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Annex 5.4
Contingent liabilities
Parliament expects advance notice of any commitments to future use of public funds for which there is no active request for resources through Estimates. This annex discusses how a number of different kinds of liability should be dealt with.
A5.4.1 As with expenditure, ministers may enter into liabilities – in effect, commitments to future expenditure – without explicit parliamentary authority. But parliament expects to be notified of the existence of these commitments when they are undertaken. Should they eventually give rise to the need for public expenditure, they will require the authority of an Appropriation Act and frequently also specific enabling legislation.
A5.4.2 Because the Crown is indivisible, ministers (and their departments) cannot give guarantees to each other. They can, however, enter into commitments to conditional support with the same effect – though this is rare.
A5.4.3 Some liabilities are uncertain. These contingent liabilities recognize that future expenditure may arise if certain conditions are met or certain events happen. That is, the risk of a call on Exchequer funds in the future will depend on whether or not certain events occur. In taking on such liabilities departments must be sure to consult the Treasury.
A5.4.4 Arm’s length bodies (ALBs) sponsored by departments do not generally have powers to take on liabilities, because these would in effect bind their sponsoring departments. So the documentation governing the relationship between a department and an ALB (see chapter 7 and annex 7.4) should require the ALB to gain the sponsor department’s agreement to any commitment, including borrowing, into which it proposes to enter. Departments should ensure that ALBs have systems to appraise and manage liabilities to the standards in this annex, so that they can report to parliament any liabilities assumed by ALBs in the same way as they would their own.
Need for statutory powers
A5.4.5 It is good practice to enter into liabilities on the strength of specific statutory powers – as with items of expenditure. This is essential if a regular scheme of loan guarantees or other support is intended. Departments should consult the Treasury about proposals for such legislation, which should include arrangements for reporting new liabilities to parliament. It is usual to put a statement to both Houses when statutory liabilities are undertaken. Provision in budgets and Estimates should...