House of Commons - Business and Enterprise

Select Committee on Business and Enterprise Minutes of Evidence

Winter Supplementary 2007-08 Estimates Memorandum

INTRODUCTION:

Following an announcement by the Prime Minister in June 2007 about the way Government is organised, the Department ceased to operate as the Department for Trade and Industry. The Department for Business, Enterprise and Regulatory Reform (BERR)[1] was created and this successor Department has assumed much of the work of the DTI. BERR's ambit[2] is attached at Annex B. At the same time the Department for Innovation, Universities and Skills (DIUS)[3] was established and is taking forward the science and innovation aspects of DTI's work.

For the purposes of Estimates, we are publishing a Supplementary which (in addition to the usual Supplementary entries such as End Year Flexibility) takes as its starting point the budgets published in the Department of Trade and Industry (DTI) Main Estimate, subtracts the budgets for those activities now undertaken by the Department for Universities, Innovation and Skills, and adds minor sums for BERR activities previously undertaken by Cabinet Office and DCLG.

1. Summary of changes sought in the DEL Estimate:

The total effect of the changes proposed is that total DEL reduces from £7,145m to £3,397m (compared to the DTI Main Estimate). The BERR Resource DEL reduces by £3,763m from £5,992m to £2,229m and the Capital DEL increases by £15m from £1,153m to £1,168m.

Resource and Capital DEL Changes from £7,145m

Resource DEL: voted -£1,243m

Resource DEL: non voted -£2,520m

Capital DEL: voted -£376m

Capital DEL: non voted £391m

Resource and Capital DEL Changes to £3,397m

The Net Cash Requirement has reduced by £2,368m from £7,648m to £5,280m.

Net Cash Requirement Changes from £7,648m

Resource DEL: voted -£1,234m

Capital DEL: voted -£376m

Resource AME: voted -£86m

Capital AME: voted £600m

Grant in Aid to NDPBs -£1,331m

Other small items £10m

Payments against provisions £49m

Net Cash Requirement Changes to £5,280m

Although the effect of Machinery of Government changes is back-dated to 1st April 2007, in fact expenditure has been made by DTI/BERR on behalf of DIUS between 1 April and the present time. This means that BERR has already expended more than its revised net cash requirement. Treasury have agreed that, as DIUS is expected to have access to the full cash requirement for their new Estimate when the Winter Consolidated Fund Act receives Royal Assent (which should be no later than 21 December), DIUS should refund BERR for the cash spent on their behalf up to that point as soon as practicable after that date.

2. Detailed explanation of the changes:

The main purposes of this Winter Supplementary Estimate are as follows:

Change Impact on DEL Budget

DEL budget in Main Estimate £7,145m

Record the Machinery of Government changes announced in June -£3,825.2m

New funding awarded from the Financial Inclusion Fund for face-to-face debt advice £2.8m

PES transfer from the Ministry of Defence for Global Threat Reduction £4.0m

Record the reclassification of Post Office restructuring funds from AME to DEL £68.0m

PES transfer from the Cabinet Office in respect of the Parliamentary Counsel Office £1.7m

Additional funding for the RDAs in relation to a project in Leeds £0.7m

Additional £5.7m receipts from other departments to be passed onto the Regional Development Agencies -

Technical adjustment to increase level of receipts from commercial income to be passed onto the Nuclear Decommissioning Authority[4] —

Utilise £78m of the Department's End Year Flexibility arising from underspends of ring-fenced Energy capital grant EYF in prior years as a transfer to DIUS[5] (a loan to be repaid over the period 2008/9 to 2010/11) —

Record the reclassification of £728m of Nuclear Decommissioning Authority (NDA) expenditure from resource to capital[6] —

Reclassify £50m from non-voted to voted expenditure to reflect BERR's reduced contribution to the RDA budget[7] for 2007/8 (which totals £2.3bn) —

Reclassification of £20m from programme to administration in respect of consultancy and research fees and contract charges —

Reclassification of £0.7m from Small Business Service administration to Regional Development Agencies —

New DEL budget £3,397m

3. Impact on the Department's Public Service Agreements (PSAs):

The Machinery of Government changes have resulted in:

(a) DTI's PSA 2—"Improve the relative international performance of the UK's science and engineering base, the exploitation of the science base, and the overall innovation performance of the UK economy" becoming the responsibility of DIUS.

(b) BERR gaining responsibility for the following PSA—"By April 2008, ensure that Departments deliver better regulation and tackle unnecessary bureaucracy in both the public and private sectors through: reducing the overall administrative burden; maintaining the UK's international standing on better regulation; and improving the perception of regulation" which was formerly PSA 3 of the Cabinet Office's suite of PSA targets.

The other changes resulting from the Winter Supplementary Estimate should have no significant direct effect on the Department's performance against its PSA targets as:

— Some of the changes are in respect of activities in areas not covered by the Department's PSAs or budgets that are not used directly for the pursuit of PSAs;

— Some of the changes are of a technical nature and do not affect the overall amount of resource being deployed in these areas.

There may be some indirect impact, particularly on the targets PSA 1 (Productivity), PSA 4 (Energy) and PSA 7 (Regional Economic Performance).

4.  DEL End Year Flexibility:

DTI End Year Flexibility[8] £983m

  Of which:

Science current programme expenditure (including non-cash) which has been transferred to DIUS -£204m

Science capital expenditure which has been transferred to DIUS -£103m

Departmental administration transferred to DIUS -£2m

Balance of End Year Flexibility transferred to BERR £674m

  Made up as follows:

Departmental administration £29m

Current programme expenditure (including non-cash) £314m

Capital expenditure £188m

Capital grants expenditure £143m

  Capital grants End Year Flexibility drawn down and transferred to DIUS as a loan (part of the CSR settlement agreed for Science) -£78m

Balance of End Year Flexibility available for use £596m

The Department has agreed with Treasury a detailed plan of proposed utilisation of End Year Flexibility over the Comprehensive Spending Review period. Some of the accumulated sum will also be used to fund pressures and new priorities later this year.

5. Departmental Expenditure Limit (DEL):

Figures for resource and capital DEL for 2001-02 to 2007-08 were published in the Supplementary Budgetary Information[9] in April 2007.

`Machinery of Government' changes between Departments:

Function Department DEL

AME

To: Programme £m Admin £m Capital £m £m

Science NDPBs DIUS -2,580.0 -395.6

Science Other DIUS -194.0 -8.5 -299.0 -18.0

Innovation and other
admin DIUS -157.5 -14.7 -9.9

Technology Strategy DIUS -168.0 -10.0

Total to DIUS -3,099.5 -23.2 -714.5 -18.0

From:

Better Regulation
Executive Cabinet Office 11.4

Regional PSA team DCLG 0.6

Net total transferred out -3,099.5 -11.2 -714.5 -18.0

6. Administration cost limits:

In addition to the Machinery of Government changes to the administration cost limit shown above (-£11.2m), there are further changes amounting to £20.9m bringing a net increase to the administration cost limit of £9.7m. The additional changes are as follows:

— reclassification from programme to administration in respect of consultancy and research fees and contract charges (+£20m);

— PES transfer from the Cabinet Office in respect of the Parliamentary Counsel Office (£+1.6m);

— reclassification from Small Business Service administration to Regional Development Agencies (£-0.7m)

7. Annually Managed Expenditure changes:

Resource AME in Main Estimate: -£348m

Machinery of Government transfer of Science Research Council pension scheme to DIUS -£18m

Reclassification of Post Office restructuring funds from AME to DEL -£68m

Increased non cash cost of capital charge reflecting increased value of Coal Pension Schemes Investment[10] £77m

Technical adjustment re receipts from Coal Pension Schemes Investment
Reserves[11] £10m

Revised Total -£347m

Capital AME in Main Estimate: -£276m

Technical adjustment to bring the agreed working capital facility for the Post Office[12] back up to the contractual amount £600m

Reduction in forecast surplus re Coal Pension Schemes Guarantor Funds[13] £40m

Release to Treasury from surplus Coal Pension Schemes Investment Reserves[14] -£133m

Revised Total £231m

8. Provisions and Contingent liabilities:

Information on the stock of the Department's provisions is included in Notes 22 to 24 of the 2006-07 Resource Accounts (published in July); information on the Department's Contingent Liabilities is shown in Notes 34 and 35 of the 2006-07 Resource Accounts.

Annex A

Department for Business, Enterprise and Regulatory Reform

The new Department for Business, Enterprise and Regulatory Reform (BERR) has a central role to play in creating a more competitive Britain and one that can respond to the challenges of the future, including globalisation and climate change. It will work with business as well as with employees and consumers to create an environment that supports business success. BERR's goals are:

— to promote the creation and growth of business and a strong enterprise economy

— to lead the better regulation agenda

— to champion free and fair markets

— to ensure that our work on energy includes promoting competitive, transparent energy markets

— to act as shareholder in a numbers of Government-owned businesses (such as Royal Mail)

— to act as the voice for business across Government

Department for Innovation, Universities and Skills

The new Department for Innovation, Universities and Skills (DIUS) is responsible for driving forward delivery of the Government's long-term vision to make Britain one of the best places in the world for science, research and innovation, and to deliver the ambition of a world-class skills base.

It has therefore assumed responsibility from the Department of Trade and Industry (DTI) for science and innovation—including ensuring world-class research and increased business innovation. DIUS will oversee the science budget.

Annex B

Department for Business, Enterprise and Regulatory Reform

RfR 1: Increasing UK competitiveness

Promotion of enterprise, innovation and increased productivity delivered through market solutions designed to meet market imperfections identified within the portfolios of international trade and investment, regional investment, enterprise for small firms and people & skills; support for business, including support for specific industries, small businesses, regional programmes and programmes to promote research and development, innovation, best practice and sustainable development; promotion of strong, fair and competitive markets at home and abroad including fair and effective legal and regulatory frameworks and delivering regulatory reform measures to protect investors, measures to promote the interests of consumers, support for employment relations programmes and measures to promote a skilled and flexible labour market; support for energy-related activities including measures related to regulation, civil emergency planning, environmental remediation and support for new and sustainable energy sources, global threat reduction programmes associated with nuclear, chemical and biological capabilities in the Former Soviet Union and other countries; the efficient management and discharge of liabilities falling to the Department including nuclear waste management and decommissioning and liabilities in respect of former coal and shipbuilding industry employees; exchange risk and other guarantee losses; subscriptions to international organisations and fulfilment of international treaty obligations; payments to other Government Departments and the Devolved Administrations in relation to programmes supporting BERR objectives; support for Government Offices; grants and grants-in-aid to organisations promoting BERR objectives, including Non-Departmental Public Bodies; financial assistance including the provision of credit facilities to public corporations including Ofcom; managing the Government's shareholder interest in Royal Mail, British Energy, BNFL, UKAEA, Royal Mint, Partnerships UK and Actis; funding of the department's executive agencies; issuing budgets and making payments to Regional Development Agencies, to which other government departments will contribute by supplying resources which BERR will appropriate in aid; payments to local authorities in respect of schemes supporting better regulation and New Burdens responsibilities; miscellaneous programmes including payments in respect of claims for the restitution of property of victims of Nazi persecution, compensation for distant water trawlermen and assistance to redundant steelworkers; departmental administration costs and a share of the administration costs of UK Trade and Investment; payments towards the expenses of the Office of Manpower Economics; associated non cash items.

Annex C

Wording from Memorandum to DTI's Spring Supplementary Estimate February 2007

As the Committee will be aware, the Department has had to fund the British Energy rescue package (c£200m a year for 10 years from 2006/7) from within the SR04 settlement. Additionally, clarification of budgeting guidance in November 2005 has also resulted in financial pressures. The consequences of this clarification contributed to a £115m near-cash shortfall in 2005/6 which was addressed by taking a loan from the Science budget, £50m of which was returned in the Winter Supplementary. We have also had to face a number of unforeseen pressures that have arisen since we received the SR04 settlement. These include the fall out from MG Rover, increase in demand-led services, and the need to fund new cross-governmental priorities. Dealing with these pressures has left DTI without any significant flexibility to manage budgets and absorb new pressures.

We have sought to manage these pressures within our discretionary budget which accounts for only 13% of DTI's overall budget. We have looked rigorously at all elements of non ring fenced spend to identify efficiencies and flexibilities and as a result have identified significant savings to be put towards pressures. These savings, however, have not been sufficient to provide cover for the unavoidable pressures we have faced in 06/07.

Text for Written Statement

This statement sets out the changes that the Department is taking to manage its budgets in the current and next financial year.

In 2006/7 the Department is transferring £33m from underspends in the Science budget to its non-Science budget. The Science budget this year is £3.268bn.

In relation to 2007/8, we are reducing our contribution to the RDA budget, which totals £2.3bn, by £50m, and we do not anticipate that the second instalment of the loan that was taken from accumulated Science underspends at the time of the last Spring Supplementary will be repaid.

9 November 2007

1 Further details may be found at Annex A to this memorandum Back

2 The ambit provides the statutory description of departmental operations funded through Supply and can only be extended or otherwise modified by the presentation of a Revised or Supplementary Estimate subsequently incorporated in an Appropriation Act. Back

3 Further details may be found at Annex A to this memorandum Back

4 The level of receipts anticipated when SR04 was agreed were £891m lower than the actual figures now forecast by the NDA. These receipts are used to fund decommissioning work. Back

5 The CSR settlement for the Science budget was agreed prior to the machinery of Government changes. In addition to access to drawdown of Science capital EYF in 2007-08, it was agreed that £78 million from the ex-DTI's non-science budget (now BERR) would be made available, as a loan to the Science ring fence. This will be paid back to the BERR budget over the CSR period as required, with maximum repayments of £35m in 2008/09 and £43m in 2009/10 Back

6 A change was made to the budgeting regime in respect of the classification of work (and associated income) on decommissioning, reprocessing and disposal of nuclear waste, through reclassification by the Office for National Statistics. Back

7 This change was reported to the Select Committee in February 2007, the relevant text from the memorandum and Written Statement may be found at Annex C. Back

8 The DTI End Year Flexibility figure published in the Provisional Expenditure Outturn White Paper was £936m but this figure was subsequently revised to £983m. Back

9 The SBI is a publication presented alongside the Main Estimate containing more detailed technical tables, which enable a read-across between the Main Estimates and the tables in departmental reports. Back

10 The investment reserves of the pension schemes for the former employees of the British Coal Corporation are derived from the unallocated share of surplus attributed to British Coal at the privatisation of the industry in 1994. Prior to 1 April 2007 the Department used £10m of receipts to cover associated expenditure, the table above reflects that this is no longer the case. The Investment Reserves exist as sub-funds and are available to maintain the benefits of the scheme members in accordance with guarantee arrangements entered into in 1994. Half of any surplus is released to Treasury via the Department. Back

11 The investment reserves of the pension schemes for the former employees of the British Coal Corporation are derived from the unallocated share of surplus attributed to British Coal at the privatisation of the industry in 1994. Prior to 1 April 2007 the Department used £10m of receipts to cover associated expenditure, the table above reflects that this is no longer the case. The Investment Reserves exist as sub-funds and are available to maintain the benefits of the scheme members in accordance with guarantee arrangements entered into in 1994. Half of any surplus is released to Treasury via the Department. Back