The House of Lords amended the government’s European Union Referendum Bill in order to allow 16 and 17-year-olds to vote in the referendum. Last week the Commons overturned the Lords amendments claiming ‘financial privilege’. Ahead of fresh votes in the Lords on the topic, Meg Russell and Daniel Gover explain this much misunderstood term.

Hot on the heels of the argument over tax credits, this week sees a new row over the constitutional propriety of the House of Lords challenging government policy. This time the topic is the rights of 16 and 17-year-olds to vote in the EU referendum. On 18 November the government was defeated in the Lords on this question, with peers agreeing an amendment to give young people the vote. On 8 December the House of Commons overturned this proposal, citing ‘financial privilege’ because the extension of the franchise would have cost implications. The Lords is due to debate the matter again tomorrow, and there are accusations on both sides: on one hand that the claim of Commons financial privilege is somehow improper, and on the other that it would be improper for the Lords to press the matter any further. These are murky and little-understood constitutional waters, but having specifically completed a research project on financial privilege last year, we hope that we can offer some clarity.

Since last week’s Commons decision there have been many incorrect statements about financial privilege. For example, there have been claims that ‘the government has had it declared a “financial” matter’ in a show of ‘political chicanery’ in order to ‘ra[m] its agenda through’ parliament, and that as a consequence the Lords would be ‘prevented from voting against it’ because the move ‘takes away the right of the Lords to intervene’. It is exactly these kinds of misunderstandings that our project sought to clear up: through publication of a detailed report, as summarised in a journal article and a previous post on this blog. The shortest and simplest summary of our conclusions is contained in the presentation slides for the report’s launch in the House of Lords. A key conclusion was that the rules in this area are insufficiently clear, and that they need clarification because arguments over financial privilege are likely to become more common. This week’s events appear to prove us right.

So what is financial privilege? Who is responsible for policing it? And once the Commons has claimed it, what is it possible for the Lords to do?

The first thing to say is that financial privilege on Lords amendments is just one part of the Commons’ overall ‘financial primacy’ over tax and spending. Once an amendment from the Lords is received in the Commons, it is scrutinised by the Commons authorities to consider whether it has cost implications. If it does, the amendment is said to ‘engage’ financial privilege, and a note to that effect is made on the Commons business papers (see page 6 here from last week). If the Commons goes on to reject such an amendment, it is essentially automatic that financial privilege is ‘invoked’ – by specifying it as the ‘reason’ for the rejection that is formally communicated to the Lords. It is important to emphasise the distinction between this and other aspects of the Commons’ financial primacy. In particular, announcing that an amendment engages financial privilege is not the same thing as declaring that something is a money bill. Money bills, which deal wholly with taxation and spending, must be identified by the Commons Speaker before they reach the Lords, and have an expedited passage there. Such bills are relatively rare, and the European Union Referendum Bill is certainly not one of them.

A bone of contention is who is responsible for deciding that an amendment engages financial privilege, and how. As indicated above, it is frequently claimed that the government invokes financial privilege. This is inaccurate: the decision as to whether an amendment engages financial privilege is conducted by neutral House of Commons clerks, acting under the authority of the Speaker. Ministers are not involved, though there may be some informal consultation with civil servants over likely cost implications. Potentially any amendment that increases (or decreases, or alters in any other way) spending or taxation provisions may be identified as engaging financial privilege, though the clerks do operate a ‘de minimis’ rule. Since the extension of the franchise to 16 and 17-year-olds would require many thousands of voters to be identified and registered, it seems more or less inevitable that this amendment would be judged as engaging financial privilege. It is in fact very common for Lords amendments to engage financial privilege: as documented in our report, between late 2000 and early 2012 there were over 650 such cases. The Commons is free to ‘waive’ its financial privilege and accept these amendments. Indeed, the Commons waives financial privilege in the vast majority of cases, largely because many of the government’s own amendments in the Lords have financial implications.

Although these processes are policed by neutral officials, one of the key conclusions in our report was that the rules about what kind of amendment engages financial privilege – and in particular what level of spending is considered ‘de minimis’, and therefore exempt – should be far more transparent. We urged the authorities to publish a clear definition of what constitutes financial privilege on an amendment, and also to issue clear statements of why individual amendments engage privilege (ideally with an estimate of the likely costs). These kinds of rules apply in other parliaments, such as in Australia, and greatly aid the process.

The key question now is what the Lords can do in response to a Commons invocation of financial privilege. The Lords is set tomorrow to debate a new amendment to insist on the inclusion of 16 and 17-year-olds. This is, unlike the previous amendment, specifically worded to minimise costs. There is some suggestion that this kind of response by the Lords is improper, and contrary to convention – but this is not really the case. By convention (as set down in the House of Lords Companion to Standing Orders, 8.183) where the Commons invokes financial privilege ‘the Lords do not insist on their amendment’. However, the Lords is free to suggest an alternative ‘amendment in lieu’. The more contested point is whether it can return with an amendment which would ‘clearly invite the same response’ (i.e. obviously result in financial privilege being invoked again). This wording was suggested in 2006 by the Joint Committee on Conventions, but never incorporated into the Lords Companion. It is not uncommon for the Lords to respond to a Commons claim of financial privilege with another amendment that has financial implications. Indeed, between 1974 and 2013 the Lords returned 22 amendments in lieu in response to financial privilege – of which 19 themselves engaged financial privilege, including some proposed by the government itself.

The bigger question is whether the government wants to compromise on this matter, and the far bigger politics are about whether 16 and 17-year-olds should have the vote, what effects this would have on the referendum, and whether it is proper for the Lords to press the government on this policy matter. The argument over financial privilege is therefore something of a distraction. But it is a timely reminder of the need for reform in this area, as set out in the recommendations at the end of our report.

Meg Russell and Daniel Gover’s report Demystifying financial privilege: Does the Commons’ claim of financial primacy on Lords amendments need reform? (2014) can be accessed here.

About the authors

Professor Meg Russell is the Director of The Constitution Unit and author of The Contemporary House of Lords: Westminster Bicameralism Revived (Oxford University Press, 2013).

Daniel Gover is a Research Fellow at the Mile End Institute, Queen Mary University of London and an associate researcher at The Constitution Unit.