see also...

top stories

Latest report

Parliamentary Financial Scrutiny in Hard Times

Parliamentary scrutiny of public spending is a vital component of a modern democratic system. Amid increasing austerity it is more important than ever to ensure that public funds are spent wisely. Effective financial scrutiny ensures that governments are held to account for their actions and fiscal policy decisions, as well as allowing parliaments to monitor both public service provision and value for money.

This report reviews the measures that have been taken to improve parliamentary financial scrutiny, the lessons learnt and what still remains to be done. It looks at Australia, Canada, the UK (all with Westminster-style systems) and Ireland (a semi-presidential system as defined by the OECD), and considers the role of parliaments in the context of dramatic political developments and the global financial crisis. These countries differ in both the civil society around their parliaments and their governments’ approaches to modernisation. All four have a poor ranking in the OECD’s ‘International Index for Legislative Budget Institutions’, which maps the comparative capacities of parliaments for fiscal scrutiny. The report is based on a review of the existing literature and a series of interviews conducted with officials and politicians in each country.

Not all scrutiny is of equal value. A formalised system of financial scrutiny does not automatically give parliament a meaningful role in affecting the budget, as has been shown in the US. The complexity of budgeting together with anxiety about fiscal vulnerability may be used by governments to reduce scrutiny rather than enhance it, undermining their parliamentary accountability and eroding democracy.

Budget reform predates the financial crisis but systems of parliamentary scrutiny have not kept pace. The outdated ‘estimates supply votes’ process used in Westminster-style systems is a key barrier to effective parliamentary scrutiny of government finances. Parliamentarians and their constituents lack interest in scrutinising finances, and the former are not trained for it. Governments exercise great control over parliamentary select committees, whose involvement in budgeting is growing but whose members also lack financial training. They are becoming over-stretched, with diminished resources and a lack of an overarching strategy from their parliaments, reducing their efficiency. Parliamentarians’ ability to amend draft budgets is limited or non-existent. The countries studied exhibit significant weaknesses in their arrangements for financial scrutiny, which need major structural and cultural reform.

Independent fiscal institutions (eg the UK’s Office of Budget Responsibility (OBR), Canada’s Parliamentary Budget Officer) can help the state to navigate the budget, but do not act as financial scrutineers behalf of parliament. Rather, they provide independent analysis and forecasts of the economy and public finances. Their effectiveness has yet to be evaluated.

Parliaments should use the financial crisis as an opportunity to have a fundamental re-think about how they can improve their financial scrutiny. The outdated Westminster-style ‘estimates supply votes’ system continue to impede this.

Politicians must improve their performance and embrace training and professional development on financial issues, both to increase fiscal awareness and to promote a culture of scrutiny. The innovative attempts made across the case study countries through induction programmes and technical support are not nearly enough. The growth of Independent Fiscal Institutions (IFIs) does help engage politicians in fiscal scrutiny, but they are not substitutes for effective parliamentary financial scrutiny.

Parliamentary financial scrutiny on its own may not prevent the next financial crisis, but it is a vital part of a nation’s governance by holding the executive to account for public finance. If done well it may help manage the risks of a future financial crisis and potentially the future risks of a downgrading of a country’s credit rating.

This report is available to download in PDF, free of charge, from the public sector publications page.

Back to top