The analysis is based on an extensive review of current and historical primary legislation, official publications from public authorities including HM Treasury, the Debt Management Office, Her Majesty’s Revenue & Customs (HMRC), the Bank of England (BoE) and other relevant institutions, additional pertinent literature describing the historical evolution of the system, and requests made to the above-mentioned departments under the Freedom of Information (FoI) Act 2000 (Berkeley et al. 2021)
In contrast to previous accounts of the UK state expenditure process (Hills and Fellowes 1932; Ryan-Collins et al. 2012; Pantelopoulos and Watts 2021), we pay particular attention to the role of the Consolidated Fund (CF) as the core legal and accounting construction from which all expenditure and revenue activity is ultimately initiated. The CF, we find, provides a line of sovereign credit-money to the state itself, backed by the state’s power to raise future tax revenues. Government ‘spending’ should then be understood as a form of money creation. This contrasts with the commonly understood idea that government spending is financed through taxation or borrowing from the private sector or via central bank-initiated money creation. Furthermore, we show that it is the UK Parliament rather than the central bank or ministry of finance that governs the CF and thus authorises spending, with the BoE automatically crediting government accounts when spending takes place.
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