House of Commons - Treasury - Minutes of Evidence

Select Committee on Treasury Minutes of Evidence

PROGRESS SINCE THE JULY 1999 MEMORANDUM AND FURTHER PROPOSALS FOR A RESOURCE BASED SYSTEM OF SUPPLY AND REPORTING TO PARLIAMENT

PARLIAMENTARY SUPPLY PROCESS UNDER RAB

Introduction

105. As noted in the Treasury's previous RAB Memoranda, the introduction of resource-based Estimates has implications for the Parliamentary Supply process more generally.

106. The following paragraphs outline the Government's proposals for the remaining components of a full resource-based Parliamentary Supply system, set out in the table below, which it is intended should replace the present cash-based arrangements from 2001-02.

107. The table encompasses the key aspects of the annual Supply process. New items covered for the first time in this Memorandum are marked with an arrow (^TM) in the right hand column of the table. In other cases, where items have been discussed in earlier Memoranda, the date of the relevant Memorandum is shown; some of these items are, however, discussed further in Annex E where, for example, further clarification has been sought or where additional explanation is needed.

  108.  Taken together, this material completes the picture, begun in earlier Memoranda, of a full set of key resource-based documents and procedures which arise throughout the annual Supply calendar.

Item Memorandum

Vote on Account

—  Format of the Vote on Account under RAB July 1999

—  Operation of the Vote on Account under RAB ^TM

Main Estimates

—  Resource-based Main Estimates format July 1999

—  Ambits of Resource Estimates July 1999

—  Appropriations in Aid under RAB July 1998[8]

—  Supporting information for Resource Main Estimates July 1999

—  Treasury Minute under RAB ^TM

—  Contents of the Treasury's Summary Main Estimates Request for Supply (RfS) ^TM

—  Format of a departmental page for the Treasury's Summary Main Estimates RfS July 1999

Supplementary Estimates

—  Resource-based Supplementary Estimates format January 1999

—  Supporting information for resource-based Supplementary Estimates ^TM

—  Contents of the Treasury's Summary Supplementary Request for Supply (RfS) ^TM

—  Format of a departmental page for the Treasury's Summary Supplementary RfS ^TM

Excess Votes

—  Resource-based Statement of Excesses ^TM

Parliamentary authorisation

—  Resource-based Supply Resolutions July 1999

—  Resource-based Consolidated Fund and Appropriation Acts July 1999

Contingencies Fund

—  Operation of the Contingencies Fund under RAB July 1998

Outturn statements

—  Illustrative resource accounts, including Schedule 1—summary of resource outturn July 1997[9] and January 1999

Operation of the Vote on Account under RAB

109. The Treasury's July 1999 Memorandum explained that the Vote on Account would need to be constructed on a dual resource/cash basis under RAB, consistent with the arrangements for resource-based Supply.

110. The July Memorandum contained an illustration of a resource-based Vote on Account and noted that there were a number of related issues concerning the operation of the Vote on Account which would need to be addressed in the run-up to full RAB implementation. These included the percentage "on account" to apply to resources, and the basis on which to calculate the resource provision for the Vote on Account for 2001-02, the planned first year of resource-based Supply. These issues are considered further below.

111. Under present arrangements, the Vote on Account provides finance to allow existing services to continue during the early months of the coming financial year, pending Parliament's consideration of the Main Supply Estimates for that year. Statutory authority for the issue of a sum from the Consolidated Fund equal to the Vote on Account is usually sought in the winter Consolidated Fund Bill before the House rises for the Christmas Recess. Parliamentary authority for the remaining provision sought in the Main Estimates is usually given towards the end of July or early August, when the Appropriation Act is passed.

112. The amounts in the Vote on Account for individual services are normally a standard 45 per cent of the amounts already voted for the corresponding services in the current year, taking account of Summer Supplementary Estimates as well as Main and Revised Estimates where appropriate. This should normally be sufficient to ensure that the provision made for each service is not exhausted before the Appropriation Act is passed the following summer, but is not so high as to prejudge Parliament's consideration of the Main Supply Estimate for each service. It reflects the fact that there is likely to be some increase in expenditure between years (and that provision only takes account of Supply in the previous year up to the Summer Supplementary round), and is set at a level which generally avoids the need for calls on the Contingencies Fund pending Parliamentary approval of the Main Estimates.

113. The Vote on Account may reflect a higher or lower amount than the standard proportion in certain circumstances, for example if it is possible to anticipate a change in the structure of a Supply Estimate; if expenditure during the early months of the financial year is expected to be significantly different from the standard; or if the Supply Estimate is for a token sum of £1,000 for self-financing services, where no Vote on Account provision is sought but the continuation of the services in the new financial year must be noted.

114. The arrangements outlined above have worked effectively in the past under cash-based Supply and it is proposed to adopt similar arrangements for both cash and resources for the purposes of the resource-based Vote on Account. This was the approach used in the illustrative Vote on Account in the Treasury's July 1999 RAB Memorandum.

115. Thus, under RAB, it is proposed that the Vote on Account should provide for a standard 45 per cent of the cash and resource amounts already voted for the corresponding services in the current financial year, taking account of Summer Supplementary Estimates as well as Main and Revised Estimates, where appropriate. However, actual provision on account made for individual Requests for Resources (RfRs) or for the department's net cash requirement may, as now, reflect a higher or lower amount to allow for anticipated changes in Estimates structure or significant shifts in individual circumstances.

116. Similarly, no Vote on Account provision will be made for RfRs or net cash requirements for a token sum of £1,000 but, again as now, the continuation of the service in the new financial year must be noted as appropriate in the Vote on Account.

117. The Government proposes to keep the level of the standard proportion for resources under review during the early years of resource-based Supply.

118. There is however, a specific issue about how the resource element of the first resource-based Vote on Account for 2001-02 should be calculated, since no Resource Estimates will have been voted for the previous financial year on which to base the 45 per cent on account.

119. In these circumstances, it is proposed—exceptionally for the first year of resource-based Supply—to base the proportion on account for both resources and cash on the anticipated provision for the 2001-02 Main Estimates. This is likely to produce the most accurate reflection of departments' needs for the early months of 2001-02 without prejudging Parliament's consideration of that year's main Estimates, and is consistent with the proposal in the Treasury's February 1998 RAB Memorandum that the Vote on Account for 2001-02 should be presented to Parliament in the Spring of 2001, alongside the 2000-01 Spring Supplementary Estimates, to allow Parliament an additional three months to scrutinise departments' 1999-2000 resource accounts before voting Supply on a resource basis for the first time.

120. The Government, however, proposes, with effect from the 2002-03 Vote on Account, to revert to the present approach of basing the Vote on Account provision on the amounts already voted for corresponding services in Main and Summer Supplementary Estimates in the current financial year. Further consideration will be given to whether to continue with presentation of the Vote on Account to Parliament in the Spring, or whether to revert to the current practice of presentation alongside the Winter Supplementary Estimates in November.

Format of the Treasury Minute under RAB

121. The Treasury's July 1998 Memorandum noted that appropriations in aid (AinA) would operate on a resource basis under RAB—that is, that AinA would be recognised when income is earned rather than when cash is received. This has implications for the format of the Treasury Minute which, under current cash-based Estimates, is required by the Public Accounts and Charges Act 1891 to be laid before Parliament when it is proposed to appropriate in aid receipts which are by statute payable to the Consolidated Fund.

122. The Government Resources and Accounts Bill currently before Parliament, discussed below, will supersede the 1891 Act in this respect by providing a statutory basis for the retention and use by departments of income they receive. The Bill enables the Treasury to direct, by Treasury Minute, that income on a resource basis may be applied as appropriations in aid of resources authorised by Parliament to be used for the service of a particular year. Accordingly, the wording of the Treasury Minute needs to be amended to reflect this.

123. An illustration of the proposed format of the Treasury Minute under RAB, consistent with the wording of the Government Resources and Accounts Bill and with the illustrative Consolidated Fund (Appropriation) Bill contained in the Treasury's July 1999 Memorandum, is at Annex F.

Contents of the Treasury's Summary Main Estimates Request for Supply

124. The Treasury's July 1999 Memorandum noted the intention that the Treasury should present to Parliament a Summary Request for Supply document alongside departments' own detailed resource-based Main Estimates contained within their forward-looking departmental plans.

125. It is envisaged that the contents of the Treasury's Summary Main Estimates Request for Supply will include the following:

— An overview of the new resource-based Supply arrangements.

— A summary of the provision sought on both a resource and a cash basis.

— Cross references to individual departmental plans containing detailed departmental Resource Estimates and associated explanatory notes.

Public Expenditure Statistical Analyses (PESA).

— A brief description of Parliamentary Supply procedure.

— An explanation of the format of resource-based Estimates and of the Treasury's Summary Request for Supply.

— A comparison of provision sought in individual departmental Resource Estimates (on both a cash and resource basis) with the two prior years.

— Details of individual departmental Requests for Supply along the lines of the illustration contained at Annex F to the Treasury's July 1999 Memorandum.

126. The material which it envisaged will be included in the Summary Request for Supply, when set alongside the detailed information to be contained in individual departments' Resource Estimates set out in their forward looking departmental plans under RAB, will together represent a significant increase in the supporting information for Supply Estimates available to the departmental select committees, on which to base their recommendations for debate, compared with the information contained in the current Main Supply Estimates booklet.

127. The contents of the Treasury's Summary Main Estimates Request for Supply will be kept under review, and further explanatory details will be provided in due course.

Supporting information for resource-based Supplementary Estimates

128. The Treasury's January 1999 Memorandum described the format and procedures for handling resource-based Supplementary Estimates. The following paragraphs elaborate on this by setting out details of the explanatory information which it is envisaged will be produced in support of resource-based Supplementary Estimates. This builds on, and is consistent with, the supporting information which it is proposed should be made available alongside resource-based Main Estimates, set out in the Treasury's July 1999 Memorandum.

129. As noted in the Treasury's January 1999 RAB Memorandum, it is proposed that Supplementary Estimates under RAB should consist of:

— Part I indicating the additional amount of resources and/or cash sought for the financial year in question and including a replication, or updated version, of the Ambit of the Estimate, as appropriate.

— Part II containing two tables: the first identifying the functional lines for which a change in provision is sought and the amount of the change, together with any consequential changes to the net cash requirement, the second representing a reproduction of the previous Estimate table, reflecting the new provision sought in the Supplementary Estimate. An updated version of the resource to cash reconciliation is also included in Part II of the Supplementary Estimate.

— Part III showing, as necessary, any changes to the expected income and receipts which are not appropriated in aid of expenditure but are paid into the Consolidated Fund.

— Updated forecast Operating Cost and forecast Cashflow statements, reflecting the new provision sought in the Supplementary Estimate. (The main unfunded pensions schemes discussed earlier in this Memorandum will produce a forecast revenue account rather than a forecast operating cost statement and cashflow statement).

130, In addition, it is proposed that the following supporting information should accompany resource-based Supplementary Estimates:

(a) an Introductory Note explaining why the relevant department needs to change its expenditure plans and giving details of the additional provision (both resources and cash, as appropriate) being sought in the Supplementary Estimate; and

(b) a set of accompanying Notes to the Supplementary Estimate, broadly analogous to the Notes appended to resource-based Main Estimates.

131. It is envisaged that the explanatory Notes accompanying departments' resource-based Supplementary Estimates should, where relevant, include the following:

— A restatement of the Accounting Officer responsibilities for the Estimate.

— Details of any changes to the department's accounting policies since the previous Estimate.

— A restatement, as necessary, of relevant Departmental Expenditure Limits and Administrative Cost Limits.

— Details of any expenditure resting on the sole authority of the Appropriation Act.

— Details of any expenditure in the form of adjustable advances, of gifts or staff benefits.

— A revised analysis, where appropriate, of Appropriations in Aid (on an income basis) split between operating and non-operating AinA.

— A revised analysis, where appropriate, of any extra receipts payable to the Consolidated Fund (CFERs) on both an income and cash receipt basis.

— A restatement of the total amount of cash which may be retained by the department to offset expenditure in the year due to its relationship with income which has been or will be appropriated in aid.

— A revised reconciliation of net operating costs with net resource outturn and resource budget outturn in support of the forecast Operating Cost Statement (OCS), consistent with Note 7 of departmental resource accounts.

Government Accounting

— Details of changes to estimated allocations of grants in aid above £1 million or international subscriptions above £1 million.

132. In addition, it would, as now, be open to individual select committees to request additional department-specific explanatory information to supplement the material outlined above.

Contents of the Treasury's Summary Supplementary Request for Supply

133. As with the Summary Request for Supply presented by the Treasury alongside departments' own individual resource-based Main Estimates, the intention is that the Treasury should present to Parliament a Summary Supplementary Request for Supply alongside departments' resource-based Supplementary Estimates.

134. It is envisaged that the contents of the Treasury's summary Supplementary Request for Supply document will include the following:

— An overview of the new resource-based Supplementary Supply arrangements.

— A summary of the additional provision sought, on both a resource and cash basis, including the implications for the DEL Reserve, administration costs etc.

— An explanation of the format of resource-based Supplementary Estimates.

— Details of individual departmental Supplementary Requests for Supply, along the lines discussed below.

135. The contents of the Treasury's Summary Supplementary Estimates Request for Supply will be kept under review, and further explanatory details will be provided in due course.

Format of a departmental page for the Treasury's Summary Supplementary Request for Supply

136. As noted above, it is intended that, for each Supplementary Estimate round under RAB, the Treasury's Summary Supplementary Request for Supply will include a summary of the Supplementary provision—both resources and cash—for which parliamentary approval is being sought for each department, together with the Ambit of the departmental Estimate amended as necessary to take account of any new services.

137. A provisional illustration of a standard "departmental page" for the Summary Supplementary Request for Supply is attached at Annex G. The illustration includes a table showing the present gross and net provision (both resources and cash), the changes for which approval is sought and the proposed new gross and net provision following the Supplementary Estimate. As with the illustrative Summary Main Estimates Request for Supply contained in the July 1999 Memorandum, the Parliamentary limits are shown in bold shaded type.

138. For convenience, the example at Annex G uses data from the illustrative Home Office Summer Supplementary Estimate contained in the Treasury's January 1999 RAB Memorandum, so that the numbers are also consistent with the illustrative departmental page from the summary Main Estimates Request for Supply for the Home Office contained in the July 1999 Memorandum.

Format of a resource-based Statement of Excesses

139. Under existing cash-based Supply arrangements, Excess Votes are presented if expenditure from any Vote has exceeded the provision in Main, Revised or Supplementary Estimates presented to Parliament and if there is no opportunity to seek a further Supplementary Estimate before the end of the relevant financial year.

140. Before any Excess Votes are sought, the Appropriation Account for each Vote is prepared by the relevant department. The account are examined and certified by the Comptroller and Auditor General and are laid before the House of Commons. A report is made in respect of each Vote where the amount of expenditure authorised by Parliament has been exceeded.

141. Parliament votes both net provision and the amount of receipts which a department may appropriate in aid of expenditure. An Excess Vote must therefore be sought even if there are surplus receipts available to be applied as Appropriations in Aid of the excess expenditure. In that case, the Excess Vote is for a token sum of £1,000 only.

142. A statement of Excesses is normally presented to Parliament in February, some 10 months after the end of the financial year to which it relates. Under House of Commons Standing Orders, if the PAC has reported that it sees no objection to the sums necessary being provided by Excess vote, the question on the motion to approve them is put without debate. Issues from the Consolidated Fund in respect of Excess Votes are given legislative authority in the spring Consolidated Fund Act in March.

143. It is not proposed to change, under RAB, any of the underlying principles or procedures outlined above, including the statutory deadlines for producing, auditing and laying departments' accounts. However, as noted in earlier RAB Memoranda, Excess Votes under RAB will need to apply in respect of both cash and resources, since there will be Parliamentary controls over both (resources at the RfR level; cash at an aggregated departmental level). This has implications for the format of the Statement of Excesses which is presented to Parliament.

144. An illustration of a resource-based Statement of Excesses taking account of the changes implied by RAB is at Annex H. The introduction to the Annex explains the fictitious excesses included in the example.

Conclusion

145. The Government invites the Committees to note its further proposals outlined above for the remaining components of a full resource-based Supply system, which complete the picture begun in earlier Memoranda, and which it is intended should replace the present cash-based arrangements from 2001-02.

RAB LEGISLATION

146. A Memorandum setting out the Government's proposals for the legislation needed to fully implement RAB was sent to the PAC, Procedure Committee and Treasury Committee in March 1999[10]. The Government has subsequently kept the NAO fully informed of developments with the legislation and has discussed it in detail with the NAO throughout the drafting process.

147. The Government Resources and Accounts Bill was announced in the 1999 Queen's Speech and was published on 18 November 1999. The Bill received its second reading on 6 December 1999 and completed its committee stage on 20 January 2000. The Government will continue to keep the NAO informed of developments on the Bill during its passage through Parliament.

148. The Government invites the Committees to note this further report on progress on the legislation needed to implement RAB.

WHOLE OF GOVERNMENT ACCOUNTS

149. The Government's aim, set out in the Code for Fiscal Stability and the 1998 Economic and Fiscal Strategy Report, is to develop a fully audited set of Whole of Government Accounts (WGA) based on Generally Accepted Accounting Practice (GAAP) adapted as necessary for the public sector and covering the whole of the public sector as far as practically possible. Such accounts will be published as National Statistics. The Government believes that this will provide better transparency and accountability to Parliament as well as improving the basis for fiscal planning.

150. In July 1998, the Treasury published a scoping study report into the development of WGA. The report concluded that fully reliable GAAP-based WGA would take some time to produce and that a phased approach should therefore be adopted, starting with a consolidation of central government accounts (CGA). Subject to the outcome of further research on costs and practical considerations, the study concluded these accounts should gradually be extended to include local authorities and public corporations, with the aim of publishing the first fully audited GAAP-based WGA for 2005-06. The Government has recently reaffirmed this staged approach.

151. In order to meet fiscal policy requirements for whole public sector information in the intervening period, the study proposed the development of unaudited national accounts-based WGA, with the first set of such accounts published for 2001-02. This is now one of the Treasury's Public Service Agreement targets. A project team has been established within the Treasury, and a detailed project plan drawn up covering delivery of both national accounts-based WGA and the phased approach to GAAP-based WGA.

152. For the development of national accounts-based WGA, work has begun on resolving issues of data quality and incorporation of items not currently covered by national accounts. In particular, proposals are being worked up in consultation with the Office for National Statistics which should allow direct transfer of balance sheet data from resource accounts into the national accounts.

153. Enabling legislation for GAAP-based WGA is included in the Government Resources and Accounts Bill currently before Parliament. This will provide the framework for producing CGA in the first instance, and allow a phased expansion of coverage, permitting full GAAP-based WGA to be prepared in due course. The Government has also begun the work needed to produce consolidated CGA, including development and alignment of accounting policies. It is now planned to undertake a cost benefit analysis of consolidating local authorities and other public sector bodies into GAAP-based WGA, which was originally proposed for 1999, at a more appropriate time, when the outcome of a number of initiatives which could impact on financial reporting in these sectors is clearer.

154. The Government invites the Committees to note its further proposals for taking forward work on the development of Whole of Government Accounts.

CONCLUSIONS AND RECOMMENDATIONS

155. The Committees are invited to note this further report on progress against the Treasury's trigger point strategy for monitoring and assessing the implementation of RAB. The Committees are asked to note in particular the Treasury's assessment, on the basis of evidence available so far, that there is no overriding reason to conclude at this stage that completion of the RAB project in accordance with the planned timetable is not deliverable (paragraph 36).

156. In the light of this, and subject to progress against the final stages of the trigger point strategy, the Government intends to continue to plan ahead on the basis that the first resource-based Estimates should be presented to Parliament in respect of 2001-02, with resource accounts replacing appropriation accounts for that financial year (paragraph 37).

157. Assuming that the final stages of the trigger point strategy outlined above are successfully met, the Treasury further notes that a firm decision to proceed with the introduction of resource-based Supply from 2001-02 must be taken by July 2000, since that is the latest point by which the decision could realistically be taken in order to leave sufficient time for the necessary final preparations to be put in place (paragraph 38).