency. For budget oversight by parliament to be on a par with international norms, this development would need to be accompanied by more significant changes to the budget approval process, for example, the timing of the Estimates process and the amendment powers of Parliament. This would allow parliamentarians to be in a position to influence and critique budget allocations and priorities, making budgetary debate and discussion in the UK more realistic, informed and effective.

Figure 1: The role of budget committees in the budget approval process across OECD countries

Source: OECD Parliamentary Budgeting Practices Survey 2018

Notes:

Ireland: There is a Committee for Finance, Public Expenditure and Reform and Taoiseach and a Committee on Budgetary Oversight. The Finance Committee considers the legislation that gives legal effect to the tax measures arising from the budget (i.e. Finance Bill). Sectoral committees consider the allocations for the specific Department(s) or Offices of State under their remit. The Budget Committee has no formal role in approving the Budget but does scrutinise specific aspects of budgetary policy at its own initiative.

New Zealand: The Finance and Expenditure Committee (FEC), the equivalent of both a Finance and Public Accounts Committee, allocates aspects of the Budget to subject select committees for consideration and also examines the appropriations within its own jurisdiction. The FEC and subject select committees then report directly to the House. The FEC does not formally examine the total level of revenue and spending and their allocation to each sector. However, it does scrutinise the Half-Year Economic and Fiscal Update, and towards the end of the calendar year the Crown accounts for the previous financial year.

Question: What would be the potential outcomes for the House and for the Government of detailed scrutiny of multi-annual Spending Review and annual Estimates plans

An effective budget committee has the potential to enhance accountability for how money is spent and facilitate fiscal discipline for the government. However, the existence of the committee is not sufficient to bring about these outcomes. A number of factors impact on the committee’s influence in the budget process. These include, but are not limited to, when budget documentation is laid before parliament, comprehensiveness of the budget documentation that it receives; the legislature’s amendment powers; the time available to scrutinise the budget; the timing of budget approval; committee organisation; and analytical capacity. An effective budget committee depends on the balance between these factors. In the UK context, an inter-connected, and mutually supporting, series of actions – which include the establishment of a new budget committee - has the potential to enhance the Parliament’s role in the budget process and, as a result, to improve the evidential basis and quality of budgetary policy development, decision making and accountability.

An external review of the budget committee after its initial years of operation would allow the UK Parliament to take stock of whether or not these outcomes are being realised, and how parliamentary budget oversight has evolved as a result of its establishment.

Question: What the scope of a budget committee’s activities should be, and what it should be expected to report on

The scope of budget committee’s activities varies substantially across OECD country legislatures. It is influenced by factors such as the style of parliament, the nature of the budget process, and the role of other committees.

It is very important that any new committee is given a clearly defined role that is distinct, and adds value, to existing committees. In the UK context, this includes the Treasury Select Committee, the Public Accounts Committee and departmental select committees.

The Treasury Select Committee is responsible for oversight of the overall fiscal framework and the government’s fiscal stance, as well as tax measures proposed in the annual budget and proposed expenditure relating to HM Treasury, HM Revenue & Customs, and associated public bodies. The Public Accounts Committee ensures oversight of the government’s annual accounts as well as the value for money of government spending. Departmental select committees are responsible for oversight of proposed expenditure of departments and bodies under their jurisdiction, as well as the performance of these bodies. However, in practice the quality of the select committee work in this area varies greatly and, lacking a co-ordinating mechanism, select committees rarely conduct specific inquiries on the Estimates or examine Ministers or officials on details of Estimates, nor do they tend to propose to have expenditure reduced.

It would appear that there is an opportunity for budget oversight at the UK Parliament to be strengthened if a new budget committee was established to oversee parliamentary scrutiny of Estimates and coordinate scrutiny across departmental select committees. Strong co-ordination from the budget committee, combined with specialised inputs from sectoral committees, would support stronger committee involvement in the budget process as a whole across the UK Parliament. The majority of parliaments in OECD countries have opted for budget committees characterised in this way (examples from Germany and Sweden are provided in Box 1). A strong budget committee promotes co-ordination and consistency in legislative budget action and facilitates fiscal discipline, while involving sectoral committees allows the legislature to draw on their specific expertise when reviewing departmental spending plans.

A key challenge for the new budget committee would be that, without changes to the timing of the budget process in the UK, it would be examining Estimates after the start of the fiscal year[1]. Committee members may struggle to see a purpose to the committee’s work if oversight cannot impact how money is allocated. There are a number of activities that could be undertaken by the budget committee in order to give it a more meaningful role and to incentivise member engagement.

Firstly, a notable feature of the budget process in the UK is that key spending decisions are often made at the time of multi-annual spending reviews. Giving the budget committee scope to input into the spending review process, has the potential to improve the evidential basis and quality of the spending review, decision making and accountability. This could be done, for example, through the committee calling witnesses and making recommendations to government on relative spending priorities.

Similarly, giving the budget committee scope to provide ex ante parliamentary input on annual budget priorities in the form of pre-budget consultations and a pre-budget report could improve the evidential basis and quality of budget formulation. The budget/finance committees in other Westminster-style parliaments, such as Canada and Ireland, engage in similar activities.

Lastly, the committee could have the scope to consider performance information presented by government departments alongside spending plans, and to coordinate scrutiny of this across Departmental Select Committees[2]. Outputs from this examination could feed into, and improve the evidence for, Select Committee scrutiny throughout the year. It could also change the culture of parliamentary budget debate to focus more on value for money and outcomes, as witnessed in Austria (see Box 2).

To summarise, the scope of a new budget committee’s activities could be to:

• Oversee parliamentary scrutiny of Estimates and performance information presented alongside the Estimates, and coordinate scrutiny across select committees.
• Provide ex ante parliamentary input into spending review and budget formulation processes.

Topic 2: The operation of a budget committee

Question: How such a committee ought to discharge its responsibilities

The way in which a committee discharges its responsibilities underpins its ability to effectively deliver its accountability function. Drawing on international experience, the following elements may wish to be considered:

• Opposition member chair: A number of OECD legislatures recognise the benefits that can be gained from chairing of the budget or audit committees by an opposition member. This practice is observed in OECD countries such as France (where it is enshrined in law) as well as Germany, Portugal, Spain and Hungary (where it is enshrined in convention). At the UK Parliament, the Public Accounts Committee is chaired by an opposition member and the Treasury Select Committee is chaired by a government member. Chairing of the new budget committee by an opposition member can show the willingness of the government to promote independent scrutiny.

• The power to summons: The legislature and its committees should have the power to compel persons to testify and to access to any information that it needs to undertake its duties. This power underlines a committee’s accountability function. An OECD survey found that it is common practice for committees to have the power to summon papers and records from the executive as well as Ministers, government officials and civilians (OECD 2011). The new budget committee should have the power to summons in line with other UK Parliament committees, such as the Treasury Select Committee which has the power to send for “persons, papers and records”. 
• Use of outside experts: Legislators need to understand the contents of the budget if they are to play a meaningful role in the budget process. An OECD Survey found that almost all OECD countries committees have the right to consult outside advice. Half also have the right to employ outside experts (OECD 2011). Allowing the new budget committee to consult or employ outside experts may serve to enhance its effectiveness and help redress the capacity imbalance between the legislature and the executive.

• Transparency and openness: Parliaments play a critical role in promoting transparency and accountability on the part of the executive. At the same time, they too must work in a transparent manner and be accountable to the electorate on an ongoing basis. It is common practice for OECD legislatures to open committee meetings to the public or to broadcast committee meetings via television or the internet. The vast majority of OECD legislatures also publish committee reports (OECD 2018). Open proceedings and publishing of committee reports – in line with the practices of other committees at the UK Parliament - will increase the likeliness of media reports on the work of the new budget committee, which may in turn generate wider public debate and help ensure responsiveness on the part of government officials.

Question: The composition of a committee and its relationship with existing departmental select committees

Across the OECD, the general trend appears to be a dominant Budget/Finance Committee responsible for budget review which coordinates varying levels of input from sectoral committees. Ideally a strong Budget/Finance Committee promotes coordination and consistency in legislative budget action and facilitates fiscal discipline, while involving sectoral committees allows the legislature to draw on their specific expertise (Posner and Park, 2007; Schick, 2002).

This coordination can be facilitated through linkages between the budget committee and sectoral committees. Having a committee member representing each Departmental Select Committee may render the budget committee disproportionately large relative to other committees at the UK Parliament. However, there are other ways of facilitating coordination and cooperation between a budget committee and sectoral committees. For example, the budget committee could occasionally coopt members who have specific sectoral skills or expertise needed, or it could operate a rapporteur system, as is the case in Germany and Italy (see Box 3).

Question: The scope for innovative methods of operation, e.g. functioning partly as a general committee to facilitate detailed debates on selected estimates

• No comment

Topic 3: Relations with existing mechanisms

Question: How a budget committee could operate alongside departmental select committees

The new budget committee’s role relative to the departmental select committees must be clearly defined to avoid tensions developing and minimise duplication of effort.

If the budget committee is to align with international trends, then it would have a lead role in the scrutiny of Estimates, but would also coordinate varying levels of input from Departmental Select Committees. An international example is provided in Box 4.

If the new budget committee was to use the Swedish example as a general blueprint, departmental select committees would be encouraged by the new budget committee to publish a report on the Estimates within their jurisdiction. The budget committee could then use these reports, and its own scrutiny, to provide a coordinated report on the Estimates. In Sweden, this report feeds into the budget approval process at Parliament. The Estimates would need to be published earlier in the UK for scrutiny by the budget committee to feed into budget approval. However, within the existing UK budget calendar, this report could be debated on the floor of the House as part of the recently reformed Estimates Day Debates, and used to inform the House vote on the Estimates in July.

Question: How a budget committee could operate alongside the Public Accounts Committee and the work of the National Audit Office

In many countries, the Budget Committee establishes a special relationship with the Public Accounts Committee. This interaction is very important as the latter usually monitors the implementation of the budget, including the office of the Auditor-General. Where the two committees work closely together, effective oversight strengthens the ability to change the budget. Where the work of the two committees is not well integrated, the system may achieve strong oversight without being able to translate this capacity into budgetary changes. In Germany, the important Public Accounts Committee is a sub-committee of the Budget Committee. This means that expenditure authorisation and monitoring decisions are uniquely integrated in a single committee. Detailed knowledge of spending and incidence patterns gathered through this subcommittee helps to ensure the accuracy and relevance of the amendments suggested by the broader Budget Committee.

In the UK, there is currently a very weak link between public accounts and the budget process. The Public Accounts Committee is strong and resourced but there is limited mechanism to feed this expertise into the budget process itself. The establishment of a budget committee with strong links to the Public Accounts Committee provides an opportunity for the work of the National Audit Office to become part of the Estimates process. One way in which these strong links can be established and maintained is through holding a permanent position on the budget committee for a member from the Public Accounts Committee.

The relationship between the budget committee and the Treasury Select Committee should also be carefully managed. For example, the budget committee should be careful that its work does not stray into Treasury Committee work on budget aggregates, even if this is the core function of many budget committees across the OECD. To ensure that tensions between the committees do not develop, it may also be useful to also hold a permanent position on the budget committee for a member of the Treasury Select Committee.

Topic 4: Support for a budget committee

Question: What resources would be required to provide effective support for a committee of this nature

Most budget committees in OECD countries have access to several sources of technical capacity for budget analysis. Committee staff is perhaps the most commonly available resource; however, the number of staff available to assist the Budget/Finance Committee in undertaking specialised analysis of the budget and related matters varies widely. Brazil, France and the United States report specialised committee staffs above 20. However, on average OECD budget committees are supported by around seven specialised staff.

OECD best practice suggests that the legislature should have specialist analytical support in the form of an in-house scrutiny unit or an independent parliamentary budget office to provide technical, expert and non-partisan analysis of fiscal policy and the proposed budget.

The House of Commons Library, while providing a valuable service to Members, provides relatively little analytical support in relation to Estimates. However, the House of Commons has a specialist analytical unit located within parliament in the form of the House of Commons Scrutiny Unit. The Scrutiny Unit provides support to committees during their consideration of the Estimates.

The House of Commons Scrutiny Unit presently has five staff working on finance matters. It is likely that the set-up of a new budget committee would put extra demands on its services. Information on staffing levels at OECD PBO’s compared to the finance team at the House of Commons Scrutiny Unit is provided in Table 1.

Table 1. Staffing in OECD PBOs compared to the House of Commons Scrutiny Unit

Source: OECD IFI Database (2018).

Question: The desirability of appointing a Parliamentary Budget Officer and establishing an office to support the work of the committee

There is a trend among OECD country legislatures (and legislatures globally) to establish specialised units to assist with budget related research and analysis, particularly analysis of the executive's budget proposals, cost estimates of proposed policies and legislation, economic forecasts, baseline estimates, analysis of the economic impact of regulations, tax analysis, and policy briefs. In the past decade, the number of such units has more than doubled, and many are increasing in size.

Such units now exist in a wide variety of countries such as the United States, Canada, Australia and Italy. Even in “Westminster-style” parliaments, where scrutiny is often constitutionally and procedurally constrained, the provision of an analytical unit has been shown to strengthen budget scrutiny.  Most recently (2017), the Irish Parliament decided to establish a Parliamentary Budget Office which now employs 13 staff.

The strength of these units in promoting greater budgetary oversight lies in large part in its design and governance arrangements. The OECD Principles for Independent Fiscal Institutions (2014) aim to assist countries to design an effective enabling environment for these units, while codifying lessons learned and good practices that are firmly grounded in the experience of practitioners to date.

Any office to support the work of the budget committee at the UK Parliament should build on the existing structures at the UK Parliament. For example, staff at the House of Commons Scrutiny Unit already provide support to committees during their consideration of the Estimates. Instead of setting up a new parliamentary budget office, a strengthened mandate for the Scrutiny Unit, giving a clear role in relation to the budget committee and greater independence to undertake work at its own discretion, would ensure parliamentarians have access to the specialist support needed for effective budget scrutiny.

The ability of the House of Commons Scrutiny Unit to effectively support the budget committee could also be enhanced if it is given improved access to information. Over three quarters of independent fiscal institutions in the OECD have access to information secured either by legislation or a Memorandum of Understanding with the government. To underpin the House of Common’s Scrutiny Unit’s ability to support the work of the budget committee, access to information should at least be formalised through Memoranda of Understanding with relevant government stakeholders.

In the longer-term, more significant reforms to budget oversight by the UK Parliament might be supported by the House of Commons Scrutiny Unit developing into a Parliamentary Budget Office with independent legislation.

Question: The use a dedicated committee could make of Government annual reporting and accounting documentation, under the Clear Line of Sight initiative

The OECD Best Practices for Budget Transparency (2002) state that “Parliaments should have the opportunity and the resources to effectively examine any fiscal report that it deems necessary.”  In particular, the provision of expert support to parliamentarians is considered in the budget literature as being a useful tool for improving scrutiny. 

The Clear Line of Sight initiative has helped make the Estimates publication more logical for parliamentary oversight purposes. Since then, one of the recommendations of the Public Administration and Constitutional Affairs Committee has been that departmental annual reports and accounts could still be made more accessible. In response, the UK Treasury has set up a review group, with representation from the House of Commons Scrutiny Unit, which will report back after six months. The Procedure Committee has also made recommendations to highlight good practice and improve guidance on Estimates memoranda (which the House of Commons Scrutiny Unit has helped take forward), and to improve Estimates documentation (which the Treasury is currently pursuing). These positive steps could be built upon if a new budget committee was to make use of the improved provision of information.

However, to deliver its mandate, the budget committee may have information requirements that go beyond what is currently published. This is one of the reasons why it is particularly important that the specialists that support the work of the committee (such as the House of Commons Scrutiny Unit) have access to information formalised, e.g., through a Memorandum of Understanding with the government.

Finally, a feature of the Westminster-style system is that, while financial information provided can be extensive, it is not always provided in sufficient time so that it can be fed into the budget process. The budget information provided to parliament should be provided early enough so that the budget committee is in a position to influence and critique budget allocations and priorities, making budgetary debate and discussion in the UK more realistic, informed and effective.

Bibliography

Blöndal,  J., Budget Reform in OECD Member Countries: Common Trends (2003)

House of Commons Scrutiny Unit, Scrutiny Unit note: Financial Accountability and Scrutiny (2010)

OECD, Best Practices for Budget Transparency (2002)

OECD, Parliamentary Budget Officials Network Survey (2011)

OECD, Budgeting Practices and Procedures Database (2012)

OECD, Principles for Independent Fiscal Institutions (2014)

OECD, Review of Budget Oversight at the Irish Parliament (2015)

OECD, Principles of Budgetary Governance (2015)

OECD, Budget Review of Germany (2016)

OECD, Budget Review of Italy (2016)

OECD, Budget Review of Sweden (2017)

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November 2018