11 Letter from the Cabinet Office to the
Clerk of the Committee
CABINET OFFICE—FINANCIAL
INFORMATION
Thank you for your letter of 15 March. Attached
is a note dealing with each point in the same order as your letter.
CABINET OFFICE
FINANCIAL INFORMATION:
MEMORANDUM TO
THE PUBLIC
ADMINISTRATION SELECT
COMMITTEE
End year Flexibility
The Cabinet Office did not drawdown any of its
End Year Flexibility (EYF) in the 2005-06 Winter Supplementary
Estimates (WSE). The Cabinet Office did transfer in £550k
from the Security and Intelligence Agencies (SIA) EYF, which may
have been interpreted as Cabinet Office RYF. This was part of
SIA's contribution towards a BBC Monitoring pilot project.
The Department did, however, drawdown £7.9
million of Cabinet Office EYF in the Spring Supplementary Estimate.
£5 million of this was related to a need to put in place
arrangements to provide the services formerly supplied by ITNET.
The balance was to cover a number of cost pressures arising including
(in line with standard practice) contract payments to Special
Advisors who resigned prior to the General Election, additional
superannuation charges, and additional travel costs related to
the EU and G8 Presidencies.
Table 1.6 of the WSE is produced by HM Treasury,
and not by individual departments. Most of the figures relating
to Cabinet Office were derived from figures supplied routinely
by Cabinet Office to HM Treasury and we have been unable to verify
how the figure of £120.5 million was calculated. The figure
of £98.5 million is based on actual expenditure for April
to August 2005, and a forecast of expenditure for September 2005,
and this represents—on a straight-line extrapolation—87.8%
of available Resource (£224.4m2).
The EYF was drawdown in the expectation that
it would be required, notwithstanding the apparent underspend
implied by the straight-line approach outlined above. That statistic
ignores the fact that, particularly in the larger units, there
are significant costs which are either significantly back-end
loaded or simply do not have a straight line profile.
Hannington Radio Mast
The transfer from the Home Office to the Cabinet
Office of the freehold of this, and a small number of other properties,
was part and parcel of a Machinery of Government transfer of responsibility
for emergency planning etc leading to the establishment of the
Civil Contingencies Secretariat. The other properties have since
been disposed of, as they were surplus to the Cabinet Office's
requirements.
The site consists of a transmission mast and
a small number of outbuildings. The mast is primarily used by
the BBC for broadcasting purposes, with some space also being
leased to various TV and radio transmission companies, as well
as some use by Cabinet Office. Some of the outbuildings are leased
to other public and private sector telecommunications and communication
companies/organisations, including ARQIVA (formerly the broadcast
division of NTL Group). NTL's interest in the site is solely as
a long-term tenant/occupier of some of the outbuildings.
ITNET
This contract was terminated following unacceptable
performance and a series of contract breaches on 28 June 2004.
During the performance of the contract Cabinet Office made a single
capitalised payment of £5.00 million which was subsequently
fully impaired and shown in the Cabinet Office Annual Report &
Resource Accounts 2004-05.
ITNET cited the Cabinet Office for breach of
contract and made a claim for significant amounts. Cabinet Office
put forward its defence and counter claimed for equally significant
amounts. A settlement was reached with ITNET on 29 July 2005.
No payment was made to either side as part of the settlement agreement.
The Cabinet Office covered its own costs to
put together its defence and counter claim. This was necessary
as it would have been deemed to have no defence if it had not
responded to ITNET's claim. The Cabinet Office costs to put together
its defence and counter claim (including legal costs and disbursements)
were £3.3 million in 2004-05 and £0.9 million in 2005-06,
both scored against Resource DEL.
As a consequence of the settlement agreement,
Cabinet Office inherited physical assets, worth £6.9 million,
originally intended for use as part of the project ("True
North") for which ITNET were awarded the contract. These
are recorded as fixed assets in 2005-06 Resource Accounts and
score against Capital DEL. The assets have a four year useful
economic life and the related depreciation and cost of capital
of £2 million (approximately per annum) score against Resource
DEL.
To cover the additional cost pressures arising
from the ITNET settlement against its Resource DEL (the above-mentioned
defence and counterclaim expenses, depreciation and cost of capital),
the Cabinet Office drew down End Year Flexibility in the Spring
Supplementary Estimate.
The 2005-06 figures have still to be audited.
Parliamentary Counsel Office
In 2003, the Government decided that the number
of draftsmen employed by the Office of the Parliamentary Counsel
should be increased and the consequent increase in the Office's
resource costs should be shared across departments.
The new arrangements came into effect on 1 April
2004. Each year, departments contribute to the resource costs
of the Office in proportion to the number of pages of enacted
primary legislation that each department has been responsible
for over the preceding five Parliamentary sessions. To ensure
that departments pay only for the increase in the Parliamentary
Counsel Office's resource costs, a baseline transfer equal to
the expenditure on the Office during financial year 2003-04 (the
year before expansion) is made from the Cabinet Office via the
Supplementary Estimates. The amount transferred is shared among
departments according to the same formula as is used for the departmental
contributions. (The Office's capital expenditure continues to
be funded by the Cabinet Office.)
Winter Supplementary Estimate
The figure of £10.753 billion for Cabinet
Office: Civil Superannuation is in respect of £9.65 billion
resources sought in the Main Supply Estimate and £1.103 billion
resources sought in the Spring Supplementary. The reason for seeking
these resources was set out in the Estimate Memoranda; paragraphs
eight and 12 respectively.
In brief, the discount rate used to assess the
pension schemes liabilities was changed on 1 April 2005, following
a decision by the Financial Reporting Advisory Board. The impact
of this change was to increase the schemes' liabilities overnight
by £10.753 billion. Additional non-budget resources were
sought to facilitate this re-assessment of the schemes' liabilities.
Financial Management Review
Enclosed is a copy of the review recommendations.[1]
1 Good progress has been in many areas, and, once the Department
has carried out our planned formal review, the committee will
receive an update.
As regards to my own internal structure review,
my initial focus has been on defining the strategic focus of the
Cabinet Office. The process is not complete but the Department
has already agreed that certain parts of Cabinet Office would
be better served if their management line was to another Government
Department. To that end, the Government Car and Dispatch Agency
has transferred to the Department of Transport, the Whips' (Commons
and Lords) offices have transferred to the Privy Counsel Office,
and the Government Social Research Unit has transferred to Treasury.
We have also refined our objectives and these are now:
Supporting the Prime Minister—to
define and deliver the Government's objectives
Supporting the Cabinet—to drive
the coherence, quality and delivery of policy and operations across
departments
Strengthening the Civil Service—to
ensure the civil service is organised effectively and has the
capability in terms of skills, values and leadership to deliver
the Government's objectives
Governance arrangements have also changed: the
Strategy Board has now been replaced by a Management Board. Details
of membership and Terms of Reference are enclosed for information.
The divestment of the units above, and the new
arrangements mean that the Cabinet Office's approach to risk management
needs to be reviewed. The Management Board have already had some
discussions about risks, but more work is required. This work
is scheduled to take place over the next few months and the Department
is very happy to report back to the Committee in due course.
Finally, noting the Committee's comments regarding
future estimates memorandum, the Department will endeavour to
provide more narrative information at the relevant times.
29 June 2006
1 1 Ev 42 Back
| 
