Select Committee on Treasury First Report


Letter from HM Treasury to the Clerk of the Treasury Sub-committee

  Thank you for your letter of 11 November seeking more information about the changes to the Departmental Expenditure Limits (DELs) and running costs limits of the Treasury, Customs and Excise, Inland Revenue and ONS than was contained in Treasury Ministers' written answers on 5 and 9 November.


  The Treasury's DEL has increased by £6,328,000 for the following reasons: £2 million was awarded from the Capital Modernisation Fund to support the planning work for the new Partnerships UK, and £2 million in running cost End Year Flexibility (EYF) and £2.3 million in Capital EYF was also drawn down.

  In addition, the Treasury drew down £7.8 million from the Departmental Unallocated Provision, which does not increase DEL. The resultant increase of £14.1 million is to meet a number of additional pressures, some of which were foreseen at the time of the CSR settlement and were expected to be financed from end year flexibility. The most significant new pressures are:

    —  increased funding for the Debt Management Office—mainly computer IT to support the cash management project (£2.9 million);

    —  establishing Partnerships UK, including the examination of policy options, and work associated with the legislation setting up the body (£2 million);

    —  setting up the Office for Government Commerce (£1.4 million);

    —  funding the Banking Inquiry (£1.3 million);

    —  increased costs for the productivity Panel (£0.4 million);

    —  consultancy costs in respect of the project to refurbish GOGGS (£1.1 million);

    —  a direct recruitment campaign (£0.1 million);

    —  continuation of the bill team working on regulatory reform beyond its expected life and expansion of teams dealing with EU and international taxation, work incentives, poverty and distributional analysis (£1.6 million).


  Under the PFI deal, awarded on 15 September, ICL will assume full responsibility for the provision and maintenance of all Customs IT infrastructure, which comprises the voice and data network, the UNIX estate (providing links between mainframes, PCs and local networks) and about 20,000 desktop computers. This deal involved transferring ownership of existing IT infrastructure to ICL.

  In circumstances such as this, a Department's DEL is credited with the "open market" value of the assets transferred, which in this case is £14.27 million. This amount was determined in accordance with PES guidelines.


  The increase in DEL of £297,235,000 is mainly due to the transfer of administration costs chargeable to the National Insurance Fund of £272,245,000 from DSS and £6,689,000 from DHSS (Northern Ireland). The £272,245,000 was previously included in DSS cash plans.

  The balance is the transfer of £24,351,000 from DSS mentioned below, additional capital investment of £5,950,000 (which includes £950,000 draw down of End Year Flexibility by the Valuation Office Agency), offset by receipts from penalties of £12 million.

  The increase in running costs of £28,351,000 results from a transfer of £24,351,000 from DSS to cover the cost of compensation payments as a result of the difficulties of the National Insurance Recording System, and the merger of the Contributions Agency and the transfer in of the family credit unit of the Benefits Agency.

  Finally, the Inland Revenue has switched £4 million from capital to current. This relates to building work on the New Office Structure project, which was previously classified as capital. Under ESA95, the Revenue has been advised that it should be classified as current expenditure.


  ONS has increased its DEL by £1 million running costs under the EYF arrangements. Within DEL, the running costs limit has increased by £4,437,000 due to the implementation of ESA 95 and to reflect the outcome of the 2001 Census Open Options Procurement exercise.

  The purposes of the increase are for:

    —  implementing the recommendations of the ONS efficiency review programme;

    —  strengthening of methodology and economic assessment following the Average Earnings Review;

    —  providing resources to develop economic statistics, quality control of outputs, better presentation and understanding changes and linkages between statistics; and

    —  commitments due to slippages of programmes, eg RPI and Time Use Survey.

  The CSR settlement allowed for capital expenditure of £4 million for the coding of non-numeric data and the capture of census data in electronic form, and the provision of computer services for processing and output systems. This capital expenditure has now been switched to running costs as a result of an award of a contract to Lockheed Martin to provide the processing and related services.

24 November 1999

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