1. Letter from Sir Brian Bender, Permanent
Secretary, Department for Business Enterprise and Regulatory Reform
BERR & NDA BUDGETS—SPRING SUPPLEMENTARY
ESTIMATES
I am writing to you to provide further information
on the Spring Supplementary Estimates being published today, particularly
in relation to the funding of the Nuclear Decommissioning Authority.
In view of the fact that the Public Accounts Committee has a hearing
on the NAO report "The Nuclear Decommissioning Authority:
Taking Forward Decommissioning" scheduled for the 25th February,
I thought it would be helpful to provide you with more detail
than that set out in the Estimate to assist the Committee's understanding.
The timing of the publication of the Estimates has dictated the
timing of this letter.
The Spring Supplementary Estimate shows that
BERR is drawing down significant sums of End Year Flexibility
and also making a claim on the Reserve to meet funding pressures
this year. This action is necessary mainly to meet a shortfall
in Nuclear Decommissioning Authority budget in 2007/08 and it
is on this that this letter will concentrate.
An issue has arisen concerning the budgeting
treatment of income received by the NDA, particularly that relating
to Waste Substitution. There had been an understanding that proceeds
could be recognised when income was invoiced and receivable. It
is now clear that this income should have been treated under standard
Treasury budgeting rules for commercial income which align with
the accounting treatment under FReM (UK GAAP). The standard accounting
treatment for income recognised under long-term contracts is that
it should normally be recognised over a period of time as the
service is performed for the customer, rather than in a single
year.
There was an expectation that proceeds from
Waste Substitution this year could be used to meet expenditure
commitments in 2007/8. These proceeds have now been received.
However, the potential requirement to spread the revenue over
a number of years, would only allow a proportion of these proceeds
to be recognised in the NDA budget this year.
This treatment of the Waste Substitution Income
has contributed in large part to a £400m shortfall between
the NDA's forecast expenditure and forecast income in 2007/8,
for which it has been necessary to draw down EYF and make a claim
on the Reserve in the Spring Supplementary Estimates.
It is obviously regrettable that such a situation
should arise and also so late in the financial year. We have looked
across BERR budgets to realise any underspends that might be put
towards the shortfall but, at this late stage in the year, the
options available to us are limited.
The Department is reviewing how this situation
arose and what lessons need to be learnt for the future. This
work involves the Department, Shareholder Executive, HMT and the
NDA. We are also looking at the forecast figures for future years
to ensure that we have a full understanding of the effect of the
revised accounting and budgeting treatment in future years.
I am copying this letter to the Clerk of the
Business and Enterprise Select Committee and Tim Burr at the National
Audit Office.
19 February 2008
| 
