Budgetting backwards

What if governments had to write honest budgets?

Budgeting backwards

By Quentin Langley

Dateline 07 December 2000

It used to be easy. The King would ask Parliament for taxes to fund important government priorities, such as the maintenance of the Royal Navy or the incineration of delusional French teenagers, and Parliament would either oblige, or not.

However, Parliament discovered that Charles II was spending money they had voted for the Navy on the Duchess of Portsmouth. The Duchess, despite her splendidly martial name, was not a warship, but the King’s mistress. Parliament responded by voting money for the following year under distinct headings. Parliament had invented the budget.

The purpose of having a budget was both clear and worthy. There is little evidence, however, that it succeeded. The Duchess prospered still. As time moved on, Parliaments and Congresses the world over, much enamoured of their power to set not only taxes but also expenditure, allowed the number of headings in the budget to proliferate. New worthy causes were added to the taxpayers’ bill: some of them even more important than the execution of troublesome teens with a hotline to God and a French army at their back.

It is no longer sufficient for budgets to provide for the comfort of Kings and their mistresses. Members of Parliament and Congress now seek to provide for themselves and their re-election. Politics has discovered pork.

Another common feature to the government budgeting process internationally is that governments budget backwards. Unlike individuals, governments do not start with their income and divide it between spending priorities. Governments start with what they would like to spend then seek to adjust the tax revenues, borrowings and the looting of social security surpluses, to meet this ideal level of expenditure. Applying this principle to our own expenditure priorities would lead to certain bankruptcy.

Over the years which have elapsed since the budget produced an irreparable rupture between King George’s subjects on opposite sides of the Atlantic, much has changed in budgeting. In the US budgets, like elections, take far longer than in the UK. Another significant difference is accountability.

Each year the Chancellor of the Exchequer presents a budget to Parliament. The Chancellor is accountable for this budget and if any aspect of it is defeated in Parliament the Chancellor has to resign, and the government would probably fall. The budget always passes unamended.

The Chancellor makes a speech to Parliament outlining the main features of the budget, including any variation in tax rates compared with the previous year and changes in the total allocated to each department. The Leader of the Opposition – without seeing it – makes a speech against it as soon as the Chancellor sits down. The Nineteenth Century Chancellor, and subsequent Prime Minister, William Gladstone, still holds the record for the longest budget speech, at more than six hours. Long may he continue to hold it. He holds the record despite the fact that in those days the budget covered little more than defence and the Metropolitan Police. Police services outside London were considered a luxury.

The current Labour Chancellor, Gordon Brown, likes to keep his speech under an hour, and usually manages it. In this he is following Margaret Thatcher’s long-serving Chancellor, Nigel Lawson, who holds the record for the three shortest budget speeches.

In the US, by contrast, no-one is responsible for the budget. Indeed, no-one has ever read the US budget. Any person who began reading it at the beginning of the year, devoting a 40-hour week to the task, would not have completed the assignment when the year passed.

Where no individual is responsible for a budget, no person is responsible for balancing it. Each member of Congress may vote for only two-thirds of the spending propositions before him, but Congress as a whole may pass them all. Each Congressman can, with a clean conscience, say to his electors that he voted for a balanced budget while the budget remains unbalanced.

Which system of writing a budget is superior? It seems to me that neither meets the fundamental objective. Over three centuries later, the war on poverty has been fought, and lost. The war on drugs continues, but if any other war had led to the loss of so much territory, an unconditional surrender would have been forthcoming decades ago. Yet the mistresses of Kings and Presidents remain undestitute.

Copyright © Quentin Langley 07 December 2000

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