The Work of the Department - Business and Enterprise Committee Contents

Further supplementary memorandum submitted by BERR


  I am responding to your letter of 19 December in which you requested further information on BERR's Winter Supplementary Estimate 2008-09.


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.


  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.


  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.


  You requested a table showing budget changes made to the RDAs' funding through the Winter Supplementary Estimate:

Near Cash

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 RDAs1,700
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.


  You requested a breakdown of the figure of £4,739 million increase in respect of the NDA:


Increase in the Provision for nuclear decommissioning 4,600,000
Decrease in the Cost of Capital Charge (120,963)
Increase in Depreciation260,000

  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.


  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 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.


  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.


  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



Discounted NDA Group £m Authority £m

Provision at 31 March 2007
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)1,7761,772
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
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

previous page contents next page

House of Commons home page Parliament home page House of Lords home page search page enquiries index

© Parliamentary copyright 2009
Prepared 20 April 2009