Further supplementary memorandum submitted
by BERR
WINTER SUPPLEMENTARY ESTIMATE 2008-09
I am responding to your letter of 19 December
in which you requested further information on BERR's Winter Supplementary
Estimate 2008-09.
DEPARTMENTAL UNALLOCATED
PROVISION (DUP)
Use of End Year Flexibility (EYF) Stocks
In view of the current fiscal position, Treasury
have again been unable to agree the use of BERR's EYF stocks within
2008-09. However, in relation to measures announced in the recent
Pre-Budget Report (PBR), it has been agreed that BERR can utilise:
— Up to £25 million Near Cash
EYF over the period 2009-10 to 2010-11 towards the new Small Business
Finance Scheme (now re-named as the Enterprise Finance Guarantee
Scheme). This is only to be accessed if BERR is unable to fund
from within its voted budget, and
— Capital EYF of £30 million with
regard to the Enterprise Strategy (originally intended for the
Mezzanine fund).
Capital Savings
We are only in a position to directly influence
small Capital budget areas to achieve savings, such as the Department's
annual expenditure on its infrastructure, and budgets made available
to our Executive Non Departmental Public Bodies (NDPBs) and Executive
Agencies. This has no direct impact on service delivery.
We are currently examining whether, and how
far, we are able to manage down the £10 million unfunded
Capital expenditure. As we have been advised that the use of EYF
remains not an option, we are intending to switch a small Near
Cash underspend into Capital through the Spring Supplementary
Estimate, to relieve the pressure.
We have agreement that the Department for Innovation,
Universities and Skills (DIUS) will repay the remaining £43
million balance of the Capital loan to BERR in 2009-10 through
one of the two 2009-10 Supplementary Estimates. This is reinforced
in our recent Machinery of Government Settlement Letter from Chief
Secretary to the Treasury.
UNDER SPENDS
OF ENVIRONMENTAL
TRANSFORMATION FUND
(ETF) AND ENTERPRISE
CAPITAL FUND
(ECF)
The underspend in the ETF has occurred because
of slippage in the programme. The expenditure is, however, committed,
and the funding will be needed in later years. EYF stocks are
available to support this expenditure but usage will require agreement
by Treasury at the appropriate time.
The reduction in the Enterprise Capital Fund
for 2008-09 resulted from slippage of related Capital projects.
Further slippage to the original planned programme has been forecast
for 2009-10 which will allow a contribution of £10 million
to the new £50 million Capital for Enterprise Fund to provide
equity or quasi-equity to SMEs who are over-leveraged. The new
scheme announced in the PBR will not have a budgetary impact until
2009-10.
INSOLVENCY SERVICE
NON CASH
The current net Programme budget for the Insolvency
Service amounts to £22.2 million Near Cash and £20.5
million Non Cash. This is in addition to expenditure covered by
fee income which amounts to £143 million. Current forecasts
of income indicate receipts of £150 million with an associated
£7 million increase in expenditure. There will also be a
change between the levels of Near and Non Cash budget with the
Non Cash budget increasing by £7 million and the Near Cash
decreasing by the same amount. There will be no requirement for
an increase in the budget.
The Insolvency Service also has a Capital budget
of £9 million which will be reduced by £1 million through
the Spring Supplementary Estimate as there has been some slippage
in an IT project.
REGIONAL DEVELOPMENT
AGENCIES' (RDAS)
FUNDING
You requested a table showing budget changes
made to the RDAs' funding through the Winter Supplementary Estimate:
|
| Near Cash |
|
| £k |
|
|
| Total DEL budgets at Main Estimate 1,821,816 Less DEFRA contribution1
| (17,088) | |
| Less proportion of the reduction in BERR's Capital contribution (Resource in the Estimate but Capital in Budgets)
| (14,496) | |
| Budget "repaid" by LDA to RDAs |
39,501 | |
| Transferred to the RDAs | 1,700
| |
| Total in Winter Supplementary Estimate
| 1,831,4332 | |
|
| 1 This adjustment is to be corrected in the Spring Supplementary Estimate.
| |
| 2 The published Grant-in-Aid figure of £1,779,404 equates to the figure above less the Non Cash element of £57,029 plus £5m Corporation Tax which is non budget.
| |
| |
|
£17 million cut in Capital Budget as a result of cold
weather payments and warm front delivery
You requested examples of delays in RDA Capital schemes:
(a) Delayed until the first quarter of 2009-10
— The Chrysalis Centre in Northampton. A development
to provide high quality employment workspace in Northampton of
20 studios, four workshops, and 11 creative retail units. This
would remediate 0.25 Hectares of land, create 23 businesses &
96 new jobs. Overall cost to East Midlands Development Agency
(EMDA) £4.5 million.
— Retford Enterprise Campus in Retford. A development
creating 1,054 sqm of office space, divided into 28 office/workshop
units, in a deprived ward. This space will provide start up accommodation
for businesses, creating capacity for nine new businesses and
36 jobs. Overall cost to (EMDA) £1.7 million.
(b) Projects delayed from 2008-09 in to 2009-10
— The East of England Development Agency's share
of the £17 million was £2.0 million, and this was accommodated
by the slippage of a single project. The project slipped was the
National Wind Development Centre, which will support the design,
management and build of a specialised building to house large
scale test infrastructure for the renewable energy market; particularly
offshore wind energy.
(c) Those where the RDAs will reduce their projected spend
in 2008-09 relate to projects falling under Grants for Business
Investment.
No increase has been agreed for the RDAs for 2009-10.
NUCLEAR DECOMMISSIONING
AUTHORITY (NDA)
You requested a breakdown of the figure of £4,739 million
increase in respect of the NDA:
|
| £k |
|
| Increase in the Provision for nuclear decommissioning
| 4,600,000 |
| Decrease in the Cost of Capital Charge |
(120,963) |
| Increase in Depreciation | 260,000
|
|
| |
The figures are reviewed and revised on an annual basis with
the updated figures being included in the NDA's Annual Accounts.
The relevant calculations take place at the year end, too late
for the Main Estimate. These are reviewed by the National Audit
Office as part of their audit work on the accounts. Annex A shows
the relevant note from the 2007-08 Accounts.
The increases in the depreciation charge brings the estimated
charge for 2008-09 in line with the final 2007-08 actual outturn.
The revised cost of capital charge takes into account the final
audited balance sheet of the NDA for 2008-09. The increase in
provision for nuclear decommissioning is an estimate of the potential
movement in the nuclear provision, being a combination of provision
discharged, changes in lifetime cost estimates, the unwinding
of discount and the impact of inflation. The final figures of
outstanding provision are derived from individual life-time plans
submitted by the Site Licence Companies, and subjected to extensive
independent verification, including scrutiny by the National Audit
Office.
WORKING CAPITAL
FOR ROYAL
MAIL AND
POST OFFICE
LTD
At the time of the Winter Supplementary Estimate only one
Capital AME loan facility was in position, namely for working
capital. It was agreed that a range of loan facilities would be
made available to Royal Mail and Post Office Ltd. These include:
£1.15 billion Revolving Loan facility for Post Office
Ltd (POL)
This is the Capital AME loan for which the level was increased
by £560 million in the Winter Supplementary Estimate. The
loan facility was agreed in October 2003 and has been in operation
since December 2003. It was introduced against the background
of the Department for Work and Pensions migration of state benefits
to a system of direct payment, alongside a Government commitment
that benefits recipients will still be able to collect their benefit
in cash, and in full, from post office branches. The facility
provides for up to £1.15 billion cash to assist POL with
its in-branch working capital requirements, to ensure there is
sufficient cash in post office branches to meet benefit payment
and other cash needs. This will be re-set to its maximum level
in the Spring Supplementary Estimate as BERR's decreasing total
net cash position leaves no flexibility should POL require use
of more than £650 million.
£300 million shareholder loan facility for Royal Mail
The £300 million Shareholder Loan to be advanced by
BERR and to which you make reference in your letter. The terms
of this loan agreement stipulate that, if required, this has to
be drawn by March 2009. Royal Mail have requested the use of this
facility and this will be included as £300 million Capital
AME in the Spring Supplementary Estimate.
This loan forms an element of the £1.2 billon of loan
facilities agreed as part of the Royal Mail finance framework
package (to which you also make reference). The package was agreed
to help Royal Mail implement its transformation plan and the Shareholder
Loan can be applied to the company's general corporate purposes.
The £1.2 billion loan package also includes a £900 million
National Loans Fund (NLF) loan facility (which comprises a £600
million capital expenditure facility and a £300 million general
purpose revolving facility). Some low level use has recently been
made of the £300 million revolving NLF facility. NLF loans
are not voted, although it is the Department's responsibility
to ensure repayment.
For completeness in relation to Government's loan facility
arrangements with Royal Mail, in February 2001, the Royal Mail
utilised a £500 million loan from the NLF to assist with
the company's acquisition of German Parcel. The loan is long term
and comprises 20 separate tranches of £25 million, which
mature separately at various periods between 20 to 25 years from
the date of utilisation.
Hooper Review
Ministers are currently considering the recommendations made
in the Hooper Review but the financial implications will not be
known until later in 2009.
RDA IMPAIRMENTS
RDA AME impairments predominately relate to reductions in
the value of development assets, ie land and buildings, held by
RDAs for regeneration purposes and then subsequent resale. Such
assets are accounted for annually at open market value, with any
subsequent fall in value being charged to an AME impairment budget.
The significant drop in values across RDAs' development sites
this year is a direct consequence of the credit crunch and economic
slowdown. These impairments are not necessarily permanent.
PATERNITY PAY
FORECAST
BERR has responsibility for the policy and legislation in
respect of paternity leave and Statutory Paternity Pay (SPP) (this
allows an eligible employee to take paid leave to care for his
baby, or to support the mother following birth. He can take either
one week's or two consecutive weeks' paternity leave, and during
this time may be entitled to SPP paid at the same standard rate
as Statutory Maternity Pay (SMP), currently £117.18 per week,
or 90% of average weekly earnings if that is less). The (AME)
budget, therefore, sits with BERR. BERR makes an annual payment
to HM Revenue and Customs (HMRC) to reimburse SPP payments made
to employers relating to paternity leave.
Forecasts of expenditure are, therefore, provided by HMRC
which is expecting the levels of claims in 2008-09 to be higher
than originally forecast.
INCREASED ADVISORY,
CONCILIATION AND
ARBITRATION SERVICE
(ACAS) EXPENDITURE
The £2.3 million increase in Capital for ACAS was required
towards payment for an IT system (shared with the Employment Tribunal
Service). The budget for the £2.3 million was provided from
CFER receipts from Launch Investment (which in 2008-09 are slightly
higher than originally forecast and are classified as negative
budget).
19 January 2009
Annex A
EXTRACT FROM NDA'S 2007-08 ACCOUNTS
NUCLEAR LIABILITIES
| | Discounted NDA Group £m
| Authority £m |
Provision at 31 March 2007 |
| (37,036) | (36,982)
|
| Financing Charges | (a)
| | |
| — Changes in price levels |
| (1,388) | (1,388) |
| — Unwind of one year's discount |
| (776) | (776)
|
| | (2,164)
| (2,164) |
| Changes in future cost estimates |
(b) | (6,671) | (6,620)
|
| Liabilities discharged in the year |
(c) | 1,776 | 1,772
|
| Provisions at 31 March 2008 |
| (44,095) | (43,994) |
| Changes in nuclear liability charge and changes in future cost estimates
| | 2007-08 £m |
£m |
Changes in future cost estimates |
| | (6,671) |
| Less: increase in customer recoverable (see note 16)
| | 533 | |
| Less: increase in customer recoverable reclassification from fixed assets (see note 16)
| | 465 | |
| Less: increase in nuclear provisions for capital costs (see note 11)
| | 225 | |
| Add: discharge from customer recoverable (see note 16)
| | (307) |
|
| Add: reclassification relating to capital costs (see note 11)
| | (533) |
|
| Net changes in future cost estimates |
| | (6,288) |
| Less: Liabilities discharged in the year |
| | 1,776 |
| Nuclear liability charge in note 4 |
| | (4,512) |
19 January 2009
| | | |
| 
