Who holds the purse strings? Financial privilege and the House of Lords

The Chancellor of the Exchequer announced the first budget of the new parliament on 11 March 2020. Although the House of Lords can debate the budget and the subsequent Finance Bill, the House of Commons makes the decisions on tax and public spending. This is referred to as its “financial privilege”. The Commons can also ensure so-called ‘money bills’ are passed without the consent of the Lords. However, the House of Lords has not always been constrained in this way.

This article details the development of the financial privilege rules.

Advisors to the King: early history

The role of Parliament developed gradually over time. The Saxon precursor to the English Parliament—the Witenagemot—was an assembly composed of Bishops and Earls who advised the King. It is believed they may have been involved in financial matters, such as the setting of the danegeld, the tributes paid to invading Danes in the 10th and 11th centuries.

After 1066, the Norman Kings governed through a permanent inner council of advisers and officials. Larger advisory councils were also summoned by the king. These were referred to as a Great Council (Magnum Concilium) and consisted of clerics and magnates. This formed the basis for what eventually became the House of Lords.

After a rebellion by the barons, Magna Carta was sealed by King John at the beginning of the 13th century. Clauses 12 and 14 of Magna Carta limited the ability of the King to levy certain forms of taxation without first summoning a council to establish common consent.

Knights and burgesses: development of the Commons

During the 13th century, elected knights of the shires and burgesses from the towns were also summoned to these councils. The first instance of representatives from towns and the shires being summoned was Simon De Montfort’s second Parliament of 1265. In 1295, during the reign of Edward I, the ‘Model Parliament’ was summoned. Writs were issued to two knights from each county and two burgesses from each town. This became the norm for almost all future parliaments.

When Edward III came to the throne in 1327, the pattern was established that Parliament consisted of three separate bodies: the Lords, the Commons and the Monarch. The purpose of summoning the Commons was to facilitate the raising of taxes. It gradually became accepted that representatives of those who were going to be most affected by taxation had to give their consent in Parliament.

During the 100 Years War (1337–1453), the King became more dependent on taxation. Parliament normally acquiesced to grants of supplies to the King. However, in 1376, during the reign of Edward III, the ‘Good’ Parliament resisted approving new taxes. This was in response to allegations of mismanagement by the King’s ministers. A number of ministers were removed from office by the Crown as a result. Parliament then impeached these former ministers, including Edward III’s Chamberlain, Lord Latimer. These impeachments were subsequently overturned.

The House of Commons continued to become more assertive during the Wars of the Roses (1455–87). For example, in 1401, Henry IV conceded that the Commons did not have to grant taxes until he had adequately addressed their grievances. These grievances included the level of expenditure by the Royal Court. In 1407, Henry IV formally affirmed the right of the Commons to initiate all grants of money. Subsequently, in 1414, the House of Commons also successfully insisted that a bill could not become an act without the agreement of the House of Commons.

The House of Commons became the primary body for initiating decisions on taxation and spending. However, the Commons remained less powerful than the monarchy and the nobility. The nobility were also able to influence elections to ensure their interests were protected.

Lords abolition and restoration: establishment of financial privilege

The 17th century saw conflict between Parliament and Charles I over the powers of the King to raise taxes without parliamentary approval. It also saw the abolition of the House of Lords during the interregnum, a period of republican government following the execution of Charles I in 1649.

After the restoration of the monarchy and the reestablishment of the House of Lords in 1660, the House of Commons sought to establish its financial privilege. In 1671 and 1678, the House of Commons passed resolutions saying the Lords could not amend financial bills. These resolutions remain the basis for the modern financial privilege of the House of Commons.

17th century resolutions on financial privilege

  • In 1671, the Commons resolved “that in all aids given to the King by the Commons, the rate or tax ought not to be altered by the Lords”. 
  • The resolution of 1678 effectively asserted the Commons’ privilege in respect of all legislation with financial implications.

19th century: conflict between the two Houses

During the 19th century, the right to vote was extended to a larger proportion of the adult male population. This reduced the ability of the aristocracy to assert influence over elections to the Commons.

The House of Lords increasingly asserted its power to block government legislation; for example, in 1860, the Lords rejected the Paper Duty Repeal Bill, a bill to end the duty on paper. Members of the Lords argued financial privilege did not apply as it was a bill to end a tax, rather than raising a new tax. This resulted in the Commons passing a new resolution restating its financial privilege. There was also opposition in the Lords on non-financial matters; for example, in 1893, the House of Lords blocked the Government of Ireland Bill, an attempt by the Liberal Government to introduce Irish Home Rule.

Parliament Act 1911: money bills

In 1906, a Liberal Government was elected with a large majority. However, the new Government did not have a majority in the House of Lords.

The Government was able to pass some legislation, including the Trade Disputes Act 1906. However, it faced opposition in the Lords to its 1906 Education Bill, its 1907 land reforms and its 1908 Licensing Bill. In 1909, the Government’s Finance Bill was defeated in the House of Lords at second reading. The House of Commons passed a resolution stating that the Lords’ actions had been in breach of the constitution. Parliament was subsequently dissolved. An election was held in January 1910, which the Liberal Party narrowly won. After the election, the budget was passed by the Lords.

In April 1910, the Liberal Government introduced the Parliament Bill. Its passage through the House of Lords was contentious, with the Government threatening to create enough Liberal peers to pass the bill if it was rejected by the Lords. The bill received royal assent in August 1911.

The Parliament Act 1911 established a new category of bills called ‘money bills’. These bills could be passed without the Lords’ consent after a maximum delay of one month. The Act also removed from the House of Lords the power to veto a bill (except one which would extend the lifetime of a parliament) and restricted its ability to delay legislation.

Rules for money bills under the Parliament Act 1911 

  • Money bills are certified by the Speaker of the House of Commons on the basis they are concerned only with national taxation, public money or loans. 
  • They are a separate category to supply bills, although the two overlap. 
  • Supply bills are not subject to the Parliament Act 1911, unless they are also money bills.

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