RESOURCE ACCOUNTING AND BUDGETING (PAC
97-98/14)
Letter and Memorandum submitted by HM
Treasury
I enclose 25 copies of a memorandum from the
Treasury on resource accounting and budgeting (RAB). The memorandum
is addressed jointly to the PAC, the Procedure Committee and the
Treasury Committee. It meets the previous administration's undertaking
to come back to the Committees with a further memorandum setting
out detailed proposals for RAB.
The memorandum outlines progress since last
year on various aspects of the implementation of RAB and makes
further proposals for a resource-based system of Supply and reporting
to Parliament. As well as the memorandum itself there are Annexes
which describe the Treasury's proposals for testing Estimates
and in-year procedures, provide commentaries on the financial
statements approved by the Financial Reporting Advisory Board
(FRAB), set out illustrative resource accounts for the Treasury
and MAFF and answer some specific concerns about RAB.
In the PAC's Ninth Report, Resource Accounting
and Proposals for a Resource-based System of Supply, HC 167,
Session 1996-97, the Committee requested further information or
clarification on a number of points about the resource based system
of Supply. These points were addressed in the Treasury's response
to the report (Cm 3577) and this memorandum seeks to provide further
information and reassurances on these issues. The comments below
follow the order of the points set out in the Introduction and
Summary of Conclusions and Recommendations of HC 167 and provide
a guide, as appropriate, to where the issues are discussed in
the memorandum.
PAC conclusion (xiii): We have reservations
about taking a firm view at this stage on the proposal to discontinue
producing Appropriation Accounts with effect for 2001-02. These
partly arise from the fact that two years is a short period of
parallel running, when such fundamental change is planned, and
partly from the issue of the basis on which Supply is voted.
. .
This memorandum seeks to reassure the PAC that
replacing Appropriation Accounts with resource accounts in 2001-02
will not reduce the controls or information available to Parliament
(paragraphs 24 to 28 of the memorandum). In addition, the memorandum
explains that parallel running has been designed to fit in with
the overall project timetable and will be reinforced by a period
of live testing (paragraphs 29 and 30 of the memorandum). A further,
extended period of parallel running would cause severe difficulties
for departments and might lead to a delay in the introduction
of RAB across Whitehall. The effects of an extended period of
dual running are set out in paragraphs 31 to 33 of the memorandum
and the Committee are asked whether they are now content in principle
to approve the replacement of Appropriation Accounts by resource
accounts with effect from the accounts for the financial year
2001-02.
PAC conclusion (xv): We note that, under
the Treasury's proposals, Parliament would typically vote on two
bases:
— in resource terms for the totality
of a department's expenditure, giving a fuller picture but less
precise measurement of expenditure than under a cash regime; and
— in each terms for the net funding
requirement only, as opposed to voting total expenditure (including
Appropriations-in-Aid) in cash terms, as at present.
Cm 3577 confirmed the broad picture of a dual
system of voting resources and cash. This memorandum provides
a more articulated model of resource Supply procedures. Paragraph
24 to 28 of the memorandum explain that the combination of a single
cash requirement and resource limits will provide a more effective
framework of control than the present cash based control system.
Annexes A and B set out the basic structure and broad functioning
of resource-based Estimates and in-year mechanisms as the basis
for further work between the Treasury and departments.
PAC conclusion (xvi): We note that the Government
are not proposing any change in the fundamental principles that
legislation is necessary to sanction the granting of Supply, and
that Parliamentary approval must be sought for any necessary increase
in provision during the course of the year. We would welcome more
information on any proposed change in the arrangements for securing
Parliamentary authority for emergency spending from the Contingencies
Fund.
Cm 3577 confirmed that there would be no change
to any of the fundamental principles underpinning Parliament's
authorisation of Supply. In particular, Cm 3577 confirmed that
the basic procedures governing the use of the Contingencies Fund
would remain unchanged. Paragraph 38 of the memorandum and Annex
F reaffirm this.
PAC conclusion (xvii): We note that any change
to voting Supply in resource terms as well as cash would not involve
changes to the current procedures for authorising Excess Votes
in which the Committee of Public Accounts play a key role. However
it is unclear from the wording of the Treasury's memorandum whether
they envisage that, in future, an overspend against the voted
cash figure might no longer trigger the Excess Vote procedures,
and that only an overspend in resource terms would constitute
an Excess Vote. We would be concerned if that were the case, since
we place considerable importance on the sanction that Parliament
must specifically approve any overspend of cash, and we note the
relative lack of precision which would be involved in establishing
whether there had been an overspend in resource terms.
Cm 3577 confirmed that any breach of a limit
authorised by Parliament, whether expressed in cash or resource
terms, would require separate Parliamentary authorisation. Excess
Vote procedures would, therefore, be triggered by an overspend
of cash as well as resources, and Parliament would continue specifically
to approve such overspends.
PAC conclusion (xviii): The Committee note
that the principle of annuality would be capable of being retained
in the proposals. However, it would need to be exercised on both
cash and accruals bases—to reflect the two methods of voting—and
both bases would need to be reflected in the annual legislation
through which appropriations are made.
Cm 3577 endorsed the Committee's view that the
cash and accruals bases should both be reflected in the annual
legislation through which appropriations are made.
PAC conclusion (xix): We note that, for some
departments . . . the proposed single Estimate seems likely to
be extremely large and to include diverse expenditure programmes.
We therefore welcome the Treasury's recognition that, for some
Estimates, Parliament may wish to vote current resources for separate
components of an Estimate, rather than a single sum. However we
shall be interested to see the Treasury's more detailed proposals
on how . . . this is to be applied. We note the Treasury's guidance
to Departments, which they copied to us on 1 November 1996, setting
out the core requirements for 1997 departmental reports.
The memorandum sets out at Annex B the current
working assumptions for the structure of resource based Estimates.
In addition, the memorandum explains in paragraph 24 that while
the intention is have a single Resource Account and Estimate for
each of the 60 or so departments, there is likely to be an overall
increase in the number of items to be voted by Parliament. This
will enhance the framework of Parliamentary control and increase
the information available to Parliament.
PAC conclusion (xxii): . . . We are pleased
that we are not being asked at this stage to support the proposal
to change the basis for voting Supply; and we agree with the Treasury's
view that more work needs to be done on the details of how such
a system would work. However, it is already apparent that the
proposed reforms have significant implications for the consideration
of Supply by the House. We therefore consider it essential that
the Procedure Committee be brought into the preparatory discussions
on this issue in good time. Before arriving at decisions on the
basis for voting Supply and on the future of Appropriation Accounts,
which are integral to the current systems of Parliamentary control
of expenditure and accountability, we should wish to see how the
more specific issues raised in this report are resolved.
Details of the process for voting Supply and
Parliamentary control of expenditure and accountability under
resource accounting and budgeting are set out in paragraphs 24
to 28 of the memorandum. The memorandum also explains in paragraphs
29 to 30 and Annex A the work that is being undertaken to evaluate
how a resource based Supply system would work. The live testing
programme will help to ensure that the arrangements will deliver
the required results. The memorandum has been addressed to the
Procedure Committee as well as to the PAC and the Treasury Committee
so that the Procedure Committee can be brought into the discussions
on these issues.
In the light of the Government's assurances
on each of the key issues raised by the PAC about the proposals
for a resource based system of Supply, and in view of the Government's
proposals for testing estimates and in-year procedures and the
further evidence it has provided about the effects of delay, the
memorandum requests that the PAC now confirm that they are content
in principle for resource accounts to replace Appropriation accounts
with effect from 2001-02.
PAC conclusion (xxiii): As we have noted
above, we do not underestimate the size of the take facing departments
in the introduction of resource accounts and in the transfer to
a resource-based Public Expenditure Survey by the year 2000. We
should wish to see the current system for voting Supply and the
proposed system run in parallel and progress reviewed so that
we can be confident that the change can be made without jeopardising
the effectiveness of Parliamentary control.
Cm 3577 confirmed that a period of parallel
running would take place spanning the years 1997-2001. This memorandum
sets out the arrangements for parallel running and live testing
as a part of the overall project timetable. It confirms that a
period of parallel running has been planned and will help to ensure
that Parliament's interests and ability to exercise its function
of control will not be put at risk (paragraphs 32 and 33 of the
memorandum). Live testing will reinforce the information gained
from the dual running exercise (paragraphs 29 and 30 of the memorandum
and Annex A). Progress on departmental implementation and information
from the dual running and live testing exercises will be monitored
and reviewed throughout the project. Paragraphs 21 and 22 of the
memorandum confirm that monitoring arrangements are in place and
notes that all departments are expected to be in a position to
move to resource accounting within the planned implementation
timetable of the project. The Government hopes that these arrangements
will reassure the Committee that the introduction of resource
accounting and budgeting will be made without jeopardising the
effectiveness of Parliamentary control
Resource Accounting and Budgeting Team
HM Treasury
30 July 1997
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