CONTINGENCIES FUND BILL (Hansard, 6 November 1970)

§ The Financial Secretary to the Treasury (Mr. Patrick Jenkin)
I beg to move, That the Bill be now read a Second time.
As its name implies, the Bill concerns the fund which the Government maintain to meet certain contingencies.
One of the most unwise prayers which a man has ever offered up was that uttered by the prophet Elijah when he besought the Lord Make me to know what the measure of my days may be". Mercifully for all of us, it is not given to mankind to foretell the future, and, though this may seem strange coming from a Treasury Minister, long may it remain so. We may guess the future, we may prophesy, we may even publish economic forecasts and estimates—but we cannot know what it is to be.
What is true for individuals is also true for Governments. Who, for instance, could have forecast the severe foot-and-mouth epidemic in 1967? Who could have foretold the wreck of the "Torrey Canyon" upon the Seven Stones? Who could have foretold the disastrous floods in the winter of 1968?

§ Mr. Anthony Fell (Yarmouth)
Old Moore.

§ Mr. Jenkin
My hon. Friend suggests that we might in future consult Old Moore. Although we shall examine that proposition, I doubt whether it would be an adequate substitute for the Civil Contingencies Fund.
Even where events are planned, who who can guarantee that they will turn out as planned, that cost estimates will not on occasion be over-run, or that Government will not feel it right to modify plans in mid-course? Frequently desirable changes need to be accelerated.
In all these circumstances, Governments come face to face with a basic principle of our system of Parliamentary control, that Parliament should vote the money for a service before any expenditure on the service is incurred. Therefore, 1435 since 1862 a Fund, known hitherto as the Civil Contingencies Fund, has existed to provide for such eventualities, and the Treasury is empowered to authorise issues out of this Fund to meet expenditure in advance of the granting of authority by Parliament. To meet the obvious twin objections that this is both open-ended and by-passes the House of Commons, two safeguards are built in. First, the amount of the Fund is limited by Statute. More important, and, indeed, absolutely crucial to the operation of the Fund, there is the fundamental principle that the Fund can never finally bear any charge. It is purely a fund from which money may, in certain circumstances, be borrowed; and it must always and inevitably be repaid from one source or another. Thus, while its use may enable the Government to anticipate Parliament's voting of a supplementary Estimate, it does not by-pass the need to secure proper Parliamentary authority.
Over the years the size of the Fund has changed as the nature of the calls made upon it has changed. In 1862—hon. Members may be interested to recognise how government has expanded since then—it was only £120,000. After each world war substantial sums were provided through the Fund as working capital for the Government trading that inevitably lasted for a few years after the wars. The sums were later reduced as trading ceased. However, the combined effect of inflation and of rising public sector expenditure led the House in 1955 to fix the Fund at £75 million and in 1968 at £125 million where it stands today.
The purpose of this Bill is twofold—to change the title of the Fund to "Contingencies Fund," and to increase the maximum capital of the Fund to £200 million. As the House will see, these changes are closely linked, but it will perhaps be for the convenience of the House if I deal with each briefly in turn.
The change of title—that is, dropping the word "Civil" before "Contingencies"—is dealt with in Clause 1. In 1969 the Procedure Committee in its second Report for the 1968–69 Session recommended a number of changes in the arrangements for the Defence Estimates, to bring them into line with the Civil Estimates and to abolish the previous liberal arrangements which used to 1436 operate for virement between Defence Votes. Until now, therefore, drawings on the Contingencies Fund by defence have been only marginal because of these virement arrangements, and the great bulk of the drawings have been in respect of civil expenditure.
In the future, additional expenditure on Defence Votes, even where it will be balanced by cuts on other Votes, will have to be duly authorised by Parliament by the presentation of Supplementary Estimates as is already the case with Civil Estimates. This is, I respectfully suggest, right and proper, but it has to be recognised that one of the consequences of this tightening up of supplementary spending on Defence Votes is that the Contingencies Fund will have greater calls made upon it in respect of defence than has been the position in the past. It should be clear that, on balance, this represents a significant tightening up of the financial controls of the House over defence spending—

§ Mr. Merlyn Rees (Leeds, South)
indicated assent.

§ Mr. Jenkin
—and I am glad to have the assent of the hon. Member for Leeds, South (Mr. Mervyn Rees) for that.
Virement was a long-standing and, from Parliament's point of view, unsatisfactory way of by-passing parliamentary control. The new system will make sure that Parliament has the opportunity to approve changes or increases in the Defence Votes. The major calls on defence it is difficult to forecast, but may well be in the field of pay increases for Servicemen and civilians, Armed Forces retired pay and pensions increases, and perhaps for stores and supplies where substantial payments have to be made in the last few months of the financial year. I believe, on balance, that this is a change which will commend itself to the whole House.
The second purpose of the Bill is to increase the level of the Fund from £125 million to £200 million. I recognise that it is entirely right that the House will wish to be satisfied of the need for this increase. I have already referred briefly to the two main purposes of the Contingencies Fund, namely to meet unforeseen urgent commitments and also to meet increases in the costs of existing programmes which will arise during the year. 1437 In both these main categories it is—and I emphasise it—necessary to present Supplementary Estimates to Parliament. But in many cases the need for cash is so urgent that payment cannot wait until the necessary Estimates have been voted by Parliament and the related Consolidated Fund Bill has passed through all stages.
The existence of the Fund is thus not only essential to the Government in enabling them to meet urgent needs as they arise, but it also facilitates the orderly management of the business of the House by making it possible for Supplementary Estimates to be collected together in batches at convenient intervals for Parliamentary consideration—that is, in summer, winter and spring. Because all advances to the Contingencies Fund must be repaid, they are properly and inexorably subject to ex post facto scrutiny by Parliament. Of its very nature, however, it is inevitable that recourse to the Fund is irreconcilable with prior parliamentary control of that expenditure. For that reason it is necessary for the Government to strike a balance between what is regarded as the minimum reasonable size of the Fund, bearing in mind the drawings that may be made upon it, and the extent to which an excessive use of the Fund diminishes proper parliamentary control. In the last resort this can be only a matter of judgment, although perhaps past experience can be some guide.
The present limit—£125 million—was fixed in 1968 on the basis of the Civil Estimates which were then presented to Parliament totalling £8,672 million; and, as I have explained, from the current year faced with a new situation, we must add the Defence Estimates this year of £1,912 million, and these must be brought into the reckoning. When this figure of £1,912 million is added to the total of the Civil Estimates, which has risen now to £10,879 million in the current year, one reaches a total supply expenditure as presented to Parliament of £12,791 million. A swift back-of-the-envelope calculation will show that this is just short of a 50 per cent. increase since the limit of the Contingencies Fund was fixed in 1968 at £125 million, and, in the view of the Government, justifies an increase in the size of the Fund of the order that 1438 we are proposing. This is necessary if the Fund is to continue to fulfil the twin purposes for which it exists.
It may be that in a matter of this importance, dealing with sums of money of this size, that sort of relatively unsophisticated back-of-the-envelope calculation would not be regarded as sufficient, and it would be right that I should spend a moment or two justifying the increase on slightly more sophisticated grounds. From its very nature, the House will appreciate that what is important about a Fund of this kind is that the amount available at any one point of time should be enough to meet likely demands at that point of time. The peak times of the year are the periods immediately before Supplementary Estimates are approved, and especially in the last quarter of the financial year in dealing with that category of case where expenditure has for one reason or another overrun the original estimates.
Over the last few years the Fund has started the last quarter of the financial year with advances outstanding of up to about £25 million. So, on the present limit of £125 million, about £100 million is then available twice during the peak final quarter, first in anticipation of the winter Supplementaries and again in anticipation of the spring Supplementaries. To match the 50 per cent. increase in total supply expenditure since 1968, the amount of £100 million available for the final quarter would need to be increased to £150 million. Taking account of the £25 million advances outstanding at the end of the third quarter on average, this indicates a figure of about £175 million for the total capital of the Fund as a minimum. We do not want to have to come to the House every year for provision to increase the sum, and we think it right, therefore, to make a relatively modest addition to the figures thus reached. That is why we propose the figure of £200 million, to ensure that we do not need to come back to Parliament for several years.
In a week in which we have debated some highly controversial reductions in public spending—no one, I think, will deny that—it is right to stress that this increase in the size of the Contingencies Fund does not represent a step in the 1439 opposite direction. The Fund is no more than a piece of financial machinery. The real long-term control of public spending is effected through quite different and increasingly sophisticated machinery—the five-year public expenditure surveys, their submission to Parliament in the Expenditure White Paper, and, in future, the detailed scrutiny of the five-year forecast by the Select Committee on Expenditure which my right hon. Friend the Leader of the House has suggested in his Green Paper should be set up, which is to be debated next week.
The Contingencies Fund is a method of meeting the unexpected, not of increasing the total. Indeed, it can justifiably be said that the more successful Departments are in complying with the demand of the Public Accounts Committee that their estimating, as the Committee put it, should be really "taut" that they should not build in automatic provisions for overruns and excesses, the more likely is it that the Fund will be needed for any unexpected overruns which do occur. If I may say so, this is no bad thing, for it means that Supplementary Estimates will be needed for approval of the subsequent payment of the money from the Fund, and it will be within the experience of all right hon. and hon. Members that, of their nature, Supplementary Estimates tend to attract the more critical attention of the Home than do the main Estimates.
For those reasons, I commend to the House the proposals embodied in this short but important Bill. I shall do my best to answer any questions, and I hope that, at the end of the debate, the House will agree to give the Bill a Second Reading.

§ Mr. Merlyn Rees (Leeds, South)
Taking up one observation which came in the opening of the Financial Secretary's speech, I cannot forbear to comment that the Government might just as well consult Old Moore as anything else. That would probably do as well as the new Cabinet capability office of soothsayers. It brings to my mind that it was an ancestor of the head of the new capa- 1440 bility unit who acted as a contingencies fund for the purchase of the Suez Canal. As the present Prime Minister is a devotee of the Prime Minister at that time, perhaps it might be thought that this is an explanation for the Bill.
However, I thank the hon. Gentleman for his lucid explanation, and I note, in particular, his remarks about defence. My only question is to ask whether this has a bearing, or might have a bearing, on the way the House will debate defence expenditures, or whether it is only marginal in that respect.
I note that the amount of the Fund is limited by statute, that it is purely a Fund from which money is borrowed. From this side of the House, at this stage, we think it reasonable to give the Bill a Second Reading, and I thank the hon. Gentleman once again for the lucidity of his explanation.

§ Mr. Patrick Jenkin
By leave of the House, may I reply to the question put by the hon. Member for Leeds, South (Mr. Merlyn Rees)?
I do not think that this would affect the manner in which the important defence Estimates are debated. It seems to me that, if Supplementary Estimates come forward in the winter and spring Supplementaries, then, if they cover defence, matters of defence will be open. So far as I am aware, there is no intention at present that the main defence debates which the House has been accustomed to have now for a number of years will be affected by this change in the Fund.
I thank the hon. Gentleman for his kind remarks about my speech. As regards what he said about Old Moore, I am not sure that it should lie in the mouth of right hon. and hon. Members opposite, who published a number of forecasts which have gone rather wide of the mark in the last five or six years, to criticise this Government on that score.