Letter from the Ministry of Defence on
Resource Based Estimates: Briefing Notes
1. The Treasury submitted a Memorandum on
resource accounting and budgeting (RAB) to the Committee of Public
Accounts (PAC), the Procedure Committee and the Treasury Committee
on 11 January 1999. The Memorandum provided the Committees with
an update on departments' RAB implementation progress and attached
an illustration of the provisional format of resource-based Estimates
using data provided by the Home Office.
2. The Treasury plans to introduce the first
resource Supply Estimates for 2001-02. However, the transition
from cash to resource-based Supply is being closely monitored
by the Parliamentary Committees and a decision on whether to proceed
will be taken next year. To enable departments to take the development
of resource Estimates a stage further, the Memorandum proposed
that an appropriate dialogue should take place between individual
departments and select committees on the structure of departments'
own resource-based Estimates.
3. The purpose of this note is, therefore,
to seek the Defence Committee's view on the proposed format for
the MOD's resource-based Supply Estimates. The timing of this
approach is entirely consistent with the agreed programme of RAB
briefing sessions that will inform the Defence Committee's ongoing
enquiry into RAB. This note provides an introduction to the subject
and indicates the potential scope of the briefing Colin Balmer,
the Principal Finance Officer, will offer to the Committee.
RESOURCE ESTIMATE
FORMAT
4. Attached is a mock-up of how MOD's Estimate
will appear under RAB. This is consistent with the standard format
contained in the Treasury's Memorandum. The figures shown are
purely illustrative but show how the department's Estimates for
2001-02 might look on an accruals basis. A commentary explaining
the mock-up in more detail is also provided to assist the Committee's
understanding of the changes arising from the move to resource-based
Supply.
5. The illustrative Estimate comprises:
— Part I—containing the Ambit
— Part II—the subhead detail
— Part III—Consolidated Fund
Extra Receipts (CFERs)
— Forecast Operating Cost Statement
— Forecast Cash Flow Statement
PARLIAMENTARY CONTROL
6. Under RAB, it is proposed that Votes
will be replaced with "Requests for Resources (RfR)"
and, for each departmental RfR, Parliament will vote a net resource
requirement and Appropriations in Aid (AinA). Parliament will
also be invited to vote a single figure for the overall net cash
consequences of the department's resource budget (the total of
all RfRs). In addition, and for the first time, capital receipts
will also be subject to an explicit Parliamentary control in the
form of a voted amount for "non-operating AinA."
7. In line with the proposed format of the
MOD's cash Supply Estimates for 1999-00, about which the Defence
Secretary has written to Mr George, it is proposed that there
should be a single Request for Resource (RfR) for the Defence
block budget under RAB. The Armed Forces Pension Scheme (AFPS)
(covered by Vote 4 in the current cash Estimates) will, under
RAB, be presented in a separate Estimate. As the mock-up illustrates,
within the single RfR of the block budget, an analysis by Top
Level Budget (TLB) will continue to be provided.
CAPITAL EXPENDITURE
8. One of the more significant changes to
be introduced with the resource Estimate is the split between
current and capital expenditure. The department's resource budget
(ie the RfR resource total) is the annual resource cost of the
department including depreciation and a capital charge. The department's
capital expenditure budget is shown separately on the face of
the Estimate and will be supported by new information contained
in capital expenditure plans.
VIREMENT
9. The Treasury is currently considering
the arrangements for how virement might operate in resource-based
Estimates.
CASH UNDER
RAB
10. Cash will continue to be an important
part of Supply under RAB. Parliament will, accordingly, be asked
to vote an aggregate net cash requirement for the department which
will determine the amount of cash which is available to be drawn
down from the Consolidated Fund in the year in question. At the
end of the year, the resource accounts will highlight the cash
balance in departmental bank accounts and departments will be
liable for a capital charge on such sums.
SUPPORTING INFORMATION
11. In addition to information provided
in the mock-up, resource Estimates will, when fully implemented,
be accompanied by explanatory notes and supporting information.
The explanatory notes will contain basic information intended
to put the Estimate into context including a general description
of the expenditure involved; a statement of the Accounting Officer
responsibilities for the Estimate and an indication of any important
features or related Estimates. It is planned that much of the
supporting information will be published in a new forward-looking
document, of which the department's resource-based main Estimate
will form a part.
12. The Estimates and supporting information
will together provide an explanation of the expenditure the Government
proposes to finance from funds made available by Parliament. It
will, therefore, be important to ensure that all supporting notes
are relevant and informative. As now, further information about
the department will be available to the Committee on request as
a result of its consideration of the Estimate or to the whole
House through Parliamentary debate.
13. Work to determine the detailed layout
and scope of the Departmental Plans and notes to the Estimates
is currently in hand. Detailed proposals will be submitted to
Parliament once this exercise is complete.
CONCLUSION
14. The Committee is invited to note that
under RAB it is proposed that Parliament will vote the following
figures for the MOD:
a. for the Main Estimate (single RfR):
b. for the Armed Forces Pension Scheme (AFPS)
Estimate:
i. net resource requirement;
ii. net cash requirement;
iii. Appropriations in Aid.
15. The Committee is asked to confirm that
it is content with the provisional format of the Resource Estimate
and for work on the development of RAB systems and procedures
within the department to proceed consistent with this format.
16. It would be helpful to have the Committee's
response to the proposals in this letter as soon as possible,
so that departmental budgeting systems for the next financial
year can be set up before the end of March 1999. Colin Balmer
would be happy to brief the Committee on the proposed resource
Estimates format if that would be helpful to the Committee.
9 March 1999
COMMENTARY ON
ILLUSTRATIVE RESOURCE
ESTIMATE
1. Under RAB, each department will produce
a single resource-based Main Estimate, the coverage of which will
be reflected in Schedule 1 of the associated departmental Resource
Account. The MOD will also produce a separate Estimate for the
Armed Forces Pension Scheme (AFPS).
2. A mock-up of how MOD's Main Estimate
will be presented under RAB is attached. The format of the Estimate
is consistent with the standard format for resource-based Estimates
proposed by the Treasury, which is in turn broadly based on that
used for current cash-based Estimates.
3. The illustrative Estimate comprises.
— Part I—containing the
Ambit.
— Part II—the subhead detail.
— Forecast Operating Cost Statement.
— Forecast Cash Flow Statement.
4. Part I of the Resource Estimate will
contain the following key facts:
a. the net provision sought for the coming
year in both resource and cash terms.
b. the Ambit. Under RAB, the Ambit will indicate
the scope of the expenditure to be financed from within the Estimate,
including associated non-cash items (eg depreciation and capital
charges).
c. confirmation that the MOD will account
for the Estimate; and
d. any amounts that have been allocated in
the Vote on Account.
5. The net provision amounts, both resource
and cash, the Appropriations in Aid totals and the Ambit of the
Estimate will be reproduced in the Appropriation Act and will
together provide the statutory authority for the expenditure.
No expenditure may be financed from the Estimate which is in excess
of the net provision totals or which is not covered by the Ambit.
6. Part II of the Estimate is in a tabular
format and has a broadly similar structure to existing cash-based
Estimates. The mock-up proposes a single RfR for the Defence block
budget. The RfR shows a breakdown of expenditure in accordance
with Cm 3978, with an analysis by Top Level Budget (TLB). There
are two key reasons why this is the preferred option:
a. the integrated nature of the Defence programme;
and
b. the adoption of a distinct capital budget
under RAB.
7. Unlike many other departmental budgets
which are transferred through grants to local authorities or other
bodies, or which comprise a number of measurable programmes, the
Defence budget is effectively consumed by the department on delivering
military capability. This capability is delivered by the department's
Front Line units with support from personnel and logistic units
responsible for the training and welfare of personnel, and for
ensuring that serviceable equipment and trained manpower are in
the right place at the right time and with the appropriate level
of support. The department's TLB structure reflects this arrangement.
However, these are not stand-alone budgets. There are frequent
and numerous transfers of assets, resources and personnel between
them. Often services will be provided by one TLB on behalf of
others.
8. For management purposes, the TLBs represent
a sensible division of responsibility closely aligned to the military
command structure. Thus visibility of the TLBs on the face of
the Estimate identifies the highest level of financial management
and accountability within the department. As necessary, the Top
Level Budget Holders accompany the Accounting Officer to PAC hearings.
COLUMNS
9. The columns in the Estimate table differentiate
between types of expenditure. Data contained in columns 1-9 will
be accounted for on an accruals basis.
10. Columns 1 and 2 show direct expenditure
by the department and its agencies. This is the forecast annual
resource cost and will therefore include depreciation and the
capital charge rather than the amounts associated with the acquisition
of capital items. Column 3 shows grants and transfers to bodies
outside the RAB departmental boundary; Column 4 shows Appropriations
in Aid and Column 5 shows the net resource total which will be
subject to Parliamentary control.
11. Columns 6 and 7 show forecast capital
expenditure and receipts from the disposal of fixed assets.
12. Column 8 will show the total net resource
provision for the previous year and Column 9 will show net resource
outturn for the year prior to that.
RESOURCE TO
CASH RECONCILIATION
13. The "Resource to Cash Reconciliation"
box shown in Part II shows how the department's annual cash requirement,
for both current and capital expenditure, is derived. In essence,
this involves subtracting the non-cash items included in the resource
total (mainly depreciation and capital charges), adding the net
cost of capital expenditure and adjusting for movements in working
capital (debtors, creditors and stocks) to take account of the
timing differences for bill payment. The net effect of these changes
produces a forecast for the department's net cash requirement
in the year ahead. It is this figure which is subject to Parliamentary
control.
14. Part III of the Estimate shows
the extra receipts payable to the Consolidated Fund. As now, this
seeks to notify Parliament of the department's forecast amounts
to be paid directly to the Consolidated Fund and not appropriated
in aid.
15. Forecast Operating Cost Statement
and Forecast Cash Flow Statement. These statements will reflect
the format of, and have the same scope as, the outturn Operating
Cost and Cash Flow Statement which will be included in the department's
Resource Account.
16. The forecast statements will be accompanied
by notes which, although not shown in the attached mock-up, will
provide additional information to Parliament about the specific
nature of the department's plans.
Resource Estimate: 2001-02
Ministry of Defence
PART I:
| RfR 1: Ministry of Defence: Resource Budget
| £24,500,000,000 |
| Net Cash Requirement | £22,800,000,000
|
Amount required in the year ending 31 March 2002 for expenditure
by the Ministry of Defence on the personnel, goods and services
required to defend the United Kingdom, its Dependant Territories,
its people and interests and to act as a force for good by strengthening
international peace and security.
Expenditure includes the personnel and training costs etc
of the armed forces and their reserves and cadet forces, etc and
of civilian staff employed by the Ministry of Defence, and the
personnel costs etc of Defence Ministers. Expenditure on logistics
and procurement including research and development costs; spares;
other support and sundry services. Expenditure on the production
and procurement of new capital items: buildings, plant and machinery,
IT and communications equipment, weapons systems and other fighting
equipment and the repair and maintenance of existing asset holdings.
The provision of associated capital facilities and works; purchases
for sale abroad and provision of other services on repayment terms;
contractors' redundancy costs. Provision for the annual costs
of capital: depreciation and the capital charge. Expenditure for
services provided by and to other Governments and other Government
departments and subscriptions, grants and other payments including
those abroad.
THE MINISTRY
OF DEFENCE
WILL ACCOUNT
FOR THIS
ESTIMATE
| Total RfR1: | |
| |
| Net Total
£
| Allocated in
Vote on Account
£
| Balance
to complete
£
|
| Total RfR1: | |
| |
| Total RfR1: | |
| |
| Resource Requirement | 24,500,000,000
| 11,025,000,000 | 13,475,000,000
|
| Cash Requirement | 22,800,000,000
| 10,260,000,000 | 12,540,000,000
|
|
Resource Estimate: 2001-02
PART II: Subhead Detail
|
| £'000
| £'000
| £'000 | £'000
|
| Resource Budget
| Non-Resource Budget
| 2000-01 | 1999-2000
|
|
| 1
| 2 | 3
| 4 | 5
| 6 | 7
| 8 | 9
|
| Admin |
Other Current | Grants
| AinA | Net Total
| Capital | Non- operating AinA
| Total net resource provision
| Net resource outturn |
| Request for Resource 1: Ministry of Defence Resource Budget
|
| EXPENDITURE WITHIN DEPARTMENTAL EXPENDITURE LIMIT (DEL)
|
| Central Government's own expenditure
|
| A | Commander-in-Chief Fleet
|
| — |
0 | —
| 0 | 0
| 0 | 0
| 0 | 0
|
| B | General Officer Commanding (Northern Ireland)
|
| — |
0 | —
| 0 | 0
| 0 | 0
| 0 | 0
|
| C | Commander-in-Chief Land Command
|
| — |
0 | 0
| 0 | 0
| 0 | 0
| 0 | 0
|
| D | Air Officer Commanding-in-Chief RAF Strike Command
|
| — |
0 | —
| 0 | 0
| 0 | 0
| 0 | 0
|
| E | Chief of Joint Operations
|
| — |
0 | —
| 0 | 0
| 0 | 0
| 0 | 0
|
| F | Chief of Defence Logistics
|
| — |
0 | —
| 0 | 0
| 0 | 0
| 0 | 0
|
| G | 2nd Sea Lord/Commander-in-Chief Naval Home Command
|
| — |
0 | —
| 0 | 0
| 0 | 0
| 0 | 0
|
| H | Adjutant General (Personnel and Training Command)
|
| — |
0 | —
| 0 | 0
| 0 | 0
| 0 | 0
|
| I | Air Officer Commanding-in-Chief RAF Personnel and Training Command
|
| — |
0 | —
| 0 | 0
| 0 | 0
| 0 | 0
|
| J | 2nd Permanent Under Secretary of State
|
| — |
0 | 0
| 0 | 0
| 0 | 0
| 0 | 0
|
| K | Defence Procurement Agency
|
| — |
0 | —
| 0 | 0
| 0 | 0
| 0 | 0
|
| L | Defence systems procurement
|
| — |
0 | —
| 0 | 0
| 0 | 0
| 0 | 0
|
| M | Major Customers' Research Budgets
|
| — |
0 | —
| 0 | 0
| — | —
| 0 | 0
|
| N | Loans and grants to and repayments from the Met Office
|
| — |
— | —
| 0 | 0
| — | —
| 0 | 0
|
| O | Loans and grants to and repayments from DERA
|
| — |
— | —
| 0 | 0
| — | —
| 0 | 0
|
| OTHER EXPENDITURE OUTSIDE DEL |
| P | Other Expenditure
|
| — |
— | 0
| — | 0
| — | —
| 0 | 0
|
| Total | | 25,700,000
| 100,000 | -1,300,000
| 24,500,000 | 7,200,000
| -200,000 |
| |
|
| Total accruals to cash adjustment -8,700,000
|
| NET CASH REQUIRED 22,800,000
|
|
| Resource to Cash Reconciliation
|
|
| Resource Budget (net) |
| 24,500,000 |
| Non-Resource Budget items: |
| |
| Capital | 7,200,000
| |
| Less: Non-operating AinA | -200,000
| 7,000,000 |
| Accruals to cash adjustments: |
| |
| Capital charges | -4,500,000
| |
| Depreciation | -3,500,000
| |
| Other non-cash items | 300,000
| |
| Increase (+)/Decrease (-) in stock | -1,100,000
| |
| Increase (+)/Decrease (-) in debtors | 100,000
| |
| Increase (+)/Decrease (-) in creditors |
500,000 | |
| Increase (+)/Decrease (-) in provision |
-500,000 | |
| Excess cash to be CFER'd | 0
| -8,700,000 |
| Net Cash Required | | 22,800,000
|
| Summary of Voted Totals |
| |
| Resource Budget (net) | |
24,500,000 |
| Resource Budget AinA | |
-1,300,000 |
| Net Cash Requirement | |
22,800,000 |
| Non-operating AinA | | -200,000
|
|
Resource Estimate: 2001-02
FORECAST OPERATING COST STATEMENT FOR THE YEAR ENDED 31
MARCH 2002
|
| Forecast 2001-02
£'000
| Provision 2000-01
£'000
| Outturn 1999-00
£'000
|
|
| Operating Costs |
| RfR1: Ministry of Defence resource budget
|
| Staff Costs | 8,600,000 |
| | | |
|
| Other Operating Costs | 17,200,000
| | | |
| |
| Gross Operating Costs |
| 25,800,000 |
| |
| Operating Income | | -1,300,000
| | | |
|
| Net Operating Costs |
| 24,500,000 | |
| | |
| Forecast Resource Budget Outturn
| 24,500,000 | |
| | |
| Net Resource Outturn |
| 24,500,000 | |
| | |
|
PART III: EXTRA RECEIPTS
PAYABLE TO
THE CONSOLIDATED
FUND (£000)
|
| 2001-02 IncomeReceipts
| 2000-01 IncomeReceipts
| 1999-2000IncomeReceipts
|
|
Income from fees not
classified as AinA
| | | |
| | |
Income from the sale of
assets not classified as
AinA
| | | |
| | |
|
Resource Estimate: 2001-02
FORECAST CASH FLOW STATEMENT FOR THE YEAR ENDED 31 MARCH
2002
|
| Forecast
| Provision | Outturn
|
| £'000
| £'000 | £'000
|
|
| Net cash outflow from operating activities |
15,800,000 | |
|
| Capital expenditure and financial investment
| 7,000,000 |
| |
| Payments to the Consolidated Fund | 0
| | |
| Financing from the Consolidated Fund | 22,800,000
| | |
| Increase in cash in the period | 0
| | |
| Reconciliation of operating cost to operating cash flows
| £'000 | £'000
| £'000 |
| Net Operating Cost | 24,500,000
| | |
| Adjust for non-cash transactions | -7,700,000
| | |
| Adjust for movements in working capital other than cash
| -500,000 |
| |
| Adjust for transfers from provision | -500,000
| | |
| Net cash outflow from operating activities
| 15,800,000 |
| |
Analysis of capital expenditure and financial investment
Purchase of fixed assets
| 7,200,000 |
| |
| Proceeds of disposal of fixed assets | -200,000
| | |
| Loans to other bodies | 0
| | |
| Net cash outflow from investing activities
| 7,000,000 |
| |
Analysis of financing
From Consolidated Fund
| 22,800,000 |
| |
| Cash balance | 0
| | |
| Net cash requirement | 22,800,000
| | |
|
|
