House of Commons - Public Accounts

Select Committee on Public Accounts Fifth Report

Excess Votes in 2003-04

1. Resource-based Supply requires Departments to forecast and manage the resources they will consume in delivering services on an accruals basis, as well as their cash spending. Parliament authorises both cash spending and the use of resources up to the limits set. In 2003-04 Parliament authorised total net resources of £392,833 million and total cash of £321,844 million in Supply Estimates granted to 58 Departments and Pension Schemes. Of these, one Department and one Pension Scheme incurred excesses. Two excesses in the use of resources totalled £107 million, and one excess in the application of cash amounted to £67.6 million. Details are summarised in Figure 1.

2. For the first time since the introduction of resource-based Supply, there were no breaches of Administration Cost Limits. Figure 1: Summary of 2003-04 Excess Votes required

Department/Pension Scheme Resources Cash

Excess

£
Amount to
be voted
£
Excess

£
Amount to
be voted
£

Teachers' Pension Scheme
Request for Resources 1 (Teachers' Pensions)

Excess Expenditure
Less: Surplus income to be appropriated as operating appropriations in aid

106,821,357.97
(37,324,362.30)

69,496,995.67

67,597,194.64
0.00

67,597,194.64

HM Customs and Excise
Request for Resources 1 (Administering the indirect tax and customs control systems fairly and efficiently, enabling individuals and businesses to understand and comply with their obligations) (1)

Excess Expenditure
Less: Savings available from elsewhere within the Request for Resource

167,140.00
(166,140.00)

1,000.00

-

-

(1) Revised ambit. Parliamentary authority is required to cover expenditure within previously voted resource limits but outside the coverage of the original ambit. The revised ambit includes the additional wording "the provision of resources to police authorities to facilitate the independent investigation of complaints and allegations against departmental staff".

Teachers' Pension Scheme: Excess on Request for Resources 1 and breach of the Net Cash

Requirement

3. The resource excess of £106.8 million against Request for Resources 1 (Teachers' Pensions) occurred because the Scheme's Estimate did not allow for the full implications of changes to accounting standards and to Treasury discount rates. The cash excess of £67.6 million occurred because the Scheme managers, the Department for Education and Skills, did not allow for the repayment of sums due to the Consolidated Fund in determining the Scheme's cash requirements.

4. 2003-04 was the first financial year in which Financial Reporting Standard 17 (FRS17 - Retirement Benefits) was applied to the Scheme in full. This standard requires the Scheme accounts to include provisions for liabilities in respect of future pensions for both existing Scheme members and those transferring into the Scheme. Because these changes were not fully incorporated in the financial model used to calculate the Scheme's Estimate, the Estimate did not reflect the full liabilities of the Scheme. The model did not provide for an additional liability of £82.4 million for new members transferring into the Scheme, nor for an additional liability of £25 million for existing Scheme members. It also failed to allow for the effect of a change in the discount rate used in the calculation of provision for premature retirement compensation, leading to a further understatement of £13 million. The overall shortfall in the Request for Resources amounted to £120.4 million. After allowing for savings elsewhere, the Scheme's net resource excess was £106.8 million. The Department proposes to apply excess appropriations in aid of £37.3 million to offset the resource excess, leaving an amount of £69.5 million to be granted by way of an Excess Vote.

5. In terms of the Scheme's cash requirements for 2003-04, the Department incorrectly included a balance of £128 million due to the Consolidated Fund in respect of 2002-03 as part of its cash available to meet 2003-04 expenditure. In meeting its liability to the Consolidated Fund, the Scheme incurred a cash excess of £67.6 million.

6. The Department has refined its financial model to support the preparation of the Supply Estimate so that all liabilities are recognised and appropriately valued. It has also introduced a control to ensure that all changes to the Treasury's discount rate are captured within the model. Controls over creditors have been strengthened so that amounts due to the Consolidated Fund in respect of prior periods are excluded from available cash resources. In future, all calculations affecting outturn will be performed at an early enough stage to allow for any significant changes to be addressed through a Supplementary Estimate.

HM Customs and Excise: Excess on Request for Resources 1

7. A resource excess of £167,140 was incurred by HM Customs and Excise under Request for Resources 1 (Administering the indirect tax and customs control system fairly and efficiently, and enabling individuals and businesses to understand and comply with their obligations). The excess arose because the Department incurred expenditure which fell outside the ambit of its Request for Resources.

8. In conducting an investigation into serious allegations against a number of serving Customs Officers made in the context of a criminal trial, Customs and Excise found that it had supported a wider criminal investigation by the police which it was not empowered to fund. Having stopped any further payments, the Department consulted the Treasury on the regularity of the expenditure. Out of total payments made of £700,416, the Treasury considered that expenditure of £533,276 incurred between October 2002 and December 2003 represented expenditure which discharged an obligation to the court and therefore fell within the ambit of the Department's Request for Resources. It was prepared to approve such expenditure retrospectively. The Treasury concluded, however, that the remaining expenditure of £167,140, in respect of costs incurred after the completion of the court case, was in support of continuing police criminal investigations and therefore fell outside of the ambit of the Request for Resources.

9. The Department proposes to ask Parliament to approve an amended ambit and to offset £166,140 of the excess through the allocation of savings elsewhere on Request for Resources 1. This will leave a token £1,000 excess as an additional use of resources to be authorised by way of an Excess Vote.

10. The Department has strengthened its controls to include the introduction of new arrangements for the systematic oversight and regular review of their terms of engagement with police forces in such investigations and to ensure that budget holders consult the Treasury at the earliest opportunity about expenditure proposals which might fall outside the ambit of a Request for Resources.