II. PROPOSED
CHANGES IN
CONTROLS AND
REPORTING ARRANGEMENTS
FOR WHICH
PAC APPROVAL IS
SOUGHT
A. GIFTS
1. Gifts of an unusual nature, or gifts whose
value exceeds £100,000, must be approved by the Treasury,
as must other gifts unless covered by Treasury delegation. Once
Treasury approval has been given, the department must lay a Minute
before Parliament 14 days in advance of making any such gift.
The Minute must currently include an indication of the Treasury's
approval.
2. To give the Committee an idea of the type
of gifts involved:
— in 1994-95, £400,000 of surplus
stocks of emergency biscuits were donated to UK aid organisations;
— the MOD is currently arranging to
make a gift of land, valued at £2.25 million, forming part
of Wroughton Airfield to the trustees of the Science Museum.
3. The need for all gifts to be reported to
the Treasury was asserted in 1894. In 1923, the PAC expressed
concern about the practice of making gifts of public property
without express Parliamentary authority. A procedure was therefore
instituted under which the Treasury would notify Parliament 14
days in advance of any gift proposed by departments greater than
£10,000. The threshold was raised to £50,000 in 1977
and to £100,000 in 1982. In 1990, with the agreement of the
PAC, responsibility for laying Minutes before Parliament was transferred
to departments. In addition if the total value of gifts in a year
exceeds £100,000 (excluding any for which Parliamentary authority
already exists e.g., through an Estimate) the total value and
total number of the gifts must be noted in a department's appropriation
accounts, as must any individual gift which exceeds £100,000.
Where assets are disposed of at less than full value the discounts
are treated as gifts and must therefore be reported under the
Minute procedure and noted in the appropriation accounts.
4. No central record is kept of the number of
gifts for which Treasury approval is requested. Some 3,907 gifts
(including discounts on asset disposals) are recorded in the Appropriation
Accounts for the three years 1993-94 to 1995-96 (an average of
1,302 cases a year), the vast majority being in aggregate form
and recorded by MOD and the FCO. Their total value is £36.3
million (an average total value of £12.1 million a year).
Within the total, four gifts over £100,000 are identified,
of which the highest is for £1.4 million. A very approximate
estimate is that the Treasury sees about a dozen cases a year.
The Treasury's Proposals on gifts
5. The Treasury believes that:
— it can rarely add value to the judgment
of departments on a particular gift. The delegation thresholds
for gifts have already been raised for many departments, with
no adverse consequences;
— for the strategic purpose of controlling
public expenditure, only very large or otherwise significant gifts
are of concern to the Treasury, and such gifts would in any case
be caught by one or more of the strategic criteria for Treasury
approval (being expenditure proposals which could increase pressure
on the Estimates provision; or set a potentially expensive precedent;
or cause repercussions for others);
— a £1 million threshold for minuting
Parliament on gifts would be significantly less than the present
day value (£2.5 million approximately) of the £10,000
threshold originally set in 1923 by Parliament. A threshold at
this level would ensure that Parliament was fully informed—and
had an opportunity to comment on—all gifts of a significant
size.
6. In the light of these considerations, the
Treasury believes that responsibility for taking decisions on
gifts should lie with the departmental Accounting Officer concerned.
Subject to the approval of the PAC, the Treasury therefore proposes
to discontinue the requirement for Treasury approval of gifts,
including unusual gifts, and to increase the threshold for reporting
gifts to Parliament through the departmental Minute procedure
from £100,000 to £1 million. Consistent with this step,
departmental Minutes would no longer include an indication of
the Treasury's approval. However, departments would still be required
to note in their departmental appropriation accounts any unusual
gifts, or any gifts which exceeded the new threshold either individually
in aggregate.
B. LOSSES AND
SPECIAL PAYMENTS
7. Treasury approval is required for certain
categories of losses and special payments. Thus, for instance,
departments have full delegation to write off most cash losses,
constructive losses and fruitless payments, but must seek Treasury
approval (subject to any delegations granted to individual departments)
to waive or abandon claims or to make certain categories of special
payments (such as ex gratia payments; payments not required by
contract, statute, or regulation; and certain compensation payments).
The different types of losses and special payment are defined
in Government Accounting.
8. All individual and aggregated losses and
special payments above £100,000 must be noted in departmental
appropriation accounts. Serious losses and potential losses should
be notified immediately to Parliament ("serious" is
not defined in Government Accounting).
9. Examples of losses and special payments include:
— an ex-gratia payment of £351,000,
made in 1995-96 to developers in compensation for wasted costs
incurred through the need to hold two enquiries after the intervention
of the high court;
— a special payment of £2.816
million made in 1995-96 following a European Court of Justice
ruling concerning the age at which men and women might receive
free prescriptions.
10. The present arrangements date back to 1961
when the Treasury reviewed this control at the instigation of
Plowden Committee (who were following up a recommendation to the
Select Committee on Estimates of 1957-58). The Treasury concluded
that it could add very little value where losses had already occurred,
but that there was a case for retaining control over categories
of losses and special payments where it was desirable to ensure
uniformity—for instance in the settlement of claims against
departments.
11. The PAC concurred with this conclusion,
as did Plowden. Plowden noted: "These new arrangements conform
with our views on the kind of role which Parliament, and in particular
the Committee of Public Accounts, may nowadays reasonably expect
the Treasury to exercise on their behalf, with greater emphasis
being placed on controlling major expenditures at the expense
of the smaller". Plowden recommended that, subject to the
agreement of the PAC, the new arrangements should be put in place
forthwith, and that the Treasury should review the arrangements
from time to time. For its part, the PAC noted that "all
these cases will still be open to examination by the Comptroller
and Auditor General who is thus in a position to bring to notice
in his Report any which appear to him to call for examination
by the Committee of Public Accounts".
12. No central record is kept of the number
of cases concerning losses and special payments on which the Treasury
is consulted. An internal survey conducted in 1994 suggested that
the total number of cases was about 300 a year. The total value
of losses and special payments reported in the appropriation accounts
for 1995-96 is £461.6 million. These accounts separately
record 104 cases over £100,000, with a total value of £159.0
million. of which 23 cases are over £1 million, worth £138.2
million, and 17 cases over £2 million, worth £130.8
million.
The Treasury's proposals on losses and special
payments
13. The Treasury notes that:
— its expenditure teams find they can
rarely add value to the judgment of departments on such decisions.
A number of teams have raised considerably the delegation thresholds
for such cases with no adverse consequences. Better decision-making
would result from giving departmental Accounting Officers sole
responsibility for what happens;
— in most cases the sums involved are
small and not likely to be material to public expenditure totals;
any large special payments would in any case be caught by one
or more of the strategic criteria for Treasury approval (expenditure
proposals of any kind which could increase pressure on the Estimates
provision; or set a potentially expensive precedent; or cause
repercussions for others);
— with regard to the 1962 objective
of ensuring consistency across government, the Treasury is confident
that it will be consulted on enough cases (as part of its general
responsibility to provide help and guidance to departments on
matters of regularity and propriety) to ensure that consistency
will be achieved. Moreover, the NAO will be able to check on regularity
and propriety as part of its certification audit of departmental
accounts;
— if the reporting threshold for losses
and special payments was increased to £1 million, the number
of cases separately reported in appropriation accounts would be
reduced by 78 per cent, but the total value of losses and special
payments separately identified would only fall by 13 per cent.
If the reporting threshold were £2 million, the figures would
be 74 per cent and 18 per cent respectively.
14. In the light of these considerations the
Treasury believes that full responsibility for taking decisions
on losses and special payments should lie with the departmental
Accounting Officer concerned. It now proposes, subject to the
approval of the PAC, to transfer responsibility for approving
losses and special payments to departments; and to raise the reporting
threshold of £100,000 to £2 million.
15. Departments would of course continue to
be required to note in their departmental appropriation accounts
any gifts which exceeded the new threshold either individually
or in aggregate, and to notify Parliament immediately in the case
of a serious loss or special payment.
C. CONTINGENT LIABILITIES
16. A contingent liability is a payment that
may have to be made in the future (e.g., as a result of a warranty).
Treasury approval is required for all non-statutory guarantees
and indemnities which may exceed £100,000 and which are not
given in the normal course of Government business. The Treasury
must also be consulted before a department issues letters or statements
of comfort, or seeks new statutory powers to take on particular
types of liability, or allows its NDPBs to issue letters of comfort
or guarantee borrowing by subsidiaries above £1 million.
17. Such liabilities are also subject to certain
Parliamentary reporting rules, as follows:
— new or amended non-statutory liabilities
which could exceed £100,000 must be reported in advance to
Parliament in a Minute approved by the Treasury;
— all outstanding contingent liabilities
over £100,000, whether statutory or not, must be reported
to the Treasury in an annual return which is used in compiling
the Supplementary Statements to the Consolidated Fund and National
Loans Fund Accounts.
18. Typical examples of contingent liabilities
are:
— a non-statutory liability of £1.4
million recorded in 1995-96 in respect of the insurance risk of
exhibits on loan to the Army and Navy Museums;
— a liability of £3.5 million,
in the form of a guarantee to meet a shortfall between rent liability
and income accruing to the Open University following an agreement
to take over the lease of the former Council of National Academic
Awards Headquarters.
19. In 1981 the Parliamentary reporting requirement
was put on the same basis as the Minute procedure used for reporting
gifts. The intention of the procedure is that as far as possible
Parliament is not asked to authorise the provision of funds to
meet liabilities of which it has not had reasonable notice and
for which no justification has previously been provided.
20. The Treasury sees approximately 100 contingent
liability cases a year. A Supplementary Statement to the Consolidated
Fund and National Loans Fund Accounts for 1995-96 lists 47 quantified
non-statutory contingent liabilities each worth over £100,000,
with a total value of £12,992.6 million; other cases in the
list are recorded as unquantifiable. Of the 47 quantified cases,
39 are over £1 million, worth £12,989.9 million and
36 over £2 million, worth £12,985.2 million.
The Treasury's proposals on contingent liabilities
21. The Treasury notes that:
— contingent liabilities are fundamentally
different from other types of expenditure in that they are uncertain,
unlikely to fall to be paid until some time in the future—perhaps
after the departure of a particular Minister and Accounting Officer—and
sometimes so large that the Treasury would have no practical option
but to bail out the department if the liability were realised.
For reasons of strategic control, therefore, the Treasury is not
proposing to pass full discretion in this area to departments;
— however, it would be cost effective
to make some increase in the reporting threshold. If it was increased
to £1 million, the number of cases reported would fall by
some 17 per cent but the total value of the liabilities reported
would fall by 0.05 per cent. With a £2 million reporting
threshold, the figures would be 23 per cent and 0.09 per cent
respectively.
22. in the light of these considerations, and
subject to the approval of the PAC, the Treasury proposes to increase
from £100,000 to £2 million the threshold above which
Treasury approval is required before departments may take on a
new non-statutory contingent liability; to make a similar increase
in the threshold for prior Parliamentary notification of such
liabilities; and for recording these liabilities in the Supplementary
Statements to the Consolidated Fund and National Loans Fund Accounts.
A similar increase is also proposed for notifying Parliament of
statutory liabilities in cases where no reporting procedures are
specified in the relevant statute. Once resource accounting is
in place, minimum disclosure requirements for contingent liabilities
in departmental resource accounts will be driven by accounting
standards as interpreted in the Government's resource accounting
manual.
D. FEES
AND CHARGES
23. The Treasury provides the PAC with a statement
once a year on the financial outturn on services where departments
are responsible for setting the fees and charges and there is
an accidental deficit and/or deliberate subsidy of £1 million
or more. The statement supplements the Appropriation Accounts,
which do not provide information about full cost recovery. The
statement is intended to show progress in implementing full cost
recovery policy and any other financial objectives for the relevant
services. Services are included in the statement according to
criteria from time to time agreed between the Committee and the
Treasury from 1982 (when the reporting process began) to 1993.
24. Typical examples of reportable subsidies
(based on 1995-96 estimated outturns) include:
— a subsidy of £1.5 million to
the Emergency Planning College;
— a deficit of £3.5 million incurred
by the Youth Treatment Service.
25. Each year the Comptroller and Auditor General
provides the Committee with a note on the content of the statement.
Under the criteria certain services are excluded, for instance
services for which details are reported separately to Parliament
in audited accruals accounts, such as those of most executive
agencies; certain services where, for policy reasons, there is
no direct link between costs and income, such as prescription
charges; and services provided by one government body to another.
26. Before 1993 subsidised services were reported
when their annual cost exceeded £1 million and the subsidy
represented 15 per cent or more of the full cost. Services with
accidental deficits were reported where their cost was more than
£100,000 and either there was an unintended deficit of over
£100,000, representing at least 10 per cent of cost, or a
deficit of any size was recorded for a second consecutive year.
27. In 1993 the Committee agreed that these
complicated arrangements should be replaced by the simpler requirement
to report cases where the subsidy or deficit was £1 million
or more in the financial year covered by the statement.
The Treasury's proposals on fees and charges
28. The Treasury notes that:
— the fees and charges report of December
1996 to the PAC showed 26 services in 1995-96 with a total shortfall
of £258 million. If the reporting threshold had been £2
million, the report would have covered 18 services with a total
shortfall of £246 million. Thus about 95 per cent of the
total shortfalls by value would still have been reportable but
the detail would have been cut by about a third;
— the proposed change would allow more
attention to be focused on those services with significant shortfalls;
— the objectives of achieving full
cost recovery wherever practicable and of reporting to Parliament
about the performance of services would be maintained.
29. In the light of these considerations, and
subject to the agreement of the Committee, the Treasury proposes
to double the threshold to £2 million for the annual statements
to the Committee, while leaving the other reporting criteria unchanged.
E. TREASURY MINUTES
30. Departmental replies to the reports of the
PAC require Treasury approval and are presented to Parliament
as Treasury Minutes over the Financial Secretary's signature.
The Treasury commissions replies and provides guidance to departments
on these replies; comments on the form and the substance of the
drafts; and publishes the responses in grouped Minutes.
31. The arrangements reflect the Treasury's
historical role in responding to the concerns of Parliament, through
the Committee, over the need for the executive to observe the
requirements of regularity, propriety good value for money.
The Treasury's proposal on Treasury Minutes
32. The Treasury believes that:
— since departments themselves are
the prime authors of the replies to the PAC it would be appropriate
for departments to take explicit responsibility for these replies.
The proposed arrangements would sharpen the accountability of
individual departments to Parliament by aligning accountability
with responsibility;
— as with departmental reports and
other public statements, the Treasury's strategic interests in
regard to these replies would be secured by the general requirement
that departments should clear with the Treasury any proposed new
policy statements with potential public expenditure consequences.
33. In the light of these considerations, and
subject to the approval of the Committee, the Treasury proposes
to make departments fully responsible for Minutes to the PAC.
Under this arrangements their departmental responses would be
presented to Parliament under the signature of the departmental
minister concerned. The Treasury would of course continue to reply
to any PAC recommendations on the Treasury's own business.
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