Note on Resource Accounts and Budgeting:
Provisional Format of Resource Estimate
BACKGROUND
1. A White Paper in 1995 gave a commitment to
introduce RAB as the basis of public expenditure planning and
control. The present Government has confirmed its commitment to
the project and plans to introduce RAB fully from 2001-02, subject
to parliamentary approval.
2. The Treasury submitted a Memorandum on
RAB to the PAC, Procedure Committee and Treasury Committee on
11 January. This contained an illustration of the provisional
format of a resource-based Estimate reflecting the new public
expenditure control framework announced in the Economic and Fiscal
Strategy Report (Cm 3978) of June 1998, based on Home Office data.
Paragraph 49 of the Memorandum proposed that, now that the provisional
format of Resource Estimates has been established, an appropriate
dialogue should take place between individual departments and
their select committees on the structure of an individual department's
own resource-based Estimates, consistent with the standard format
contained in the Treasury's Memorandum.
3. The purpose of this letter is therefore
to seek the Committee's views on the proposed format of the resource-based
Estimate (Attachment 1).[2]
For the purpose of illustration we have inserted provisional outturn
data for 1998-99. A brief commentary is also provided to assist
the Committee's understanding of the changes arising from the
move to resource-based Supply.
RESOURCE ESTIMATE
FORMAT
4. As the Committee will be aware, it is
proposed that under RAB Parliament will vote the resource requirements
for each department, together with a single figure for the overall
net cash consequences of those resources. The attached illustrative
Estimate for DFID reflects the standard format proposed for Resource
Estimates which is broadly based on the format used for cash-based
Estimates at present.
5. The illustrative Estimate includes:
— part I (including the ambit);
— part II (subhead detail);
— part III (extra receipts payable
to the consolidated fund);
— forecast operating cost statement
(Schedule 2);
— forecast cash flow statement (Schedule
4).
6. As explained in more detail in the commentary
attached to the illustration,[3]
it is proposed that there should be two "Requests for Resources
for DFID, one for International Development and one for Overseas
Superannuation. This is consistent with the vote structure in
place at present. Parliamentary control would apply to the resource
total and to total Appropriation in Aid for each of the two Requests
for Resources. In addition, the proposed format for Resource Estimates
includes a more prominent split between current and capital expenditure
and, for the first time, capital receipts will be subject to an
explicit Parliamentary control.
7. Cash will continue to be an important part
of Supply under RAB. Parliament will 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 for the Consolidated
Fund in the year in question.
8. The data included in the attached example
are illustrative and are designed to give an idea of what the
department's expenditure at the time of the Main Estimate for
1998-99 might have looked like on the new basis. Because of the
shift to an "accruals" basis (paragraph 12 below refers)
and the lack of historic accruals information some of the figures
are inevitably estimates. The quality of information on the new
basis available to the department has improved during the 1998-99
financial year, so that it will be possible for Resource Accounts
to be produced at the year end.
9. In addition to the information provided
in the illustration, Resource Estimates will, when fully implemented,
be accompanied by supporting information in the forward looking
"departmental plan" under RAB (of which the department's
resource-based Main Estimate will form a part), as well as explanatory
notes to the Estimate. 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.
The assumption is that the further information which is currently
included in footnotes to the Estimates will continue to be shown
either in footnotes or as part of the explanatory notes referred
to above. We would in addition incorporate in the departmental
plan a degree of dissagregation similar to that in the Departmental
Report of March this year.
10. The Estimates and supporting information
will together provide an explanation of the expenditure that the
Government proposes to finance from funds made available by Parliament.
As now, further information about DFID 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.
11. 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 by the Treasury once this exercise is complete.
WHY CHANGE
TO RESOURCE
ACCOUNTING AND
BUDGETING?
12. The present system of public expenditure
planning and control is cash-based ie departments plan and account
for cash as it passes through their books regardless of whether
the cash is for current or capital spending or in respect of goods
and services which will be used ("consumed") in a different
financial year. RAB is the application of accruals accounting—long
standard practice in the private sector—for budgeting and
reporting on the expenditure of central government and a framework
for analysing expenditure by departmental aims and objectives,
relating these to outputs wherever possible. In this respect RAB
makes two significant improvements.
13. On the input side, RAB will ensure that
the full economic cost of government activities are measured properly
by including other costs not properly reflected in cash-based
accounts eg capital consumption, and by matching the costs to
the right time period. On the output side, departments will be
required to report systematically on how their resources are allocated
to their aims and objectives, and on what is achieved as a result.
Budgeting on this basis will therefore allow the planned allocation
of resources to meet governmental and departmental aims. RAB will
also support the application of the Government's code of fiscal
stability by making clear distinction between current and capital
expenditure.
INDICATIVE SET
OF RESOURCE
ACCOUNTS
14. The indicative set of Resource Accounts
for 1997-98 financial year at Annex B[4]
is based on the standard format set out in the RAB White Paper
and the Treasury's Resource Accounting Manual and, along with
the underlying systems, is the foundation on which the provisional
Resource Estimate for DFID has been constructed. The current version
incorporates comments received to date from the NAO. Incorporating
these comments, which required additional analysis, has caused
DFID to slip the original timetable of February for contacting
the Committee.
IMPLEMENTATION TIMETABLE
AND "TRIGGER
POINTS"
15. The timetable for RAB is kept under
close review with the Treasury, based on a number of "trigger
points".
| RAB Timetable |
Treasury "trigger points" |
| 1998-99 Departments to produce dry run Resource Accounts.
| 1."Stage one" Treasury approval on the adequacy of departmental systems: achieved on schedule November 98.
2.NAO assessment of dry run balance sheet which also provides opening balances for
1999-2000: scheduled by June 1999.
3."Stage two" Treasury approval involving audit by NAO of dry run account: Autumn 1999.
4.Departments to make available to Select Committees shadow Resource Estimates for 2000-01: May 2000.
|
| 1999-2000 Departmental Resource Accounts to be published for the first time and laid before Parliament.
| |
| 2000-01 Basic expenditure planning to take place on a resource basis.
| |
| 2001-02 Subject to Parliamentary approval, resource based Estimates to be presented and Resource Accounts to replace Appropriation Accounts.
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DFID PROGRESS TO
DATE
16. We have made good progress in implementing RAB and
remain on target to meet Treasury deadlines. DFID implemented
a new accounting system and integrated asset register in February
1998 which will be used to produce both cash-based and resource-based
accounts over the next few years while the two systems are operated
in parallel. DFID has also developed departmental resource accounting
policies and procedures consistent with generally accepted accounting
practice and the framework of rules provided by Treasury. Following
an initial assessment by the NAO, DFID was given formal stage
one approval by the Treasury in November 1998 in recognition of
the adequacy of our RAB systems and procedures. Since then, NAO
work on assessing systems has continued in preparation for their
review of the dry run balance sheet. DFID's internal audit department
has also reviewed in depth DFID's asset management systems. The
Treasury have monitored closely.
COMPLEMENTARY DEVELOPMENTS
17. There are a number of developments complementary
to RAB—Departmental Investment Strategies (DIS), Public
Service Agreements (PSA) and statements of Output and Performance
(OPA). In addition, when fully implemented it is envisaged that
Resource Estimates will be accompanied by supporting information
contained in a new style Departmental Report comprising a forward
looking "departmental plan" and a "backward looking
document" reporting on progress. Each of the complementary
developments are discussed briefly below.
18. Departmental Investment Strategies (DIS) are intended
to help ensure that the funds allocated by the CSR for capital
purposes are focussed on the key objectives and priorities of
the Government. They are also designed to demonstrate that investments
will be good value for money, by showing that appropriate systems
and incentives are in place and by paving the way for capital
management plans to be introduced under RAB. DFID's DIS, which
follows the standard Treasury format, is attached at Annex C.[5]
Only a small amount of DFID expenditure is scored as capital—essentially
the basic minimum needed to support the operations of the department
(mainly IT, equipment, furniture and our Headquarters building
in East Kilbride) and our paid in capital to the international
financial institutions.
19. Public Service Agreements (PSA) are designed to set
out what departments will deliver in return for the spending limits
agreed with the Treasury. In doing so they will include the department's
aims and objectives; performance targets; and a statement of efficiency.
A White Paper was published by the Treasury on 17 December 1998
listing all the public service agreements. DFID's PSA, which was
incorporated in the White Paper, is at Annex D.[6]
Output and Performance Analyses are a fuller statement of measures
of performance, linked to the PSA. I sent you a copy of our OPA
in my letter of 30 March.
20. The forward looking departmental plan will:
— set out the department's plans for the forward
years in the context of comparative current and previous years'
data;
— include the detailed Resource Estimate for the
forthcoming year which would be presented to Parliament alongside
a "summary" Main Estimates document which would be the
Treasury's formal request to Parliament for Supply;
— contain information on the department's past performance
to put the Estimate and forward plans into context; and
— be presented to Parliament jointly by the Secretary
of State and the Chief Secretary.
21. The backward looking document will contain a copy
of the audited departmental Resource Account, performance against
the OPA and relevant non financial information eg on equal opportunities
and green issues. The document would also be presented jointly
to Parliament by the Secretary of State and the Chief Secretary.
CONCLUSION
22. These changes, which apply across government, are
designed to provide Parliament and government departments with
a better basis for allocating resources and will improve transparency
by facilitating comparison of the costs of services with the public
and private sector and by making it easier to see what taxpayers
are getting for their money.
Department for International Development
April 1999
2
See Evidence pp. 8-11. Back
3
See Evidence pp. 11-12. Back
4
Not printed. Back
5
See Evidence pp. 12-18. Back
6
Not printed. Back
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