Tag Archives: financial privilege

The Lords, financial privilege and the EU referendum franchise

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Meg-RussellDan Gover

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.

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The Lords, politics and finance

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Meg-Russell

In the aftermath of Monday’s Lords defeats on tax credit cuts there has been much talk of a ‘constitutional crisis’. In this post Meg Russell argues that whilst Monday’s vote was certainly unusual, the most significant change is the wider political context: that it is a Conservative government on the receiving end of repeated defeats in the Lords. Much like Labour ministers under Blair and Brown, Conservative ministers will need to learn how to handle a relatively assertive House of Lords in which they lack a partisan majority.

A Conservative government seems to be at war with the House of Lords. The Daily Telegraph claims that the Lords is ‘undermining democracy’. What on earth is going on? Has the Lords suddenly lost hold of its senses and begun acting entirely without precedent? To listen to some government supporters, in particular, one would assume so. Ministers have suffered a string of defeats since May 2015 – a total of 19 up to and including this Monday. The most controversial, of course, was the chamber’s decision to delay approval of the tax credits regulations, which has caused some to proclaim a ‘constitutional crisis’– and has subsequently sparked the government to announce a review into the chamber’s policy powers.

There are aspects of Monday’s tax credits vote which were undoubtedly unusual. As explored in an earlier post on the Constitution Unit blog last week, defeats in the Lords on ‘delegated legislation’ (the proposed vehicle for the tax credit changes) are relatively rare. There have been only four previous occasions when such measures were blocked outright by the Lords. None of these (on sanctions against Rhodesia in 1968, the London mayoral elections in 2000, the Manchester ‘supercasino’ in 2007 and access to legal aid in 2012) had such major financial implications as Monday’s vote. This fuelled claims that the Lords was breaking centuries-old convention by not respecting the Commons’ financial primacy. Yet the parent act, the Tax Credits Act 2002, had explicitly given the House of Lords a veto over such orders – even though it is quite possible for explicitly financial legislation (as detailed in this excellent Hansard Society blog) to create orders that require the approval only of the Commons. The well-respected Lords Statutory Instruments Scrutiny Committee had drawn the measure to the attention of the House on the basis of inadequate information about its impacts (a circumstance which the 2006 Joint Committee on Conventions explicitly suggested could merit use of the veto power (para 229)). In fact, the most clearly innovative thing about Monday’s vote was that the Lords did not reject the government’s proposals outright via a ‘fatal’ motion, but only imposed a delay – in the case of  Baroness Meacher’s motion until further information became available.

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The Lords and tax credits: fact and myth

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Meg-Russell

The power of the House of Lords over ‘delegated legislation’, and financial matters, has become a hot topic due to threats to defeat the government’s planned cuts to tax credits. There have been claims and counterclaims about the conventions governing these matters, and also some fairly wild claims about how the government might retaliate if defeated. Here Meg Russell provides some factual background.

The current question over tax credits

The current argument concerns the Tax Credits (Income Thresholds and Determination of Rates) (Amendment) Regulations 2015, published on 7 September, which significantly limit people’s eligibility for tax credits. This is a piece of ‘delegated legislation’ (a ‘statutory instrument’) meaning that it is subject to an expedited parliamentary process, much less onerous than the process for passing a bill (see summary here). The government is seeking to use powers delegated to it under the Tax Credits Act 2002, which allows for regular updating of rates and bands. This kind of delegated power is commonplace, to ensure that a new bill is not required every time there are small changes to the implementation of policy. Delegated legislation may be either ‘affirmative’, meaning that it requires the explicit approval of both chambers of parliament, or ‘negative’ meaning that it will pass into law automatically unless one of the chambers objects. This is an affirmative instrument, which was agreed by the Commons on 15 September, and is due for debate in the Lords on Monday. Notably, delegated legislation cannot be amended, only rejected or agreed.

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Does Commons “financial privilege” on Lords amendments need reform?

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During its initial passage through the House of Lords in 2011-12, the government suffered seven defeats on amendments to the Welfare Reform Bill. The defeats concerned highly contentious policies, including changes to housing support (the “bedroom tax”), the introduction of a benefit cap, disability benefits, and the reform of the child maintenance system. When the bill returned to the Commons, MPs overturned all seven defeats and asserted their “financial privilege” (or primacy over tax and spending matters). It was argued that, by convention, the Lords could not then insist on its changes. The episode revealed significant confusion about the process, and led to claims that the government had abused parliamentary procedure to avoid unwelcome scrutiny of its policies.

Even to seasoned observers of parliament, financial privilege may be something of a mystery. To shed light on it, Meg Russell and I conducted a research project into the operation of financial privilege between 1974 and 2013, funded by the Nuffield Foundation. The aim of our research was twofold: to clarify how financial privilege works in practice; and to consider whether arrangements in Westminster should be reformed. Yesterday we published our conclusions in Demystifying Financial Privilege, and launched these at an event in parliament, with responses from well-respected Crossbencher and senior barrister Lord Pannick, and former first parliamentary counsel Sir Stephen Laws.

One major complaint voiced is that the government controls financial privilege for its own political purposes. In reality, ministers have far less involvement than is sometimes assumed. When Lords amendments are received by the Commons, an impartial clerk first identifies whether any have tax or spending implications (or “engage” financial privilege). Government officials will often argue their case – which, as we identify in the report, is a potential problem – but it is ultimately for the clerk to make a decision based on precedent. The next step is for MPs to decide what to do with each amendment. They have three broad choices: if they agree it, financial privilege is automatically “waived”; if they make an alternative proposal (eg an amendment in lieu), financial privilege does not arise; and if they reject the amendment outright, financial privilege is “invoked”. Although the government usually determines the Commons’ choice (by virtue of its majority), it does not determine whether privilege was engaged on the amendment in the first place.

A second complaint, particularly made since 2010, is that financial privilege is being used in a way that it wasn’t in the past. Financial privilege is certainly not a new innovation: it is one element of the Commons’ “financial primacy” over the Lords, a principle that dates back centuries and was formalised in the late 17th century. The Commons claimed financial privilege on Lords amendments throughout the period we studied (160 amendments, 1974-2013), with the highest absolute number (36) in the 1974-79 parliament. However, in 2010-13 the Commons asserted financial privilege in response to a particularly high proportion of Lords defeats: 24%, compared to just 6% in 2005-10. But this change did not result from privilege being interpreted more broadly than before (although we do identify the possibility of “creep” over a longer period); instead, the key political battlegrounds are now over spending matters, which means that a higher proportion of Lords defeats engage financial privilege.

An important complaint is that the financial privilege process lacks transparency. At present there are no clear definitions as to what falls within Commons financial privilege. And once privilege has been invoked on an amendment, the Commons gives no explanation as to why. Such lack of transparency makes it difficult for peers to anticipate whether financial privilege will be applied to their amendments, and has fed perceptions outside parliament that the process is being abused. There is also some lack of transparency about how the Lords may respond when faced by a claim of Commons financial privilege. Notably, some overseas legislatures manage arrangements better in this respect: in Australia, statements are published explaining how and why an amendment is judged to be financial, while in Canada statements have specified the costs involved.

It seems clear to us that existing arrangements surrounding financial privilege are unsatisfactory, and that more could be done in particular to improve transparency. Both Houses (especially the Commons) should consider how clearer information could be provided about financial privilege, for example by expanding the text on the parliament website. We believe it is reasonable for peers to be given an explanation of why their amendments engage privilege, including an indication of the amount of money involved. Most importantly, the Commons should publish a clear definition of what types of amendment it considers to be covered by privilege. The Lords should also make clearer in its own guide to procedure its interpretation of how the Lords may respond to the Commons’ claim of financial privilege.

Commenting on the report at the launch event, Lord Pannick (who has experienced his own amendments being rejected on financial privilege grounds, without clear reasons) said “the Constitution Unit, Meg Russell and Daniel Gover have done a very great service in identifying the principles of financial privilege” and said that the report was “particularly persuasive” with respect to transparency. He concluded saying “I hope the report will encourage the Commons’ authorities to look again at their procedures. At the moment, the procedures are indefensible”.

Ultimately, however, our report notes that arrangements around financial privilege rest entirely on convention, and (contrary to some claims) there are currently no absolute restrictions on how the Lords may respond. All parties – and especially the government, when determining how the Commons responds to Lords amendments – should thus exercise caution, to ensure that tensions are not inflamed too far.

Addendum Clarifying and Modifying ‘Welfare Reform and the Financial Privilege’

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On 2 February, I posted an analysis of the financial privilege on the blog of the UK Constitutional Law Group, and it was cross-posted by the Constitution Unit at University College London.   This post was based on an analysis of written authorities and contested recent practice in Parliament concerning the financial privilege. It circulated widely and was the subject of considerable commentary, some critical.  The Clerk of the Commons and Clerk of Legislation have also since published a briefing note and chart (the “Clerks’ Note”) that sheds important new light on the process by which the privilege is invoked in the Commons.  In light of the Clerk’s Note, further feedback and additional research, I am issuing this note to clarify the original analysis, vary it in part, and respond to some criticisms.

Is the privilege invoked opportunistically?  Is it nonetheless a concern?

The Clerks’ Note shows that the process by which the financial privilege is raised is non-partisan, and is therefore not invoked opportunistically by the Government. The Clerk of Legislation (who is independent) will designate Lords amendments having financial implications, and this matter is submitted to the Speaker to draw the issue to the House’s attention when the Lords amendments are introduced for consideration.  Should the Commons choose to agree the amendments, they will ‘waive’ the privilege, and if they do not agree them, they ordinarily offer (in the Reasons Committee) the privilege as the reason for disagreement (even when there has been substantive debate on the matter and the actual reason is a policy disagreement).

The upshot of this is that under the authority of the Speaker, the Clerks will decide whether the financial privilege is engaged by asking whether a bill has ‘any financial implications.’ This test that is used is the ‘wide reading’ that I criticised in my original post.  Subject to the important note below about the existence of precedents, that critique stands.  The Commons may choose to waive the privilege in specific cases, and that is a political decision.  Its previous forbearance seems to have made the system work to the acceptance of both Houses.   Its more recent approach calls the whole procedure into question.

The question of precedents: is the financial privilege being relied upon to disagree Lords amendments more often in recent times?

The Clerks’ Note was accompanied by a chart setting out a range of recent precedents in which financial privilege was engaged, in many cases waived, but in a number of cases not waived. I drew attention in my original post that there had been a recent revival in the reliance upon privilege. The reaction on the Lords in this and earlier recent cases, and reports of the Labour Party seeking legal advice in respect of this particular instance, suggests great unease about this.  In a note from the Clerk of the Parliaments prepared for the Leader of the House of Lords and filed with the House of Lords library on 10 February 2009, it is reported that between 2000-2008, the privilege was designated as engaged in respect of 335 Lords amendments (with 154 of these in the 2007-2008 period alone).  Yet between 2009 and 2012, there have been (according to the Clerks’ Note) 266 Lords amendments where the financial privilege was in play.  Between 2000-2008 privilege was offered as a reason for rejecting amendments in 42 cases, whereas between 2009-2012 it was offered in 43 cases.  Further, in my own search of all of Hansard (see here and also here) since 1900 for references to ‘financial privilege’ (an imperfect proxy but relevant to where its use has been discussed in Parliament), 83 hits are returned between 1900-2000 (mostly condensed into the years between 1960-2000), and 54 are returned from 2000-2010.  The claim that there has been a surge therefore has clear support.  The causes for this may be diverse and the recent trend might be too brief to assert long-term implications, but it remains an important snapshot.

On the other hand, having analysed many of the debates in those pre-2000 cases, I have confirmed that the privilege was invoked reasonably consistently, if much more sparingly, mostly from the 1960s onwards, in respect of a range of social welfare legislation.  This was true of bills relating to social security and pensions (Social Security Pensions Bill (1975), and Social Security Bill (1989)), housing, education (Education (Grants and Awards) Bill (1984)), health care reorganization (National Health Service Reorganisation Bill (1973), dental charges (National Health and Medicines Bill (1988)), and a number of other similar bills.   I have analysed the debates in at least fifteen such precedents (representing the substantial bulk of the relevant total).  I frankly concede that they for the most part indicate that the Lords have, in that period, and with a few isolated protests, accepted the claim of privilege in respect of bills relating to expenditure on social welfare policy. This is a material addition to my earlier post, and it supports the view that the reliance on the privilege in disagreeing Lords amendments to the Welfare Reform Bill is not a strong break with past (if sporadic) practice.  The key present issue is the frequency of reliance upon the privilege in disagreeing to Lords amendments, and whether the Commons should revise its practice in light of the constitutional policy concerns raised in my original post and by others.

Will this reliance on the privilege adversely affect the Lords’ scrutiny and revision of important statutes?

Some have argued in correspondence that the Lords enjoy the right to offer amendments that infringe the privilege, and the Commons can and normally does waive privilege when agreeing them. So the Lords need fear neither constitutional impropriety nor irrelevance when offering amendments on privileged matters.

Yet the problem remains that if proposed Lords amendments are opposed by the Government sponsoring the bill, then any debate may have an air of futility.   The more frequently the privilege is invoked as a reason for disagreeing Lords amendments, the more such fears would be well-founded.  Related concerns have been raised by peers on a few different occasions: in addition to some comments noted in my first post, see e.g. HL Deb, Vol 712, c.26-29 (Lord Jenkin); HC Deb, Vol. 463, c440 (Question of George Young to Harriet Harman); HL Deb, Vol.694, c708-9 (Lord Oakshotte); HL Deb, Vol 705, c1292 (Baroness Miller); and esp. HL Deb, Vol 734, c160-161 (Baroness Thomas), though contrast HL Deb, Vol 734, c161 (Baroness Hollis, defending the role of debate where privilege engaged).  Further, if the Lords wish to assert their (established) right to reject the entire bill, then the way in which that right would need to be exercised may itself stifle debate.  After approving the bill (with amendments) at the Third Reading, it is difficult and perhaps even impossible for the Lords to reject the bill in its entirety at the ping-pong stage.  The option to reject a bill would, it seems, ordinarily need to be exercised before a series of amendments can be sent to the Commons for consideration.

Is the privilege being ‘abused’ in this case?

It is not in the following two senses: it is not invoked opportunistically by the Government or the Speaker, and there are a range of precedents supporting this type of use of the privilege both recently and from the mists of time.  However, the reaction in the Lords and press suggest that this is more than business as usual. It is more plausible to say that any constitutional abuse lies in what appears to be the more frequent refusal to waive the privilege, the possibility that the financial privilege has extended well beyond its initial purpose, and that the Commons’ (unquestioned) right to define the scope of the privilege is liable to be extended very widely and in an unchecked manner.

The recourses open to the Lords

I originally suggested two recourses were open, but this claim needs revision.

  •  The Lords may adopt a resolution stating that (i) this not be regarded as a precedent, or (ii) protesting the application of the privilege in this case: In light of the twentieth century precedents, both of these options, though available, will seem ineffective. The option of a resolution may still stand, in my view, but as a way to protest the general trend identified above and its constitutional implications.
  • Rejection of the entire bill: The Welfare Reform Bill has been through the Third Reading in the Lords and so rejecting this particular bill is apparently not a realistic option.  It remains an option for other bills.
  • Amendments in lieu of amendments: The Clerks’ Note clarifies an additional recourse not mentioned in my initial post, namely that the Lords could offer amendments in lieu of their initial amendments when the Commons’ disagreement is communicated. Yet by convention the Lords will not offer amendments that ‘invite the same response.’  There is thus an option to continue the dialogue in this fashion, and the utility of such dialogue would depend on how cautiously the convention of ‘not inviting the same response’ is observed or interpreted by the Lords.  There have been objections even by peers whose amendments have been rebuffed on privilege grounds to trying to use this option to reassert an amendment which is essentially a matter of privilege.  Yet the Clerks’ Note shows that this option has been pursued in recent years, the precise form of these amendments not being known to me.

Erskine May – 23rd and 24th Edition

It has been pointed out that my original post referenced the 23rd edition of EM, when in fact the 24th was published in June 2011. This was all well known at the time of writing – the new edition was neither available online nor received by the university library. I relied also on an up to date Halsbury’s for all key claims, and shortly thereafter acquired the 24th  edition and vetted all claims.

Dr Jeff King

Senior Lecturer in the Faculty of Laws, University College London