How the Navy helped Britain balance its books

British naval budgetary reforms undertaken in 1888 radically changed the way that budgetary information was presented to parliament, and enhanced the importance of the civil service in British life according to a study by Department of Accounting academics that was recently published in Accounting History.

In 1888 Britain was at the height of its pomp and what was been labelled its ?Imperial Century?.? The British Empire stretched yawningly across the globe, the defeat of Napoleon in the preceding years had left Britain striding as the sole global policeman with a formidable navy as the bedrock of its power. With such an expanse to govern, the cost of doing so and requirement for budgetary transparency became foremost in the mind of British parliamentarians and civil servants.

While Lord Nelsen is commonly thought of as synonymous with the British navy it was Admiral Robert Blake who was the founder of England?s naval supremacy

For decades prior to 1889 Britain had followed a ?subjective? or ?natural? ?approach to expenditure classification whereby outlays were classified according to the nature of the expenditure rather than its purpose or object as the study co-authored by Associate-Professor Geoff Burrows and Mr Phill Cobbin of the Department ?of Accounting at the University of Melbourne explained.? ?If shipyard labour and timber were used to repair or construct a specific ship, the ?natural? or ?subjective? approach would be to classify these expenditures as labour and materials, which would be aggregated with other similar expenditures to produce aggregate expenditure on labour and materials. With materials this approach meant that payments for timber were regarded as ?expended? when the timber was first acquired for inventory, rather than when it was drawn from inventory for use on a specific ship? outlined Associate-Professor Burrows.

Dissatisfaction with the form and content of financial information lay before parliament dated back to 1829 when Commissioners Brooksbanks and Beltz were appointed to inquire inter alia into how to afford ?more satisfactory and ready information as to the nature and amount of the Expenditure under each Head of Service.? At the centre of this debate was the prevailing Gladstonian orthodoxy that judgments concerning efficiency and effectiveness were the prerogative of parliament not of government accountants and auditors.? But such opinions would be challenged both by economic imperatives and forceful characters.

In 1887, Winston Churchill?s father, Lord Randolph Churchill would ignite the debate and pair two personalities together that would shape how the Navy and eventually Britain would seek to balance its books.? Lord Randolph chaired the powerful? Select Committee on the Army and Navy Estimates? (ANE) which was trying to get a grasp on every aspect of defence spending from cannon to the cost of providing chaplains to the regiments, or ?Divine Service? as the accountants of the 1800s recorded it with little hint of any irony.

Frustrated Churchill would make a sweeping attack on inefficiencies in naval dockyards, citing, inter alia, the difficulty of comparing the costs of work performed in naval and private dockyards. The outcome would be the pairing of an aristocratic ex solider with the leanings towards efficiency and a driving, hustling upper middle class shipowner and merchant that would effect major change on how Britain kept its house in order.

Lord George Hamilton, third son of the Duke of Abercorn, was a Conservative party politician and in 1888 the First Lord of Admiralty. He and the Liverpool ship owner, Sir Arthur

Winston Churchill?s father Lord Randolph Churchill would ignite the debate on the transparency of British budgetary practices

Forwood, MP, would pioneer and bulldoze the manner in which expenditure was presented to parliament. With little consultation Hamilton and Forwood were behind the 1888-9 navy estimates forwarded to Treasury on December 1887 for parliamentary ratification that were presented in an entirely new format. The total estimate of ?13,776,572 was divided into 17 separate votes, as it had been in 1887-8, but using radically revamped expenditure categories and a entirely new approach to classifying expenditure.

?Forwood and Hamilton were behind this move towards what is now termed a purposive or objective approach that classifies these expenditures according to their purpose or object, that is, for example, to the specific ship on which the labour and materials were expended.?? In this way, the aggregate costs of repairing or constructing a particular ship would be produced. This approach would increase transparency in the sense that it would be possible to compare these costs with, for example, what private shipyards might charge and enable notions of efficiency to be introduced? highlighted Professor Burrows.

Although the new format of the estimates had been presented virtually as a fait accompli, their receipt by Treasury initiated a flurry of Admiralty -Treasury negotiations which included two inter departmental conferences in Downing Street and an exchange of correspondence that went on for almost three months.

For the Navy these changes would remain but this objective accountancy practice would only slowly permeate Britain?s public-sector accounts.? ??The reformatted 188-9 navy estimates, represented the first adoption, in any substantial way of objective, expenditure- classification together with an element of accrual accounting in material presented for approval to parliament? elaborated Professor Burrows.? It required enormous effort and commitment to overcome the inertia and resistance caused by Westminster traditions and protocols but the legacy of this change was profound, ?This change with its emphasis on objectivity and efficiency, represented a departure from the Gladstonian stewardship approach to the control of public expenditure which stressed the nature or subject of expenditure and saw parliament as the appropriate forum for raising questions relating to efficiency and effectiveness.?

Source: http://benews.unimelb.edu.au/2012/how-the-navy-helped-britain-balance-its-books/

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