Memorandum submitted by the Department
of International Development, replying to questions raised by
the Committee on the 2003/04 DFID winter supplementary estimate
and resource accounts 2002/03
IRAQ RECONSTRUCTION
The Department's Autumn Performance Report
shows significant slippage on targets relating to reproductive
health and child mortality in Africa. Can further details be provided
as to how such targets will be affected by the funding of Iraq's
reconstruction?
DFID funding for the reconstruction of Iraq will
not affect its programmes to improve reproductive health and child
mortality in Africa. The Department is committed to meeting its
target of increasing the proportion of its direct assistance to
low-income countries to 90% and spending a total of £1 billion
to reduce poverty in Africa in 2005/06.
Secondly, we are concerned that the Department
should not use temporary shift in Iraq's classification to claim
success in meeting its commitment on increasing bilateral funding
of low-income countries to 90% by 2005/6.
DFID is planning to meet its commitment to increase
the proportion of its direct assistance to low-income countries
to 90% by 2005/06 on the basis that Iraq will be classified as
a middle-income country.
Thirdly, given that 85% of the Department's
£100m contingency fund has been drawn down under RfR:1 C,
how will the Department retain the flexibility to respond to any
further emergency situations which develop during the remaining
4 months of the year?
DFID has retained £12m in its contingency
reserve for the final quarter of the financial year and will draw
that unallocated provision down in its Spring Supplementary Estimate.
Should an emergency situation arise, DFID would look first to
its remaining contingency reserve and then examine options for
reallocating part of its planned expenditure to provide the emergency
assistance needed. To the extent that this is not possible, DFID
would need to seek funding from HM Treasury's Central Reserve.
WINTER SUPPLEMENTARY ESTIMATE
The provisional outturn shows the amount of capital
EYF carried forward has increased by 700% from £4,370,000
in 2002-03 to £31,004,000 in 2003-04. In the Winter SE only
£500,000 of this capital has been drawn down. Can details
be provided as to how the department is intending to spend this
capital and when?
Capital EYF for 2003-04 was based on provisional
2002/03 outturn figures that indicated a negative capital outturn.
The difference between a positive capital DEL and a negative
capital outturn resulted in a large projected capital EYF for
2003/04.
However, there were substantial changes to the final
outturn position due to increases in net capital expenditure.
These were corrected in a revised calculation of EYF (incorporating
the final 2002/03 outturn position) which was sent to the Treasury.
The current position is that we have a 2001/02 EYF of £8,621,000
and £0 from 2002-03.
The £500,000 increase in the Capital DEL at
Winter Supplementary Estimate was not a call upon EYF but a transfer
from the Central Reserve to help fund humanitarian and reconstruction
needs in Iraq. This was additional money and part of a total
£120,000,000 Reserve Claim agreed by the Treasury.
We plan to call down the whole of the 2001/02 Capital
EYF at the 2003/04 Spring Supplementary Estimate to provide cover
for capital spending plans in this financial year.
Changes in new provisions and adjustments to previous
provisions of £441 bring the revised total to nil. Changes
in the use of provisions by £461 m (94 %) bring these to
just £27.6 million. Can further explanation be given of
the substantial changes to new provisions and to the use of provisions
detailed in the WSE
The new provisions and adjustments to previous
provisions in the Main Estimate represent new promissory notes
for contributions to IDA and similar bodies and cash drawn down
from previously deposited promissory notes. The WSE changes do
not reflect a change in the amount that the Department is contributing
by way of promissory notes, but rather brings the presentation
of promissory notes and cash adjustments into line with their
treatment in the Departmental Resource Account for 2003/04. Accordingly,
un-drawn promissory notes and cash adjustments are shown under
creditors rather than provisions.
RESOURCE ACCOUNTS 2002-03
The Resource Accounts show that staff numbers
have risen from an average of 2, 530 in 2001/02 to 2,807 in 2002/03
(an 11% increase in numbers). At the same time staff costs have
risen by 39% (£15,886,000). Can details be provided of the
reasons for the significant increase in staff costs which have
occurred and how the costs relate to the numbers of staff employed?
The figure for staff costs has been taken from Note
2.1 to the Resource Accounts. However, Note 2.1 goes on to explain
that the total for 2002/03 includes staff costs charged to Programme
or Capital whereas the figure for 2001/02 does not. These were
included in the total for 2002/03 to give greater transparency
to total staff costs. Staff costs for 2002/03, exclusive of programme
and capital elements, is £43,621,000. Therefore, when comparing
the figures for 2001/02 and 2002/03 on the same basis, the increase
in Staff Administration costs is 6% (£2,553,000) and not
the 39% suggested.
The increase in staff numbers from 2001/2
to 2002/03, as set out in Note 2.2 to the Resource Accounts, reflects
the increased complexity of the international development
agenda; the need to engage more strategically with development
partners; and to meet the staffing requirements of the increased
number of DFID overseas offices worldwide.
During 2002-03 a significant new provision of
£37.8 million has been created to meet the shortfall of rents
receivable against rents payable until 2014, on a property previously
occupied by a former executive agency of the Department and now
occupied by the University of Greenwich. We are aware that the
change of occupancy was due to the work of the Agency being taken
over by the University. We are also aware that the shortfall
is due to the lower rents payable by the University in relation
to payments made by the Department under the main lease. However
we would like to [know] more about the historical context of this
provision, how and over what period the shortfall was allowed
to arise and what steps the Department took to minimise it.
The provision relates to a sub-lease to the University
of Greenwich agreed when the University took over the work of
the Natural Resources Institute in 1996. At the time, the market
rent obtainable was significantly lower than the cost of the lease
finalised in 1991. Up to 2001-02, the difference between receipts
and payments was treated as a current expense. In 2002-03 we
concluded that the shortfall should be accounted for under Financial
Reporting Standard 12 and full provision was made for the forecast
difference for the remaining term of the lease. The resource
expense of creating this provision was fully covered by additional
provision in the Spring Supplementary Estimate for 2002-03.
The Department negotiated the sub-lease with the advice and support
of professional property advisors with the aim of minimising any
difference between the sub-lease and rents payable by the Department.
The rents under the sub-lease increase by 3 per cent a year
and are subject to five-yearly rent reviews linked to movement
in open market rents.
January 2004
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