Select Committee on Liaison Second Report

Annex 1: Reasons for differences between departmental budgets, Estimates and accounts

(A)  Boundary issues: income and expenditure

1. "Non-voted expenditure": some expenditure which appears in budgets and accounts is not in Estimates because it has standing legislative authorisation and therefore does not need annual authorisation by Parliament (e.g. judges' salaries and expenditure from funds such as the National Insurance Fund).

2. Different treatment of income in budgets, Estimates and accounts: budgets and accounts are generally net of income (though not necessarily in exactly the same way), whereas retention of that income requires parliamentary authority (as "appropriations-in-aid") and Estimates therefore limit both net expenditure and income and thereby also gross income.

3. "Departmental Unallocated Provision": sums not yet allocated to a specific purpose are included in budgets but cannot be included in Estimates until a purpose is determined, when authorisation is requested through a Supplementary Estimate.

4. "Prior-period adjustments": if a change in accounting policy or an error affects the Department's accounts for an earlier period, Parliament authorises the necessary changes through the Estimate for the current year, whereas the budgets and accounts are simply corrected for the year concerned.

(B)  Boundary issues: different treatment of entities

5. NDPBs and other bodies within central government: NDPBs' expenditure is included in the parent Departments' budgets, but only the grant-in-aid paid to them appears in Estimates and accounts. The same applies to some other bodies, such as the BBC.

6. Aspects of the finance of some public corporations: capital grants to and equity withdrawals from them appear as capital expenditure in budgets but as resource expenditure in accounts; and their market borrowings are in budgets but not in Estimates or accounts.

7. NHS Trusts: the revenue and capital expenditure of some types of Trust are in budgets but not in Estimates or accounts.

8. Devolved administrations: the cash block grants to the devolved administrations are not in the budgets of the relevant UK Departments (the Ministry of Justice and the Northern Ireland Office), but are in their Estimates and accounts.

(C) Policy issues

9. Capital grants: these are treated as resource expenditure in Estimates and accounts, but as capital expenditure in budgets in order to comply with National Accounts definitions which focus on the (capital) end-purpose of the grants.

10. "Supported capital expenditure": this support for local authorities is to cover the authorities' borrowing costs, and is in central government budgets but not in Estimates or accounts.

11. "Near-cash" and "non-cash" items: in budgets, the resource budget DEL is split into near-cash items, such administration costs and programme costs, and non-cash items, such as depreciation and cost of capital charges, because near-cash items count towards the fiscal rules. However, the distinction is not recognised in Estimates or accounts. This different treatment means that certain financial transactions are dealt with differently under each framework, including provisions (e.g. pension liabilities), depreciation, cost of capital charges and impairments.

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