1

Economic Constitutions

The interdependence of the market and the state can never have been as
obvious as in the years since the financial crisis of 2008. The previous 30 years
had been the years of deregulation, of reliance on the dispersed wisdom of
unfettered markets, and of the ‘rolling back’ of the state. Yet when markets
proved unable to provide not merely social justice but also economic stability
and solvency, it was the state that was called to the rescue. This was followed
by the sovereign debt and banking crises in the eurozone, emphasizing fiscal
constraints on governments and the need for cooperation between states to
prevent financial collapse.
Of course, any idea that the state could withdraw from the economy had
already been proved illusory. This was apparent, for example, in the growth
of the concept of regulation as both an academic discipline and a concern of
practical politics. Regulation was necessary not just to limit the operation of
markets, to protect human rights, and to guarantee the provision of basic
services, but also to make markets work, as was evident from the vastly
increasing importance of competition law and policy and of the regulation
of financial services.1 Yet this concern with regulation tended to underesti-
mate the extent to which markets and the core state were intertwined;
regulation was classically portrayed as the work of independent agencies at
‘arm’s length’ from government, setting out a framework within which
market transactions could freely operate. The events of recent years have
shown that governments have been called on to intervene in ways which are
far deeper, and far more costly, than merely setting a framework of regula-
tion.2 Moreover, the range of techniques used is much wider than the use of
conventional regulatory instruments. For example, in the UK, management
of public expenditure has become the central plank in the Government’s

1 For the extraordinary rise of competition law in this context, see S. Wilks, ‘Competition Policy’
in D. Coen and W. Grant (eds), The Oxford Handbook of Business and Government (Oxford: Oxford
University Press, 2010), 730–56.
2 See e.g. J. Braithwaite, Regulatory Capitalism: How it Works, Ideas for Making it Work Better
(Cheltenham: Edward Elgar, 2008), esp. ch. 1.

The Economic Constitution. Tony Prosser.

© Oxford University Press 2014. Published 2014 by Oxford University Press.
2 Economic Constitutions
economic policy from 2010, and elsewhere it is fundamental in responding to
the sovereign debt crisis.
This book will portray a wide range of different techniques and institutions
which the UK Government has used as part of economic management. It will
concentrate on those techniques used directly by government rather than
through the establishment of separate agencies such as the competition author-
ities or the utility regulators, though there will be consideration of financial
services regulation carried out in part through independent agencies given its
systemic effects and its close relations with government economic policy.
However, to refer to ‘government’ is itself to oversimplify. Policy is in fact
devised and implemented through a network of different bodies, including
government departments but also trans-national organizations (notably the
European Union (EU) and the World Trade Organization (WTO)) and an
array of institutions which are not core government departments but are closely
linked to them. One objective of this book will be to map and document these
complex networks, examining their coherence and their abilities to communi-
cate and to cooperate, both of which were seriously challenged during the
financial crisis.
The second objective will be to assess the legitimacy and accountability
of these complex arrangements as they work in practice. Traditionally the
major areas of government economic activity, taxation and spending, were in
the UK constitutionally required to be accountable to Parliament. Given the
complexity of the modern arrangements for economic management, and the
limited capacities of Parliament itself, this has proved to be impracticable.
Instead, other means for accountability have arisen, some involving Parlia-
ment, but others operating outside it. This book will examine these and assess
to what extent constitutional requirements of accountability are being met in
diverse new ways.
These two central objectives will be addressed through an introductory
account of the major institutions and a more detailed analysis and critique of
their operation in a number of key areas of economic management. These are
taxation and borrowing; public expenditure; monetary policy; regulation of
financial services (including of the banks); government shareholdings and
industrial policy; and public procurement. It is hoped that these will be
sufficient to assemble a reasonably comprehensive, though inevitably not
exhaustive, account of the way in which the modern UK government man-
ages the economy. Before describing the different forms of intervention and
institutional arrangements in greater detail, it will be necessary to say a little
about the two concepts central to the book; those of economic management
and the concept of an economic constitution. The first of these will broaden
the field of study, taking it beyond traditional accounts of constitutional law
 Government and economic management 3
and of regulation, whilst the second will give it focus by suggesting the key
analytical themes and normative principles to be employed.

Government and economic management

Economic management and regulation
The definition of regulation used by academic writers (at least in the socio-
logical literature) has considerably broadened in recent years, moving from
‘command and control’ regulation to include self-regulation, co-regulation,
private regulation, and now regulatory capitalism. It has lost its former
emphasis on the use of rules and on work of regulatory agencies distanced
from central government; nor is regulation assumed to involve a hierarchical
relationship in which a regulator imposes outcomes on those regulated. Thus
‘regulation means influencing the flow of events. Conceived in this broad
way, regulation means much the same thing as governance . . . ’.3 There
would thus seem to be good reason to treat a wide range of government
techniques of economic management as types of regulation. Some of the
arrangements studied here clearly fall within existing regulatory studies, for
example regulation of financial services.
However, in general the regulatory literature has not included direct
economic management by central government in its coverage of regulation,
particularly the use of financial resources. There are exceptions; thus in a long
programme of work Daintith has emphasized the importance not just of
‘imperium’, referring to the use of command by government, but of ‘domin-
ium’, the use of its wealth.4 This has led him to analyze the employment of a
wide variety of different policy instruments, including the deployment of
governmental resources, in examining state-economy relations.5 He has also
examined in detail the process for public expenditure allocation in the UK.6

3 C. Parker and J. Braithwaite, ‘Regulation’, in P. Cane and M. Tushnet (eds), Oxford Handbook
of Legal Studies (Oxford: Oxford University Press, 2003), 119–45, 119. See also C. Scott, ‘Reflexive
Governance, Regulation and Meta-Regulation: Control or Learning?’ in O. de Schutter and
J. Lenoble (eds), Reflexive Governance: Redefining the Public Interest in a Pluralistic World (Oxford:
Hart Publishing, 2010), 43–63, 47.
4 See esp. T.C. Daintith, ‘Legal Analysis of Economic Policy’ (1982) 9 Journal of Law and Society
191–224, esp. 211–16.
5 T.C. Daintith, ‘Regulation’ in International Association of Legal Science, International Encyclo-
pedia of Comparative Law (Dordrecht: Martinus Nijhoff Publishers, 1997), vol. XVII, ch. 10,
paras 10-24, 10-92–10-142, 10-184.
6 T. Daintith and A. Page, The Executive in the Constitution: Structure, Autonomy and Internal
Control (Oxford: Oxford University Press, 1999), esp. chs 4–6.
4 Economic Constitutions
Similarly, a recent study of social housing has emphasized the importance of
the allocation of money in regulation; here ‘money has become one of the
most ubiquitous mechanisms of governing’.7 Yet examination of the alloca-
tion of money has not become central to regulatory studies.
This may be because public finance is seen as essentially a technical matter;
yet, as we shall see throughout this book, the use of financial resources and
other techniques of economic management, such as public procurement, are
intimately linked to policy goals. It may be for the opposite reason; that these
matters are at the heart of government policy and so gain legitimacy through
a combination of electoral mandate and ministerial responsibility. However,
electoral mandates do not in any explicit sense cover the complex and often
arcane processes to be described here, and many key choices are not subject to
any effective form of ministerial responsibility. Some decisions, such as the
allocation of public spending, may be seen as outside the scope of regulation
proper as they do not involve relations between a public regulator and
regulated private actors. However, regulatory literature has moved away
from requiring such a hierarchical relationship and many of the most
important types of regulation concern the delivery of public services such as
health and education. Indeed, ‘[o]ne of the defining features of regulatory
capitalism is that parts of states are set up with independent capacities to
regulate other parts of the state’.8 In this connection, it is clear that the unity
of the state (the Crown in a UK context) is merely a legal fiction; ‘[t]he fact is
that the United Kingdom executive is more plural than unitary’.9 Thus it is
warranted to consider as examples of regulation the relations between differ-
ent parts of the state, both institutional and in terms of the allocation of
resources between them.

Techniques of government economic management

Treating economic management as a type of regulation makes it clear that a
wide range of different techniques and instruments is used by government to
achieve economic goals. As noted earlier, a seminal distinction was made by
Daintith in distinguishing between ‘dominium’ and ‘imperium’. He explained
the distinction as follows:

7 M. McDermont, Governing, Independence and Expertise: The Business of Housing Associations

(Oxford: Hart Publishing, 2010), 108.
8 Braithwaite, Regulatory Capitalism (n 2) 25.
9 Daintith and Page, The Executive in the Constitution (n 6) 6.
 Government and economic management 5
I . . . use imperium as a generic term to describe those instruments of policy which
involve the deployment of force by government (recalling here that force usually
means the threat of force); dominium on the other hand describes those policy
instruments which involve the deployment of wealth by government.
He also refers to respect and the provision of information as other resources
which governments can deploy.10
Dealing first with ‘imperium’, the core means of state intervention has
traditionally been seen as through ‘command and control’ regulation. This is,
however, a surprisingly difficult concept to deploy and examples of pure
‘command and control’ are rare; more commonly, the term is used as a
politically charged metaphor for bad or inflexible regulation. ‘Command and
control’ regulation assumes that a public authority, gaining its legitimacy
from the political process, issues orders to companies or individuals requiring
them to meet goals laid down in public policy. The implication is that these
orders are obeyed, often unwillingly, but obeyed nevertheless. This concept
has however been subjected to a barrage of criticism in recent years. One
reason for this has been a burgeoning literature on the difficulties facing
regulators and government in gaining knowledge and understanding of
systems they are regulating, and that law is a blunt tool for intervening in
other systems.11 A second reason is that even where regulation ostensibly
takes the form of command and control, the reality has been shown to involve
negotiation between regulators and those they regulate, both through con-
sultation when rules are made and through selective enforcement in which
rules are implemented not as binding orders but as the basis for negotiation to
achieve reasonable results.12 There are thus few examples of command and
control in this book; even in the levying of taxes which might seem to be non-
negotiable demands from the authorities, we shall find that there may be
considerable room for negotiation of tax liability in practice; this has become
a highly controversial topic.
Economic management is also carried out through rules which are used
not to compel a definite outcome but to set out structures and determine
procedures within which various actors are to operate, and examination of
these will be central to this book. Examples would be the EU and the WTO
rules in relation to the award of public contracts, which do not pre-determine

10 Daintith ‘Legal Analysis of Economic Policy’ (n 4) 215–16 (emphasis retained); see also
Daintith ‘Regulation’ (n 5) paras 10-62–10-67.
11 This is to be found as a central theme in the literature inspired by the concept of autopoiesis;
see e.g. G. Teubner, Law as an Autopoietic System (Oxford: Blackwell, 1993).
12 One example from a large literature is K. Hawkins, Law as Last Resort: Prosecution Decision-
Making in a Regulatory Agency (Oxford: Oxford University Press, 2002).
6 Economic Constitutions
outcomes but seek to improve the transparency of the process; opening up
budgetary and fiscal policy through the role of the independent Office for
Budget Responsibility provides another example. One important regulatory
technique is that of proceduralization, and this may avoid problems of
command and control regulation through not seeking directly to intervene
but to facilitate agreement between others, both public and private. This links
to an important trend in regulatory studies; emphasis on the development of
self-regulation and co-regulation as alternatives to more traditional tech-
niques. Such a trend might seem to be promising in relation to the complex
areas to be examined in this book, and indeed in financial services so-called
‘self-regulation’ (in fact highly complex forms of co-regulation) had an
important role to play, especially before the financial crisis. However, what
is more apparent is the use of self- and co-regulation within government
itself; even the role of the Treasury in relation to spending policy has been
characterized in this way, and more recent examples of executive self-
regulation include the Spending Review process and the regulatory reform
initiatives. Moreover the use of procurement, for example through the Private
Finance Initiative, can be seen as a means of delegating responsibilities to the
private sector, as can some of the arrangements for implementing an attenu-
ated industrial policy through partnerships with the private sector. In other
cases there is a combination of state action and the use of markets, for
example in the role of the Bank of England in monetary policy both through
setting interest rates and through operations in the money markets.
Some techniques used for economic management thus correspond in part
to the most common instruments traditionally used for other types of
regulation; others, however, display major differences. Much more important
is the deployment of wealth as a means of government influence; Daintith’s
concept of ‘dominium’. This is most evident within government itself
through the use of the Spending Review as a means not just of allocating
resources but of changing the direction of policy and engaging in public
sector reform, as will be seen in Chapter 5. As regards relations with those
outside government, an area of wealth deployment which has unexpectedly
revived since 2008 has been the use of government shareholdings. Once used
as a means of public ownership of key (or, more often, failing) industries,
purchase of shares in the banks has been a major part of the Government’s
strategy for dealing with the financial crisis, in the UK as elsewhere.13 The
massive shareholdings are intended to be temporary, but the timing of

13 See J. Black, ‘The Credit Crisis and the Constitution’ in D. Oliver, T. Prosser, and
R. Rawlings (eds), The Regulatory State: Constitutional Implications (Oxford: Oxford University
Press, 2010), 92–128.
 Economic constitutions 7
disposal of the largest holding in Royal Bank of Scotland is uncertain and
in the meantime they illustrate a further means of government economic
management. Another example of the use of wealth by government is in the
area of procurement. This is partly structured by EU and WTO rules
requiring transparency and a more formal process, but some areas of con-
tracting remain outside these, and the ability to use contracting to implement
such policies as equal treatment has been controversial. A particularly fraught
issue, which will be examined in detail in Chapter 9, is that of defence
procurement where the competing goals of industrial policy, ensuring secur-
ity of supply of defence goods and services, and value for money have not
been successfully integrated and this failure has produced a pathological
failure to deliver any of them. A further area which combines public regula-
tion with the use of governmental resources is that of monetary policy, to be
considered in Chapter 6.14
Throughout this book, then, economic management will be treated as
one form of regulation which, because of the role of the executive, raises
particularly strong constitutional concerns. However, to adopt a broad
concept of regulation risks losing focus; if regulation is wide enough to
include almost all areas of social control, further analytical tools are needed
to identify those areas of regulation which raise major questions of consti-
tutional importance. Moreover, what principles can we have for assessing
what constitutes good regulation, either in a substantive sense (does it work
or produce fair results) or in a procedural one (is it responsive to its environ-
ment and affected interests)? How can constitutional principles help us in such
a normative task?

Economic constitutions
Different conceptions of the economic constitution
This is where the concept of the economic constitution becomes important,
both as an analytical device to provide clearer focus, and as a source of
normative principles of how regulation should seek to achieve constitutional
legitimacy. Thinking in terms of an economic constitution has one particularly
valuable result; that the descriptive and the normative are both relevant to
analysis of economic management. Thus constitutions are at one level mapping
documents; they set out the key state institutions, their interrelations, and their

14 For the role of monetary policy in this context, see Daintith, ‘Regulation’ (n 5) paras
10–109–10–113.
8 Economic Constitutions
relationship with civil society. They also permit effective governance and the
coordinated development and implementation of public policy. Constitutions
are also, however, essentially normative documents; they set out the key
principles of how we can expect government to conduct itself in its organiza-
tion and relations with others (including its own agencies). In particular,
the idea of a constitution strives towards a certain ideal of coherence in the
organization of public power. Thus one concern in this book will be the extent
to which the various arrangements for economic management form a coherent
whole, and in particular with the extent to which they permit effective
communication within different parts of government, with market actors and
with others who may be affected by decisions.15
The term ‘economic constitution’ is an unusual one in the UK, and may be
used in several different senses. The first is a largely descriptive one, referring
to the key constitutional principles and institutional arrangements which
may be relevant to management of the economy. In many countries with a
written constitution key provisions relating, for example, to taxation, expend-
iture, and property rights will be obvious candidates for inclusion, but the
scope of the relevant principles will go far beyond these to include other law,
both ‘hard’ and ‘soft’, and the institutional arrangements through which the
rules operate.16 Moreover, inevitably there will be a major international
dimension to such study due to membership of international organizations,
notably the EU and the WTO.17 One purpose of this work will be to
undertake such an analysis for the UK; as we shall see, despite the lack of a
written constitutional base it is by no means impossible to extract principles
from law and practices, and the constitutional rules are extensive and highly
varied in form and coherence. In the absence of detailed coverage elsewhere,
providing even a descriptive account of the economic constitution should be
valuable in itself.
A second, more normative, use of the concept of an ‘economic constitu-
tion’ is particularly associated with the German ‘ordoliberalism’ of the post-
Second World War period, a movement which was to have considerable
influence over the development of competition law in what is now the
EU. David Gerber has summarized their position well:
the ordoliberals added a ‘constitutional dimension’ to their analysis of economic
problems. A community’s political constitution and its choices in using law to

15 See J. Habermas, Between Facts and Norms (Cambridge: Polity Press, 1996), 168–93, 427–46.
16 For a notable application of this approach, see Sabino Cassese’s masterly work on Italy; La
Nuova Costituzione Economica, 5th edn (Rome; Editori Laterza, 2012).
17 See G. Anderson, ‘Beyond “Constitutionalism Beyond the State” ’ (2012) 39 Journal of Law
and Society 359–83.
 Economic constitutions 9
implement that constitution, they said, must ultimately establish the characteris-
tics of its economic system. Economic systems did not just ‘happen’; they were
‘formed’ through political and legal decision-making. These fundamental choices
determined a nation’s ‘economic constitution’ . . .18
Central to this approach is thus the belief that economic life is constituted,
not simply by transactions in the market-place, but by key political choices.
The outcome of these choices took the form of an economic constitution
with both a substantive and a procedural role, and the economic constitution
provided both a source for key governmental decisions and a constraint on
them. Thus it served to translate economic philosophy into law through
providing the basic principles of economic conduct and so the underlying
standards for competition law. It also required that government in undertak-
ing economic management should act only to implement the general norms
derived from the economic constitution, rather than using discretionary
powers. ‘Law would provide basic principles of economic conduct, and
government officials would not have discretion to intervene in the economy
except for the purpose of enforcing those principles.’19 The basic principles in
the economic constitution would be both ‘constitutive’ (fundamental norms
such as the stability of the currency and private property) and ‘regulative’, to
implement the more fundamental norms, notably through competition
law.20 Thus, for the ordoliberals, the major constitutional questions included
the balance between the private, market realm and that of the state, some-
thing needing explicit consideration in countries such as Germany with a
more developed state tradition than the UK.21 They also addressed the
institutional design of state bodies involved in economic management.
Thus they advocated, rather than decision-making by the executive, an
independent cartel office supervised by the judiciary to ensure compliance
with the economic constitution. Notably, they accepted that implementation
of the constitutional principles would require a strong, not a weak, state but
one constrained by the legal process.22

18 D. Gerber, Law and Competition in Twentieth Century Europe: Protecting Prometheus (Oxford:
Clarendon Press, 1998), 245. For a more detailed account, see Gerber, ‘Constitutionalizing the
Economy: German Neo-liberalism, Competition Law and the “New” Europe’ (1994) 42 American
Journal of Comparative Law 25–84, esp. 44–9, 75–7 and on the relationship between ordoliberalism
and the EU, see J. Drexl, ‘La constitution économique européenne—l’actualité du modèle ordo-
libéral’ (2011) XXV Revue Internationale de Droit Economique 419–54, esp. 423–36.
19 Gerber, Law and Competition in Twentieth Century Europe (n 18) 247.
20 Gerber, Law and Competition in Twentieth Century Europe (n 18) 248–9.
21 See Wilks, ‘Competition Policy’ (n 1) 739.
22 Gerber, Law and Competition in Twentieth Century Europe (n 18) 249–50; Drexl, ‘La
constitution économique européenne—l’actualité du modèle ordolibéral’ (n 18) 433–4.
10 Economic Constitutions
Explicitly normative work on the economic constitution has, of course, a
long pedigree. A famous example, drawing on some of the same roots as those
of the ordoliberal school though with major differences of substance, is that
of Hayek on ‘The Constitution of Liberty’ setting out conditions in which a
constitutional structure would permit markets to operate freely and so
contribute both to individual freedom and decentralized learning achieved
through the marketplace.23 Within economics, a normative approach of this
kind can also be found in the work of James Buchanan on the best consti-
tutional design for the organization of governmental or collective action; as
he put it in his lecture on receiving the Nobel prize in economics: ‘I urged
economists to look at the “constitution of economic policy”, to examine the
rules, the constraints within which political agents act. . . . my purpose was
ultimately normative rather than antiseptically scientific.’24 In both cases,
however, the normative concern was very different from that in this book;
they reflected principles of constitutional design on a priori grounds to
protect liberty or reflect the rational choices of individuals. This gives us
our third version of an economic constitution; a deliberately designed set of
principles to promote a particular value or set of social values in the process of
economic management.
A fourth version of the economic constitution has emerged more recently
in the form of the ‘new constitutionalism’, and can be seen as a mirror-image
of the preceding one. It draws on neo-Marxist and neo-Gramscian traditions,
and suggests that the normative concerns of protecting private investors have
been achieved all too successfully through the development of constitutional
rules, mainly at trans-national level, which have the effect of entrenching the
position of private capital. Within political studies, Gill has argued that:
[i]n sum, new constitutionalism is a subtle attempt to legitimate neo-liberal
globalisation. It mandates a particular set of state policies geared to maintaining
business confidence through the delivery of a consistent climate for investment
and thus for the accumulation of capital. It relies on a combination of political
and economic discipline and ideas concerning efficiency, welfare and democracy.
It stresses the rule of law. Thus we are witnessing an expansion of state activity to
provide greater legal and other protections for business, and efforts to stabilise the
investment climate worldwide.25

23 F.A. Hayek, The Constitution of Liberty (London: Routledge and Kegan Paul, 1960), esp. ch. 12.
24 J.M. Buchanan, ‘The Constitution of Economic Policy’ (1987) 77 The American Economic
Review 243–50, 243. See also J.M. Buchanan and G. Tullock The Calculus of Consent: Logical
Foundations of Constitutional Democracy (Ann Arbor: University of Michigan Press, 1962), esp. ch. 6.
25 S. Gill, ‘New Constitutionalism, Democratisation and Global Political Economy’ in
R. Wilkinson (ed.), The Global Governance Reader (London: Routledge, 2005), 174–86, 184, and
see Anderson, ‘Beyond “Constitutionalism Beyond the State” ’ (n 17) 367–9.
 Economic constitutions 11
The normative concern here is a critical one; rather than celebrating the idea
of constitutionalism as a protection for individual freedoms, it is seen as an
illegitimate constraint on collective democratic choice through its ‘objective
of removing contingency from politics’.26 A similar argument has been made
in the context of UK constitutional law by Nicol, who maintains that a
certain type of politics, termed ‘neo-liberalism’, has acquired entrenched
constitutional status as a result of developments in the WTO, the EU, and
through the European Convention on Human Rights. Entrenched neo-
liberalism has severely limited the opportunities of national governments to
choose substantive economic policies, in contrast to the relatively neutral
traditional British constitution based on absolute parliamentary sover-
eignty.27 This raises important questions, to be considered later in this
book, about the extent to which the economic constitution retains flexibility,
and the extent to which recent international developments really reflect a
unitary and coherent neo-liberal vision. The responses to the 2008 economic
crisis and to the later sovereign debt and banking crises promise to be
particularly revealing on these questions.

The European economic constitution

The more common employment of the term ‘economic constitution’ in
Continental European jurisdictions rather than in the UK has resulted in
its use in the context of the EU.28 It may refer to the general basis and
orientation of EU economic law. For example, Joerges has discussed the EU
economic constitution as originally ordoliberal, and as particularly appropri-
ate for its project of integration through its decoupling of the social dimen-
sion from competition, the former being a task for Member States. However,
he suggests that little is now left of this economic constitution because of its
replacement by the incorporation of other goals including monetary union
and new forms of social regulation: ‘[t]he Maastricht Treaty was the end of
the “economic constitution”.’29

26 Anderson, ‘Beyond “Constitutionalism Beyond the State” ’ (n 17) 367.

27 D. Nicol, The Constitutional Protection of Capitalism (Oxford: Hart Publishing, 2010). See
also Wilks, ‘Competition Policy’ (n 1) 752.
28 For a particular useful set of analyses of the meanings of the economic constitution in the
context of the European Union, see the essays in the special issue on ‘La Constitution Economique
Européene Revisiteé’ (2011) XXV(4) Revue Internationale de Droit Economique 411–599. For an
overview, see W. Sauter, ‘The Economic Constitution of the European Union’ (1998) 4 Columbia
Journal of European Law 27–68.
29 C. Joerges, ‘What is Left of the European Economic Constitution? A Melancholic Euology’
(2005) 30 European Law Review 461–89, 474.
12 Economic Constitutions
Others have concentrated more closely on the work of the European Court
of Justice, and have adopted a more nuanced and pluralistic vision of the
economic constitution. Thus Maduro, in his analysis of interpretation of
what is now article 34 TFEU on free movement of goods, begins by analyzing
the different approaches taken by the court to this article as part of a process
of constitutional development, and then describes three different models of
the economic constitution which can be drawn from it.30 These are positive
integration by the EU institutions, negative integration leaving it to the
market to select the most appropriate rules, and a decentralized model with
a greater role for the Member States.31 The second model is in large part
drawn from the work of the ordoliberals, but Maduro is particularly critical
of it as misreading the political values of the Treaty, which include not only
economic freedom and efficiency but also social and redistributive values.32
He prefers a more discursive constitutional model which ensures that there is
no under-representation in national political processes of the interests of
nationals of other Member States.33
Cruz has undertaken analysis of the competition and free movement
principles of EU law from a similar perspective, though he prefers to use
the term ‘economic constitutional law’.34 This is also a broader concept than
that of the ordoliberals; in contrast to their work
an approach based on the concept of economic constitutional law would use
constitutional methods of interpretation, in particular inferences from the struc-
ture of the constitution as a whole, taking into account non-economic values and
not lightly assuming a default rule of general economic liberty in case of a gap.35
This would permit the development of other constitutional themes including
‘private economic power, the guarantee and reach of the social state and social
rights, and the globalisation of markets and politics’.36 He also advocates a
more discursive and democratically legitimate basis for economic constitu-
tional law.37
What is clear from these accounts is that one cannot point to a single
European economic constitution. There are in fact different and competing

30 M. Poiares Maduro, We the Court: The European Court of Justice and the European Economic
Constitution (Oxford: Hart Publishing, 1998).
31 Maduro, We the Court (n 30) ch. 4.
32 Maduro, We the Court (n 30) 126–31, 159–64.
33 Maduro, We the Court (n 30) 166–75.
34 J. Baquero Cruz, Between Competition and Free Movement: The Economic Constitutional Law of
the European Community (Oxford: Hart Publishing, 2002).
35 Cruz, Between Competition and Free Movement (n 34) 28.
36 Cruz, Between Competition and Free Movement (n 34) 31.
37 See his discussion of the state action doctrine (n 34) 155–61.
 Economic constitutions 13
constitutional visions; other writers have pointed to an emerging environ-
mental constitution based on sustainable development and an emerging
constitution of citizenship; indeed, it has been argued that the EU has shifted
over time between an economic constitution and juridical, political, social,
and security constitutions.38 This in itself suggests that the new constitution-
alist claim of a single economic constitution entrenching neo-liberalism is a
serious over-simplification, without undermining the utility of a more plural
concept of the economic constitution. However, the sovereign debt crisis has
resulted in a further version of the economic constitution for the eurozone in
the form of the rules included as the fiscal pact in the Treaty on Stability,
Coordination and Governance, which include major constraints on the
ability of the national governments covered to run deficits; these had already
been prefigured in the ineffective Stability and Growth Pact adopted in
1997.39 This new form of economic constitution raises major questions of
the relationship between economic principle and national democracy central
to the ‘new constitutionalist’ project, and will be considered more fully in
Chapter 3 and in my concluding chapter.
Clearly, there are huge differences between the European economic con-
stitution and that of the UK, not least in the absence of a central institution
like the European Court of Justice responsible for determining matters of
constitutional principle. The sources of such principle are, as we shall see,
many and highly varied. My concern in this book is, however, closer to those
of Maduro and Cruz than that of the ordoliberals, the Hayekian, or ‘new
constitutionalist’ traditions in that it is concerned mainly with institutional
questions and process values. Of course, economic management raises
important questions of substantive justice, including distributional justice.
Indeed, this is one of the major lessons of the financial crisis since 2008 and of
government attempts to deal with it, and of the more recent sovereign debt
crisis. I have also argued elsewhere that regulation involves both procedural
values of deliberation and substantive values of efficiency, consumer choice,
human rights, and social solidarity.40 However, a prerequisite for such
substantive values to be considered in decision-making is that there are

38 M. Pallemaerts, ‘La Constitution Economique Européene et le “Développement Durable de

l’Europe” ’ (2011) XXV Revue Internationale de Droit Economique 511–41; L. Azoulai, ‘Constitu-
tion Economique et Citoyenneté de l’Union Européene’ (2011) XXV Revue Internationale de Droit
Economique 543–57; K. Tuori. ‘La Constitution Economique Parmi les Constitutions Européenes’
(2011) XXV Revue Internationale de Droit Economique 559–99; Sauter, ‘The Economic Constitu-
tion of the European Union’ (n 28) 57–68.
39 See Joerges, ‘What is Left of the European Economic Constitution?’ (n 29) 476–8.
40 T. Prosser, The Regulatory Enterprise: Government, Regulation and Legitimacy (Oxford: Oxford
University Press, 2010), 11–19.
14 Economic Constitutions
open and transparent processes available through which they can be incorp-
orated, and this book will be centrally concerned with institutional and
process values as part of the economic constitution. Thus in addition to
mapping the arrangements for economic management I shall examine the
extent to which they fulfil constitutional expectations of transparency and
accountability.41 Before describing my normative approach in greater detail,
more needs to be said about the first, and more descriptive, type of consti-
tutional analysis.

The institutional map

My first task will thus be to develop an institutional map of economic
governance, bearing in mind Moran’s warning that:
the appealing metaphor of a map of government is misleading, because it wrongly
implies that there exists one scale of measurement which will allow us to gauge
how far an agency is from the centre. The contrary is true; there exist numerous
indicators and they can all give different readings.42
Although economic management clearly falls within the broad concept of
regulation used here, we have seen that the techniques used are rather
different from those covered in most regulatory studies. The same is true of
the institutions, with a greater role for core central government, although as
we shall see there is also considerable use made of arm’s length bodies and of
networks of different types of organization. In studying the institutions, it is
important to note that informal rules will often be much more important
than the more formal ones, and indeed informal rules of the executive itself
may set out major constitutional principles. This point was well made by
Daintith and Page:
[t]o attempt this book would be pointless without the belief that norms generated
within the executive might properly form part of the constitution. . . . we see no
reason . . . [to deny] the adjective ‘constitutional’ both to norms that are not
wholly immune to modification by parliamentary legislation and to norms
which may not be susceptible to third-party (especially judicial) enforcement.43

41 For an influential earlier attempt to do so, see I. Harden and N. Lewis, The Noble Lie: The
British Constitution and the Rule of Law (London: Hutchinson, 1986), esp. 92–100, 129–36.
42 M. Moran, ‘Monetary Policy and the Machinery of Government’ (1981) 59 Public Admin-
istration 47–61, 47.
43 Daintith and Page, The Executive in the Constitution (n 6) 18–19; Cassese, La Nuova
Costituzione Economica (n 16) ch. 1.
 The institutional map 15
In this book I shall discuss some formal norms of ‘hard law’, for example the
Bank of England Act and the EU procurement rules, though even in these
cases the interest will lie not only in the formal substance of the rules but in
the operation of the institutions and procedures which they set up. I shall also
discuss a wide range of less formal norms comprising the ‘soft law’ of
economic management, including, for example, the now extensive norms
relating to government contracting.
The range of institutions examined will also be a catholic one. As noted
earlier, Daintith and Page stress that, despite the formal legal concept of the
unified Crown, the UK executive is actually highly pluralistic, and much
discussion in this book will be concerned with the interrelations between the
different elements comprising it.44 In the following chapter I shall describe
the key institutions which make up the executive, including the Treasury and
the Cabinet Office at the centre, and then say something about government
departments and their executive agencies. This does not, however, exhaust
the range of bodies involved. Although the UK Coalition Government
attempted to cut the number of ‘quangos’ or arm’s length bodies, this did
little to restrict institutional proliferation and, for example, the Bank of
England’s Monetary Policy Committee, UK Financial Investments Ltd,
which manages state shareholdings, the Office for Budget Responsibility,
and the new bodies regulating financial services are all important actors in the
process of economic management. The institutional pattern is thus a complex
one, and it must not be forgotten that all this occurs within an international
context in which the institutions of the EU and of the WTO assume
enormous importance. The EU itself has also been associated with a growing
number of agencies and networks performing regulatory functions, most
notably in the area of financial regulation, and these will be considered in
Chapters 3 and 7.
One outcome of this complexity is particularly noteworthy. As I have
argued in relation to other regulatory institutions, it is not enough to study
each in isolation.45 Especially when considering questions of accountability,
rather than one institution of government subject to democratic accountabil-
ity, we have a complex of different bodies subject to multiple and varied
accountabilities. This is evoked by the celebrated image of the ‘hollowing-
out’ of the state.46 Thus ‘to call one institution to account for how it has
operated is to disregard key features of the differentiated polity. Policy is the

44 Daintith and Page, The Executive in the Constitution (n 6) 6–9, 380–98.

45 Prosser, The Regulatory Enterprise (n 40) 6–8.
46 R. Rhodes, Understanding Governance: Policy Networks, Governance, Reflexivity and Account-
ability (Buckingham: Open University Press, 1997), esp 17–19, 53–5 and ch. 5.
16 Economic Constitutions
responsibility of no one institution but emerges from the interaction of
several’.47 Although the implication from the ‘hollowing-out’ metaphor
that the role of the core state has declined is a highly controversial one, it is
not necessary to accept this proposition to emphasize the importance of
networks beyond the core state.48 As a result it is not simply individual
institutions themselves which need to be studied but the relations between
them; these will often be complex. Networks are thus central to descriptive
analysis of the economic constitution, and it is also necessary to consider the
extent to which these are managed in a transparent way and in a way which
facilitates internal and external communication. Moreover, networks may
themselves contribute to the pursuit of accountability, especially (but not
only) in the context of multilevel governance.49 I shall assess the roles of both
Parliament and the courts in holding accountable the institutions described
here; in some cases these roles have been of fundamental constitutional
importance. However, in practice less formal arrangements may be of con-
siderably greater practical importance in the constitution as it now operates,
especially arrangements developed by government itself.

The normative approach

I stressed early on in this chapter that I shall be adopting a normative
approach to economic management on constitutional grounds rather than
simply describing the nature of the arrangements which are in operation.
This will differ from some other accounts of executive and economic man-
agement. For example, Daintith and Page deny that such a normative
constitutional enterprise is possible:
we do not think that this task can be attempted through the identification of
constitutional principles and values. Such principles and values are, of necessity,
normative in nature. How can one say whether a given principle or value forms
part of our positive constitution?50
As I mentioned earlier, other writers such as Hayek and Buchanan have used
the concept of the economic constitution in an explicitly normative way, but

47 R. Rhodes, Beyond Westminster and Whitehall (London: Unwin Hyman, 1988), 404.
48 For a particularly good discussion of the large literature on this point, see Braithwaite,
Regulatory Capitalism (n 2) ch. 1.
49 See C. Harlow and R. Rawlings, ‘Promoting Accountability in Multilevel Governance:
A Network Approach’ (2007) 13 European Law Journal 542–62; C. Scott, ‘Accountability in the
Regulatory State’ (2000) 27 Journal of Law and Society 38–60.
50 Daintith and Page, The Executive in the Constitution (n 6) 19–20 (emphasis retained).
 The normative approach 17
on a very different basis from my own approach. Thus Hayek’s concern was
with the necessary constitutional conditions to secure economic liberty;
Buchanan’s with establishing the constitutional rules which would be chosen
by rational individuals in order to mirror their preferences most accurately.
For them, the function of the economic constitution is to apply substantive
extra-constitutional norms.
Such concerns have found expression in substantive constitutional rules
limiting aspects of economic management, most famously in requirements
that budgets be balanced. This is now required, for example, by a 2009
amendment to the German Federal Constitution which will limit the scope
for running a deficit after 2016 (subject to exceptions for natural disasters or
exceptional emergencies outside state control).51 Similar provisions applying
to members of the eurozone are contained in the Treaty on Coordination,
Stability and Governance as a response to the sovereign debt crisis. Indeed,
attempts were made to develop such forms of budgetary self-restraint in the
UK, initially through soft law but then through statute in the form of the
Fiscal Responsibility Act 2010 requiring a halving of public borrowing by
2014. The requirement was of limited effect (the then Chancellor noted that
‘[t]he Act was eventually introduced in early 2010 to almost universal
derision. Legislation is no substitute for sound judgement’52) and has now
been replaced by the Budget Responsibility and National Audit Act 2011,
requiring the Chancellor to develop a Charter for Budget Responsibility
containing the objectives and mandate for fiscal policy.
Restrictions on borrowing will be discussed in detail in Chapters 4 and 5
in the context of finance and expenditure, and the requirements in relation
to the eurozone will be considered in Chapter 3. However, this book will
not primarily be concerned with substantive constitutional constraints on
policy of this kind, which of course raise serious issues about the democratic
legitimacy of the constitutionalization and internationalization of a particular
(and contested) approach to economic policy. These questions will be con-
sidered in my conclusion. Instead, my concerns in the substantive chapters
are mainly with institutional and process values; with legitimacy, deliber-
ation, and accountability. This includes the extent to which the arrangements
described in this book have an inner coherence. A constitution is in part
a means of establishing such coherence between different parts of the
state, and a degree of coherence is necessary for successful coordination and

51 The Constitution of the Federal Republic of Germany (Grundgesetz), arts 109–15.

52 A Darling, Back from the Brink: 1,000 Days at Number 11 (London: Atlantic Books, 2011),
268.
18 Economic Constitutions
communication. This is not incompatible with a plurality of constitutional
objectives and institutions.
A background assumption is that there has always been a constitutional
expectation that government economic management has been subject to
outside scrutiny and accountability.53 Traditionally, this was through Parlia-
ment’s scrutiny of government taxation and expenditure; indeed the existence
of such scrutiny was a major achievement of the seventeenth-century settle-
ment after the civil war and of the ‘Glorious Revolution’. The expectation
was partly due to the effect of taxation on individual property rights, but also
reflected the principle that the use of public funds needed proper explanation
and justification. However, two major changes made this scrutiny ineffective.
First, the scope of government economic management vastly increased and
was not limited to the areas which fell within the formal scrutiny of Parlia-
ment; it included the management of monetary policy, borrowing funds
from the markets, and regulation of private economic activity. Secondly, as
is well documented elsewhere, with the growth of party dominance of the
House of Commons (where powers of scrutiny of economic policy almost
exclusively lay), Parliament became increasingly ineffective as an independent
power in examining the executive, especially in relation to proposed spend-
ing. As it was vividly put in a report by the Hansard Society:
[i]n the view of many commentators, Parliament’s influence over government
proposals for taxation and expenditure, and priorities within that expenditure, is
virtually non-existent. The essential relationship between Parliament and govern-
ment is that the latter proposes and the former simply agrees. To draw an analogy,
the government decides the value of the cheque, to whom it should be paid and
when, and Parliament simply signs it.54
Other events showed clearly the weaknesses of some traditional constitutional
assumptions; for example, one response to the 2008 economic crisis was
action which violated existing domestic constitutional norms, including the
use of exceptionally wide Henry VIII clauses, retrospective legislation, and
permanent powers for the Treasury to override statute.55
This decline in constitutional scrutiny by Parliament did not change the
expectation of accountability for economic management, but created a void
in formal means for securing it. Instead, as we shall see throughout the book,

53 This argument is made strongly in Harden and Lewis, The Noble Lie (n 41) esp. 92–100,
129–36.
54 A. Brazier and V. Ram, The Fiscal Maze: Parliament, Government and Public Money (London:
Hansard Society, 2006), para. 2.4.
55 Banking (Special Provisions) Act 2008; Banking Act 2009 discussed in detail by Julia Black in
‘The Credit Crisis and the Constitution’ (n 13) 118–19.
 The normative approach 19
a variety of different institutions was to contribute in different ways to
accountability; institutions as diverse as the Monetary Policy Committee of
the Bank of England, the Office for Budget Responsibility, the regulatory
reform institutions, and international bodies such as the EU institutions in
the case of public procurement and state aids. Moreover, even though
Parliament’s advance powers of control of spending and use of financial
resources were virtually non-existent, through the work of the National
Audit Office, the Public Accounts Committee, and other select committees
it did develop an important role in ex post facto scrutiny of expenditure to
secure value for money. Even the courts, which had traditionally not exam-
ined economic management closely except in relation to some aspects of
taxation, began to take an interest.56
One aim of this book will be to assess how the network of institutions for
scrutiny and accountability has succeeded in fulfilling the need for constitu-
tional legitimacy and scrutiny which Parliament cannot meet. It will do so in
part by using lessons derived from studies of more conventional areas of
regulation. The starting point for this will be to look at the institutions’
transparency, openness, and reflexivity, by which is meant their ability to
engage in a process of mutual learning; reflexive learning ‘involves the
establishment of institutions and processes which facilitate the actors within
a domain for learning not only about policy options, but also about their own
interests and preferences’.57 Essential presuppositions for such a reflexive
approach are transparency and provision of information about government
proposals and actions; a willingness to receive and consider outside informa-
tion and arguments; the giving of reasoned justifications for decisions; and
the provision of opportunities for debate and deliberation. All these were
associated with the ideal of parliamentary scrutiny, if not the practice; how
have they been developed in the new institutional arrangements? They are
also themes familiar from regulatory developments elsewhere, both in the
theoretical literature and in the actual arrangements by which regulators take
decisions.58

56 See e.g. R v Secretary of State for Foreign and Commonwealth Affairs, ex parte World Develop-
ment Movement Ltd [1995] 1 WLR 386.
57 C. Scott, quoted in J. Lenoble and M. Maesschalck, ‘Reviewing the Theory of Public Interest:
The Quest for a Reflexive and Learning-based Approach to Governance’, in de Schutter and
Lenoble, Reflexive Governance (n 3) 3–21, 6.
58 For the theoretical developments, see J. Black, ‘Proceduralising Regulation’ (2000) 20 Oxford
Journal of Legal Studies 597–614 and (2001) 21 Oxford Journal of Legal Studies 33–58 and the essays
in de Schutter and Lenoble, Reflexive Governance (n 3). For practical developments see T. Prosser,
Law and the Regulators (Oxford: Oxford University Press, 1997) and Prosser, The Regulatory
Enterprise (n 40).
20 Economic Constitutions
In particular, two normative themes will be developed in this work. The
first has already been mentioned. It is the question of the coherence and
openness of relations between the different institutions, and networks, which
engage in economic management by or on behalf of government. It has
already been noted that there is no single unitary executive responsible for
economic management but rather a plethora of different bodies, both within
and outside core government. This obviously creates the risk of contradic-
tion, confusion, and blockages in communication between them; this was
precisely what happened with the breakdown of the tripartite relationship
between the Treasury, the Bank of England, and the Financial Services
Authority in the 2008 financial crisis. By contrast, it is possible for regulatory
institutions to develop a mutually supportive allocation of responsibilities;
one example would be that of the decisions of the German Federal Consti-
tutional Court making the availability of parliamentary scrutiny of revenue
and expenditure central to the constitutionality of guarantees for Greece and
increased liabilities to the European Stability Mechanism.59 As we shall see,
there have been attempts by UK governments to exert greater central control,
most recently through the Spending Review process; moreover, informal
networks have grown up to facilitate communication. The book will map
the arrangements and attempt to assess their success in creating a clear formal
or informal allocation of responsibilities, transparency, and opportunities for
effective communication between different parts of the system. In doing so,
the role of ‘soft’ rules such as memoranda of understanding and codes of
practice will be of considerable importance.
The second normative theme will be to examine each institution and to
assess arrangements for transparency, deliberation, and accountability. These
may apply between different institutions, or may be internal to individual
institutions. For example the centre has imposed extended requirements as a
result of the regulatory reform initiatives located in the Better Regulation
Executive in the Department for Business, Innovation and Skills.60 Other
requirements may be imposed by law; for example, the requirement for
publication of minutes by the Bank of England’s Monetary Policy Commit-
tee. Arrangements for transparency and accountability developed by institu-
tions themselves, and an assessment of the extent to which these are accessible
to stakeholders and others outside government, are also important. This
theme will reinforce the insights of Daintith and Page who emphasize that

59 Decision of 7 September 2011, BVerfG, 2 BvR 987/10 vom 7.9.2011, paras 104–7, 121–9,
141: Decision of 12 September 2012, BVerf G, 2BvR 13/90 vom 12.9.2012, paras 194–6.
60 For fuller discussion of ‘Better Regulation’, see S. Weatherill (ed.), Better Regulation (Oxford:
Hart Publishing, 2007) and Prosser, The Regulatory Enterprise (n 40) ch. 10.
 The normative approach 21
‘[e]xecutive self-restraint constitutes one of the essential underpinnings of
democracy and of the rule of law’.61 Of course, a full examination of the
workings of internal arrangements would require extensive empirical research
outside the scope of this book, but it is hoped that here there can be some
analysis of such internal forms of accountability.
This book will also assess the external accountability of the institutions
described here to Parliament, to the courts, and to other forms of adminis-
trative justice.62 It has already been suggested that Parliament’s formal role in
authorizing public spending is now ineffective; however it has built up
scrutiny involving the National Audit Office, the Public Accounts Commit-
tee, and other select committees which perform an important role in assessing
the value for money of expenditure which has already been made. There will
also be an assessment of the extent to which parliamentary scrutiny extends to
other forms of economic management, for example monetary policy. As
regards the courts, they have traditionally played only a limited role in the
areas to be described here, except in the case of taxation which is seen as
impinging directly on the property rights of citizens. However, they do have
the tools for more extensive scrutiny and this is developing further in the area
of procurement.
I shall return to these themes in the concluding chapter. In brief, it will
suggest that we have a highly plural constitution, both in terms of the
institutional map and arrangements for securing accountability. Pluralism
has virtues, in particular through permitting the testing of decisions by a
range of different bodies and providing opportunities for mutual learning.
However, it may lead to incoherence, as vividly demonstrated with the
collapse of communication between the three leading authorities in the
2008 financial crisis. Legal, political, and administrative forms of scrutiny
are vital to hold together the different parts of the constitution through
different forms of deliberative process; it is on their coherence and interrela-
tions that constitutional attention now needs to be focused.

61 Daintith and Page The Executive in the Constitution (n 6) 380.

62 For the interdependence of internal and external controls, see Daintith and Page, The
Executive in the Constitution (n 6) 3, 107.