The Work of the Department - Business and Enterprise Committee Contents


Supplementary memorandum submitted by BERR

DEPARTMENT FOR BUSINESS, ENTERPRISE AND REGULATORY REFORM (BERR) WINTER SUPPLEMENTARY ESTIMATE 2008-09 SELECT COMMITTEE MEMORANDUM

INTRODUCTION

  1.  BERR's Winter Supplementary Estimate for 2008-09 seeks the necessary resources and cash to support the functions of the Department and it's Non Departmental Public Bodies (NDPBs). The purpose of this Memorandum is to provide the Select Committee with additional information about the content of the Department's Winter Supplementary Estimate for 2008-09. Included is information on changes made in the Estimate and how these changes relate to Departmental budgets, Control Totals and Public Service Agreement targets. An explanation of key terms used in the Memorandum is provided at Annex A.

  2.  The Department's Winter Supplementary Estimate excludes drawdown of any End of Year Flexibility (EYF) stock, this has been deferred until the Spring Supplementary Estimate on the advice of HMT.

MACHINERY OF GOVERNMENT CHANGES

  3.  The Machinery of Government (MoG) changes of 3 October 2008 announced the creation of the Department of Energy and Climate Change (DECC), formed from the Energy Group located in BERR and the Climate Change Group located in the Department for Environment, Food and Rural Affairs (DEFRA).

  4.  Both BERR and DEFRA will transfer their budgets for Energy and Climate Change respectively to the new Department, based on the Settlements agreed in the Comprehensive Spending Review 2007 (CSR07), for the financial years 2008-9, 2009-10 and 2010-11. In view of the timing of the change, the formal transfer of budgets to the new Department will take place through the Spring Supplementary Estimate. This Supplementary Estimate, therefore, includes some changes relating to Energy programmes.

SUMMARY OF CHANGES SOUGHT IN THE ESTIMATE

  5.  The Department's Winter Supplementary Estimate changes Departmental budgets for 2008-09 in three ways:

    —  The Department Expenditure Limit (DEL) budget will be reduced by £11 million (0.3%) from £3,379 to £3,368 million. Further detail is provided at paragraphs 11 to 14.

    —  The Annually Managed Expenditure budget will be increased by £5,032 million from (£718 million) to £4,314 million. Further detail is provided at paragraph 15.

    —  The Net Cash Requirement will be increased by £569 million (14.6%) from £3,905 million to £4,474 million. Further details are provided in paragraph 16.

    —  The Administration budget will be increased by £0.3 million from £332.2 million to £332.5 million. Further details are provided in paragraph 20.

  6.  An explanation of the full changes to the Estimate and how these impact the Departmental Expenditure Limits is provided at Annex B.

ESTIMATE

Structure of the Estimate

  7.  As agreed with the Select Committee, the structure of BERR's Estimate has been revised to align with its Departmental Strategic Objectives (DSOs) to ensure clarity of reporting. DSOs 4 and 5 will transfer to DECC. The wording of the Request for Resources (RfR) has also been amended as advised in the Memorandum to the Main Estimate ("To help ensure business success in an increasingly competitive world").

  8.  On Treasury advice, the new Non Budget lines showing Grant in Aid to NDPBs are shown under the existing Non Budget heading in the Estimate Part II table, followed by new headings for the Departmental Expenditure Limit and Annually Managed Expenditure. This format will be retained for the Spring Supplementary Estimate, with the Main Estimate 2009-10 following the usual order of Departmental Expenditure Limit and Annually Managed Expenditure followed by Non Budget.

Ambit

  9.  The ambit will be revised in the Spring Supplementary to reflect the movement of Energy programmes to DECC.

UKAEA Pension Schemes Estimate

  10.  Winter Supplementary Estimates are also being presented for the UKAEA Pension Schemes Estimate (which includes the latest forecasts for expenditure and receipts and other adjustments to the Net Cash Requirement), and for the Postal Services Commission.

DETAILED EXPLANATION OF CHANGES

Departmental Expenditure Limit—Increases in provision

  11.  HM Treasury has provided £1 million additional funding for Face-to-Face Debt Advice with similar sums for forward CSR07 years. BERR has also received inward transfers of £1 million from the Cabinet Office to part fund the Parliamentary Counsel Office and a £4 million contribution from the Ministry of Defence (MoD) to the Global Threat Reduction Programme.

Departmental Expenditure Limit—Reductions in provision

  12.  BERR is making contributions of £1 million to DEFRA towards the costs of increased Warm Front Delivery and £16 million to DWP in relation to Cold Weather Payments. The RDAs have provided the associated funding through a £17 million reduction in their overall Capital budget. There are also some other minor transfers.

Departmental Expenditure Limit—Neutral changes

  13.  These consist of:

    —  the rearrangement of the expenditure shown in the Main Estimate into the new Estimate lines which reflect BERR's DSOs;

    —  reallocations between the London Development Agency (LDA) and the eight Regional Development Agencies (RDAs);

    —  identification of underspends in Capital budgets which have been switched to the Department's negative Unallocated Provision;

    —  virements of Near Cash and Non Cash from the Resource Departmental Unallocated Provision to fund Voted expenditure; and

    —  virement from RDA Capital to the Resource Departmental Unallocated Provision.

DEPARTMENTAL EXPENDITURE LIMIT

  14.  The DEL provision has decreased by £11 million from £3,379 million to £3,368 million. The following table shows the relevant DEL changes:

Resource
DEL
Capital
DEL
Total
DEL
£m£m £m


Per Main Estimate
2,151 1,2283,379
Virement from Capital to Resource16 -16
BERR contribution to Cold Weather Payments and Warm Front Delivery -16-1-17
Face-to-Face Debt Advice—new funding from HM Treasury's Financial Inclusion Fund 11
Transfer from MoD for the Global Threat Reduction Programme 44
Minor transfers to/from other Government Departments (OGDs) 11
Revised Winter Supplementary Position 2,1571,211 3,368



Annually Managed Expenditure (AME)

  15.  The AME provision has increased by £5,032 million from (£718 million) to £4,314 million. This represents an increase in Voted provision of £563.8 million and an increase in Non-Voted provision of £4,468 million as shown in the following table:

Resource
AME
Capital
AME
Total
AME
£m£m £m


Provision in Main Estimate
(29.0)(689.0)(718.0)
Paternity Pay—additional funding in line with the latest data which shows higher spending than forecast for the Main Estimate 5.05.0
Working Capital for Royal Mail—to restore the revolving loan facility to the agreed level 560.0560.0
Non Cash—increase in nuclear decommissioning provision, cost of capital charge and depreciation for the NDA 4,739.04,739.0
Non Cash—increase in the nuclear decommissioning provision and cost of capital charge for British Energy 7.17.1
Non Cash—increase in RDA impairments 52.752.7
Redundancy Payments Service—reduction in level of expected payments (19.5)(19.5)
Increase in dividend from British Nuclear Fuels Ltd to be paid over to HM Treasury as a Consolidated Fund Extra Receipt (CFER) (311.3)(311.3)
Minor reductions to: Coal Health Provisions; cost of capital charge for the UKAEA; and LDA corporation tax (1.2)(1.2)
Provision in Spring Supplementary Estimate 4,754.1(440.3) 4,313.8



Net Cash Requirement

  16.  The Estimate increases the Net Cash Requirement by £569 million (14.6%) from £3,905 million to £4,474 million. This increase relates to the cash impacts of the changes outlined above and those detailed later in the Memorandum and supporting Annexes.


£m


Net Cash Requirement in Main Estimate3,905
Change in Voted Departmental Expenditure Limit budget (Paragraphs 11-12) (72)
Increase in Voted Annually Managed Expenditure (Paragraph 14) 564
Increase in Voted Grant in Aid to NDPBs 28
Increase in Payments against Provisions 14
Changes in working capital for the Insolvency Service 35
Revised Net Cash Requirement4,474




Impact on Public Service Agreements and Departmental Strategic Objectives

  17.  As part of the Spending Review process, the Department agrees its Public Sector Agreement and Departmental Strategic Objectives and the spending plans to deliver them. The total funds required to achieve those targets are allocated to Departmental Groups. The funds are only partially drawn down in the Main Estimate each year as this excludes funds available from EYF and includes only a prudent partial draw down of funds from its Non-Voted resources. This is to ensure that we do not draw down funds that are subsequently not required. Accessing funds in a Supplementary Estimate is part of the Department's planned and structured approach to funding spending plans in support of its PSA targets.

  18.  The funding movements within this Supplementary Estimate are relatively minor and unlikely to have a significant impact on the Department's objectives. Slippage in Capital programmes has resulted in some in-year under spends. The Environmental Transformation Fund estimates an under spend amounting to £27 million. Whilst commitments to the Enterprise Capital Fund programme are anticipated to remain on target, actual Capital expenditure is estimated to be under spent by £27.4 million in 2008-09. The remaining commitment will be drawn down over the remaining CSR years. As the under spends reflect delayed expenditure, this may have a minor impact on PSA and DSO delivery this year, but ought not to impact on progress over the full CSR07 period.

  19.  A full report on progress against the Department's PSA targets will be included in the Department's 2008 Autumn Performance Report.

ADMINISTRATION LIMIT

  20.  The Department's Administration Cost Limit has increased by £0.3 million (0.1%) from £332.2 million to £332.5 million. The changes are shown in the following table:


£m


Administration Cost Limit in Main Estimate 332.2
Transfer from Cabinet Office for the Parliamentary Counsel Service 1.4
Transferred to the RDAs for Business Link (0.7)
Other minor transfers to the Office for Climate Change (£360k) and the Office for Government Commerce (£45k) (0.4)
Revised Administration Limit332.5




  21.  At the start of the CSR07 period, the Department set a three-year Administration spending plan financed by all its available funds to deliver its service objectives. Administration spending remains under control against its plans.

END OF YEAR FLEXIBILITY

  22.  Annex C provides a summary position of the Department's EYF stock as reported to HM Treasury and published in the Public Expenditure Outturn White Paper (Cm 7419).

PROVISIONS AND CONTINGENT LIABILITIES

Provisions

  23.  The Department provides for legal or constructive obligations, which are uncertain in respect of either timing, or amount, on the basis of the best estimate of the expenditure required to settle the obligation. Details of the Department's main stock of provisions as at 31 March 2008 were published in the Annual Report and Accounts and are shown in Annex D.

REQUEST FOR RESOURCES CHANGES

  24.  Full details of the draw downs and other movements for Administration, other current Resource funding and Capital against each Request for Resource are given in the Introduction to the Estimate.

INCOME CHANGES

  25.  The total income variations allowed for within the Winter Supplementary Estimate are itemised in the Introduction to the Estimate. Operating (Resource) Appropriations in Aid have decreased from £3,127 million to £3,107 million, a reduction of £20 million, and Non Operating Capital Appropriations in Aid have reduced from £11,950 million to £6,450 million, a reduction of £5,500 million. The variations have been calculated in accordance with the latest business projections and are off-set by equivalent decreases in spend.

  26.  The changes are due to a reduction of £20 million in contributions from DEFRA to the Regional Development Agencies and a £550 million reduction in the gross working capital provision for the Post Office.

PROCESS FOR PREPARATION AND APPROVAL OF MEMORANDUM

  27.  This Memorandum has been prepared in accordance with the suggested format as set out in "A Guide to Preparing Estimate Memoranda" and Annex D to PES Circular 2004(14) and has been approved by the Departmental Accounting Officer.

Annex A

EXPLANATION OF KEY TERMS USED IN THE MEMORANDUM

DEPARTMENTAL EXPENDITURE LIMIT (DEL)

  This is spending within the Department's direct control and which can, therefore, be planned over an extended period, such as the costs of its own administration.

ANNUALLY MANAGED EXPENDITURE (AME)

  Annually Managed Expenditure is primarily demand led expenditure. It is generally less predictable and controllable than expenditure in Departmental Expenditure Limit. Annually Managed Expenditure spending does not fall within the Departmental Expenditure Limit.

REQUEST FOR RESOURCES (RFR)

  This is the functional level at which the Departmental Estimates are allocated in support of the Department's objectives:

    —  Request for Resources 1: To help ensure business success in an increasingly competitive world.

DEPARTMENTAL UNALLOCATED PROVISION (DUP)

  A Departmental contingency reserve, which can be accessed, where necessary, by means of a Supplementary Estimate.

END OF YEAR FLEXIBILITY (EYF)

  A mechanism that enables the Department to plan the use of resources over Spending Review years and, therefore, carry-forward unspent provision in the DEL in one year to subsequent years.

VOTED AND NON-VOTED FUNDS

  The term Vote applies to the process by which Parliament formally approves the supply of funds to the Department. Non-Voted funds have by definition not been through that process. These may include, for example, the resource consumption of Non Departmental Public Bodies which features within DEL. Expenditure funded by the National Insurance Fund is also Non-Voted.

Annex B

SUMMARY OF ESTIMATE CHANGES

2008-09 Budget Control Total Movements
Main EstimateMovement Winter
Supplementary
Estimate
£m£m £m


Departmental Expenditure Limit Resource
2,15162,157
Of which:
  Administration332 332
  Near-Cash2,042 62,048
Departmental Expenditure Limit Capital 1,228(17)1,211
Total Departmental Expenditure Limit 3,379(11)3,368
Annually Managed Expenditure Resource(29) 4,7834,754
Annually Managed Expenditure Capital(689) 249(440)
Total Annually Managed Expenditure (718)5,0324,314
Total Resource2,122 4,7896,911
Total Capital539 232771



2008-09 Budget Control Total Movements
Main EstimateMovement Winter
Supplementary
Estimate
£m£m £m


Request for Resources 1
3,389 5694,474
Total Voted Resource (Net)3,389 5694,474
Net Cash Requirement3,905 5694,474



Annex C

SUMMARY OF DEPARTMENT'S END OF YEAR FLEXIBILITY STOCK


Administration Other
Resource
Capital Total
£m£m £m£m


End Year Flexibility at 31/03/08 (Cm 7419)
26531332 889
No utilisation in Winter Supplementary
Remaining Stock of End Year Flexibility 26531332 889



Annex D

PROVISIONS

PROVISIONS FOR LIABILITIES AND CHARGES—COAL


Health-Related Provisions Non Health Provisions
COPDVWF OtherConcessionary
Fuel
OtherTotal
£'000£'000 £'000£'000 £'000£'000


At 1 April 2007
682,369 272,728181,115404,545 80,0941,620,851
Amortisation of one year's discount15,012 6,0003,9848,900 1,76235,658
Increase/(decrease) in provision(170,741) 96,3734,55919,259 (1,827)(52,377)
Expenditure in year(294,633) (318,276)(84,002)(47,095) (32,172)(776,178)
At 31 March 2008232,007 56,825105,656385,609 47,857827,954


PROVISIONS FOR LIABILITIES AND CHARGES—NUCLEAR
UKAEABritish Energy Consolidated
Total
£'000£'000 £'000


At 1 April 2007
157,593 2,386,3272,543,920
Amortisation of one year's discount3,467 52,49955,966
Increase/(decrease) in provision5,352 86,15991,511
Expenditure in year(204,502)(204,502)
At 31 March 2008166,412 2,320,4832,486,895


PROVISIONS FOR LIABILITIES AND CHARGES—OTHER


Consolidated
SFLGUKAEA
Restructuring
Early
Retirement
British
Shipbuilders
Onerous
Leases
Other Total
£'000£'000 £'000£'000 £'000£'000 £'000
(restated)
At 1 April 2007
133,434 32,84660,37979,213 13,827319,699
Amortisation of one year's discount2,936 7231,3001,743 (68)6,634
Increase/(decrease) in
provision
51,116 (671)(8,430)34,602 193,186682270,485
Expenditure in year(73,118) (3,572)(17,974)(1,962)(96,626)
At 31 March 2008114,368 29,32635,275115,558 193,18612,479500,192



WINTER SUPPLEMENTARY ESTIMATES 2008/09—WRITTEN STATEMENT

  Subject to Parliamentary approval of the necessary Supplementary Estimate, the Department for Business, Enterprise and Regulatory Reform's DEL will be reduced by £11,157,000 from £3,379,070,000 to £3,367,913,000 and the Administration budget will be increased by £358,000 from £332,173,000 to £332,531,000.

  Within the DEL change, the impact on Resources and Capital is as set out in the following table:

Change New DEL
VotedNon-Voted VotedNon-Voted Total

Resource (£000)
34,426 -28,583-497,986 2,654,8802,156,894
of which:
Administration* budget358 332,531 332,531
Near cash in Resource DEL*19,398 -13,555-645,6302,693,147 2,047,517
Capital (£000)-91,601 74,601-763,999 1,975,0181,211,019
Less Depreciation* (£000)-11,327 11,327-48,780-24,684 -73,464
Total (£000)-68,502 57,345-1,310,765 4,605,2143,294,449


*The total of the "Administration Budget" and "Near-Cash in Resource DEL" figures may well be greater than total Resource DEL, due to the definitions overlapping.

*Capital DEL includes items treated as Resource in Estimates and Accounts, but which are treated as Capital DEL in Budgets.

*Depreciation, which forms part of Resource DEL, is excluded from the total DEL since Capital DEL includes Capital spending and to include depreciation of those assets would lead to double counting.


  The change in the resource element of the DEL arises from:

RfR1

    (i) increase of £825,000 in respect of an award from the Financial Inclusion Fund for Face-to-Face Debt Advice;

    (ii) transfer of £40,000 from the Non-Voted Departmental Unallocated Provision to the Cabinet Office for the Security Monitoring and Coordination Centre;

    (iii) transfer of £4,000,000 from the Ministry of Defence in respect of Global Threat Reduction;

    (iv) virement of £17,088,000 from Non-Voted to Voted expenditure in respect of the Regional Development Agencies reflecting reduced contributions from other Government Departments;

    (v) virement of £2,504,000 from Voted to Non-Voted expenditure in respect of a reallocation from the London Development Agency to the Regional Development Agencies;

    (vi) virement of £1,000,000 from Voted expenditure on Business Link Marketing to Non-Voted expenditure in respect of the Regional Development Agencies;

    (vii) virement of £16,000,000 from Non-Voted capital expenditure in respect of the Regional Development Agencies to the Non-Voted resource Departmental Unallocated Provision;

    (viii) transfer of £16,000,000 from the Non-Voted resource Departmental Unallocated Provision to the Department for Work and Pensions in respect of Cold Weather Payments;

    (ix) virement of £115,000 from Non-Voted to Voted expenditure in respect of a reduction in the gross expenditure and receipts of Postwatch as a result of the transfer of the Royal Mail Quality of Service review to Postcomm;

    (x) virement of £ 14,300,000 from the Non-Voted Resource Departmental Unallocated Provision to Voted Insolvency Service Non-Cash;

    (xi) virement of £728,000 from the Non-Voted resource Departmental Unallocated Provision to Voted Non-Cash Provisions in respect of Icelandic Trawlermen compensation; and

    (xii) virement of £516,000 from the Non-Voted resource Departmental Unallocated Provision to Voted Near-Cash in respect of British Shipbuilders Liabilities;

  Also within the change to resource DEL, the changes to the Administration budget are (RfR1):

    (i) transfer of £1,463,000 from the Cabinet Office in respect of the Parliamentary Counsel Office;

    (ii) transfer of £360,000 to the Department for Environment, Food and Rural Affairs in respect of the Office of Climate Change;

    (iii) transfer of £45,000 to the Office of Government Commerce (Cabinet Office) for the Centre of Expertise for Sustainable Development; and

    (iv) reclassification of £700,000 from Voted Administration to Non-Voted programme expenditure in respect of the Regional Development Agencies' Business Links;

  The change in the Capital element of the DEL arises from:

RfR1

    (i) virement of £39,501,000 from Voted to Non-Voted expenditure in respect of a reallocation from the London Development Agency to the Regional Development Agencies;

    (ii) virement of £16,000,000 from Non-Voted capital expenditure in respect of the Regional Development Agencies to the Non-Voted resource Departmental Unallocated Provision;

    (iii) transfer from Non-Voted Regional Development Agencies expenditure of £1,000,000 to the Department for Environment, Food and Rural Affairs in respect of increased Warm Front Activity;

    (iv) virement of £27,000,000 from Voted Environmental Transformation Fund expenditure to the Non-Voted Departmental Unallocated Provision;

    (v) virement of £27,400,000 from Voted Enterprise Capital Fund expenditure to the Non-Voted Departmental Unallocated Provision;

    (vi) virement of £2,300,000 from Non-Voted expenditure to Voted in respect of increased recoveries of Non-Voted Launch Investment receipts and increased Voted expenditure by the Advisory, Conciliation and Arbitration Service.

5 November 2008





 
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