Supplementary memorandum from the Department
for Transport (DAR 01B)
WINTER SUPPLEMENTARY
ESTIMATES 2007-08
Thank you for your letter of 11 December with
questions on the Department's Winter Supplementary Estimates and
my apologies for the delay in responding. Taking your questions
in order:
1. The Estimate makes a claim of £137
million against EYF "to cover pressures arising from increases
in franchising costs". As you know, we expressed concern
about franchising costs both in our Report on the 2006 DAR in
February 2007 (HC 95) and in our Report on Passenger Rail Franchising
in November 2006 (HC 1354). Can you explain how these increased
costs arose?
The EYF claim to cover increased franchising
costs resulted from GNER moving onto a Management Contract and
the assumption that the premia previously due to be paid to DfT
under its franchise agreement would not materialise. This increase
has been mitigated by improved performance by other TOCs, offset
by higher fuel costs across all rail franchises, giving the net
increase in franchising costs of £137 million.
2. There are transfers of £38 million
from Programme to Administration expenditure and of £8 million
from Administration to Programme, a net shift of £30 million
from Programme to Administration. The shift arose from a reclassification
of consultancy costs. The Memorandum does not give any further
detail on the increase. I would be grateful if you could supply
further details about how and why these consultancy costs have
been incurred.
The £38 million transfer from Programme
to Administration arose from an exercise initiated by HM Treasury
in November 2006 to review consultancy treated as programme. The
aim of the exercise was to ensure that decisions on the procurement
of consultancy and other professional services were driven by
value for money considerations alone. Treasury budgeting guidance
was revised to make clear that the presumption was that consultancy
spending should be scored within Administration budgets. As a
result £38m of consultancy expenditure was re-classified.
This did not result in any increased expenditure on consultants.
The transfer of £8m from Administration
to Programme resulted from Treasury agreement that all Transport
Security activities are directly associated with frontline service
delivery and could therefore be reclassified to DfT's programme
budget.
3. The Supplementary Estimate increases
the Department's railways capital budget by £168m out of
unallocated provision. Departmental unallocated provision (DUP)
is intended, according to HM Treasury guidance, to cover "unforeseen
pressures". Why was this increase not anticipated and is
there any risk of further increases in capital grant provision?
The transfer from unallocated provision to the
railways capital budget was made to fund an agreement reached
with Network Rail and the Office of the Rail Regulator that an
element of Network Rail funding should be switched from payment
via track access charges to direct payment of Network Grant.
An initial switch of £432m was included
in the 2007-08 Main Estimates. The additional £168m made
in the Winter Supplementary could not have been anticipated at
Main Estimates, because at that time the full amount of Network
Rail's capital investment for 2007-08 was not certain. It is not
anticipated that further increases on the Estimate for railways
capital grant will be required in 2007-08.
4. The Estimate includes a £20
million drawdown of EYF which is for "preparation for introduction
of concessionary fares". Section I shows (p.7 of Estimates
Memorandum) that £4.6m of this (almost a quarter) is to cover
increased consultancy costs.
(a) Why has the Department found it necessary
to make this drawdown?
(b) Is there a problem with cost control
on the concessionary fares project?
The decision to introduce a universal entitlement
from 2008-09 for free concessionary travel on buses for those
aged 60 and over and eligible disabled people in England was announced
by the Chancellor of the Exchequer in the 2006 Budget. As the
announcement was made after the 2004 Spending Review Settlement,
the department managed the funding of the new programme from within
its budget, utilising EYF generated in 2006-07 from lower than
expected claims on Bus Service Operators Grant.
Early estimates were that the preparation costs
for smartcard based passes, as well as grants to local authorities
in 2007-08 would be in the range £30-£35m. After the
decision was taken that the passes would be smartcards, total
preparation costs, including grant payments, are forecast to be
£36.9m for in 2007-08.
The additional costs have resulted partly from
the need to resolve a number of technical issues so that passes
are Integrated Transport Smartcard Organisation (ITSO) compliant.
These include funding a new company to act as an ITSO member on
behalf of local authorities, and additional technical consultancy
support to help resolve integration issues between pass producers
and the new company. The other main increase was further grant
payment to local authorities to reflect a higher estimate of the
number of passes in circulation. Otherwise, the costs of this
project are much as expected and there are no indications of any
problems with cost control.
5. The Supplementary Estimate includes
an £11 million draw-down of EYF "to cover a shortfall
in enforcement receipts" on Vehicle Excise Duty—a shortfall
which causes a reduction in appropriation-in-aid.
(a) Why has this shortfall occurred?
(b) There are transfers of £8.15
million and £3.8 million (sections P5 and W2), listed under
`Transfers to/from non-voted spending' though the Estimate does
not explicitly state the direction of the transfer. Please can
you supply more details on the purpose of these transfers. Is
there any connection between the DVLA's involvement in the pilot
scheme for the Shared Services Centre (SSC) and the shortfall
in VED receipts?
(a) The DVLA introduced Continuous Registration
in April 2004 as part of its VED enforcement activities and the
initiative has been very successful in reducing the level of `soft
evader'. While this had the effect of increasing the level of
VED tax collected, it also reduced the level of fine income received
below that assumed in the budgets for the 2004 Spending Review
period. The additional VED tax is paid to the Exchequer, but fine
income formed part of the Department's budgets and the DVLA therefore
required a transfer of EYF to cover the shortfall.
(b) The transfers of £8.15 million and
£3.8 million were both from non-voted to voted provision.
The £8.15 million was to cover the shortfall in VED enforcement
receipts and the £3.8 million used to cover various enforcement
activities such as increased on-road checking of over-loading
and driver's hours regulations relating to HGV/PSVs and identifying
fraudulent ID's within driving test applications. There is no
connection between DVLA's involvement in the SSC pilot scheme
and the shortfall in VED receipts.
6. What is the purpose of the transfer,
under sections L2 and L3, of £26 million near-cash out of
DfT to the Scottish Executive?
Budget cover is transferred to the Scottish
Executive each year to cover the costs of the commissioning of
train services in Scotland. The amount payable is based on the
prior year payment adjusted for any increase in RPI. At Main Estimates
an estimate of RPI was used to set a provisional transfer figure
and the £26 million Winter Supplementary transfer reflects
the additional transfer required based on actual RPI.
7. We note that there is now to be a
large increase in creditors of £48.8 million (Part II). How
has this arisen?
Each year the Department calculates its net
cash requirement (NCR) based on cash forecasts from the central
Department and its Agencies. The NCR must take account, amongst
other things, of likely movements in debtors and creditors. Based
on an analysis of the movements in creditors between 2005-06 and
2006-07 it was deemed necessary to increase provision for creditors
by £48.8m at Winter Supplementary Estimates to ensure the
Department did not breach its NCR.
8. Can you provide more detail about
why the Department is transferring £10.5 million from section
AE (Other transport grants—resource) to AD (GLA Transport
grant) under PSA 3 (bus and light rail patronage)? Is this related
in any way to the collapse of Metronet?
This relates to safety cameras, and represents
the London share of the £110 million provided to replace
the previous safety camera netting-off scheme as announced on
21 November 2006 by Dr Ladyman (Hansard 21 November 2006 Column
397). This transfer was not related in any way to Metronet.
January 2008
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