Further supplementary memorandum submitted
by BERR
SPRING SUPPLEMENTARY ESTIMATE 2008-09
INTRODUCTION
1. Following an announcement by the Prime
Minister in October 2008 about the way Government is organised,
a new Department of Energy and Climate Change (DECC) was created.
This brought together policy responsibility for Energy, which
was formerly with the Department for Business, Enterprise and
Regulatory Reform (BERR), and climate change, (formerly a responsibility
of the Department for Environment, Food and Rural Affairs (Defra).
Both BERR and Defra are transferring 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 2008-09, 2009-10 and 2010-11.
2. The purpose of this Memorandum is to
provide the Select Committee with additional information about
the content of the Department's Spring Supplementary Estimate
for 2008-09. Included is information on changes made in the Estimate
and how these changes relate to Departmental budgets, Control
Totals, Departmental Strategic Objectives (DSOs) and the possible
impact on Public Service Agreement targets (PSAs). An explanation
of key terms used in the Memorandum is provided at Annex A.
3. BERR's ambit has been revised in the
Spring Supplementary to reflect the movement of the majority of
Energy programmes to DECC. The revised ambit[1]
is attached at Annex B. This continues to include reference to
"nuclear decommissioning" as BERR retains responsibility
for the UK Atomic Energy Authority (UKAEA) through the Shareholder
Executive. BERR has also retained responsibility for British Nuclear
Fuels Ltd and the related dividend income.
4. We are publishing a Spring Supplementary
Estimate for 2008-09, which seeks the necessary resources and
cash to support the functions of the Department and its Non Departmental
Public Bodies (NDPBs), and to transfer the budgets for those activities
now undertaken by DECC to the new Department.
5. The Department has transferred two of
its DSOs to DECC:
— DSO Ensure the reliable supply and
efficient use of clean, safe and competitively-priced energy;
and
— DSO Manage energy liabilities effectively
and responsibly.
BERR's DSO structure is now as follows:
— DSO1 Promote the creation and growth
of business and a strong enterprise economy across all regions.
— DSO2 Ensure that all Government Departments
and Agencies deliver better regulation for the private, public
and third sectors.
— DSO3 Deliver free and fair markets,
with greater competition, for businesses, consumers and employees.
— DSO4 Ensure that Government acts
as an effective and intelligent shareholder and provide a source
of excellent corporate finance expertise within Government.
— DSO5 Provide the professional support,
capability and infrastructure to enable the Department's objectives
and programmes to be successfully delivered.
6. The responsibility for delivering PSA
27 to "Lead the global effort to avoid dangerous climate
change" has also been transferred to DECC with the related
funding. BERR will play a full part in the governance structure
for PSA 27 but will not be classed as a contributing Department
for reporting purposes.
UK ATOMIC ENERGY
AUTHORITY (UKAEA) PENSION
SCHEMES AND
THE POSTAL
SERVICES COMMISSION
7. Spring 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 the Postal
Services Commission (to increase its Appropriations in Aid).
SUMMARY OF
CHANGES SOUGHT
IN THE
ESTIMATE
8. The Department's Spring Supplementary
Estimate changes Departmental budgets for 2008-09 in the following
ways:
— The Department Expenditure Limit
(DEL) budget will be reduced by £1,906 million from £3,368
to £1,462 million. Further detail is provided at paragraph
9.
— The Annually Managed Expenditure
(AME) budget will be reduced by £3,490 million from £4,314
million to £824 million. Further detail is provided at paragraph
12.
— The Net Cash Requirement will be
reduced by £2,011 million from £4,474 million to £2,463
million. Further details are provided in paragraph 13.
— The Administration budget will be
decreased by £54 million from £333 million to £279
million. Further details are provided in paragraph 14.
A summary explanation of the full changes to
the Estimate and how these impact the Departmental Expenditure
Limits is provided at Annex C.
DETAILED EXPLANATION
OF CHANGES
Departmental Expenditure Limit (DEL)—Changes
in provision
9. The DEL provision has decreased by £1,906
million from £3,368 million to £1,462 million. The following
table shows the relevant DEL changes:
| Notes | Near Cash
| Non Cash | Capital
|
| | £m
| £m | £m
|
DEL budget in Winter Supplementary Estimate
| | 2,048 | 110
| 1,211 |
| Decreases: | |
| | |
| MoG transfers to DECC | 1 |
(801) | 51 | (1,241)
|
| PES transfer from UKTI to the Government Offices
| 2 | (1) |
| |
| Switch from Near Cash to Capital | 3
| (9) | | 9
|
| Increases: | |
| | |
| HMT funding for National Debtline | 4
| 1 | | |
| HMT funding for Citizens Advice Bureau |
5 | 2 | |
|
| Call on Reserve to fund provision for new Enterprise Finance Guarantee Scheme
| 6 | | 21 |
|
| Call on Reserve to fund provision for new Automotive Assistance Programme
| 7 | | 25 |
|
| Part repayment of Capital loan from DIUS |
8 | | | 35
|
| RDA switch from Near Cash to Capital | 9
| -1 | | 1 |
| Other minor changes/rounding differences |
10 | 1 | -1 |
1 |
| Reclassification under FRS26 | 11
| | 1 | |
| DEL budget in Spring Supplementary Estimate
| | 1,239 | 207
| 16[2]
|
| |
| | |
Departmental Expenditure Limit—Changes in provision
Notes:
1. MoG changes representing the funding for DSOs 4 and 5 transferred
to DECC, including Admin.
2. PES transfer of £1.2 million made by UK Trade &
Investment (UKTI) from its Admin to the Department for Communities
and Local Government (CLG) to cover restructuring costs of Government
Office staff (employed on behalf of UKTI) in the Regions.
3. Switches from underspends in Admin (£2 million) and
Programme (£7 million from the Insolvency Service (INSS),
where the Near Cash budget is being reduced and the Non Cash budget
increased to cover additional provision for bad debts), to reduce
the negative balance on the Capital Departmental Unallocated Provision
(DUP).
4. HM Treasury has provided £850k additional funding
for the National Debtline with additional sums for forward CSR07
years of £2.5 million in both 2009-10 and 2010-11.
5. HM Treasury have also provided additional funding for the
Citizens' Advice Bureau of £2.5 million in 2008-09 and £7.5
million in 2009-10 to meet increased demand in the current economic
climate.
6. On 14 January, the Secretary of State announced a support
package designed to leverage £22 billion of lending—made
up of the Enterprise Finance Guarantee Scheme (£1.3 billion),
the Capital for Enterprise Fund (£75 million), and the Working
Capital Scheme (£20 billion)—to help companies struggling
to access finance for working capital and investment in the current
economic climate. The Schemes are intended to support viable businesses
that have been impacted through a combination of the credit crunch
and economic downturn, during which lending conditions have tightened
and payment periods extended; these are not businesses that have
suddenly been transformed from being successful to failing businesses.
As agreed with HM Treasury when designing the Schemes, BERR has
made a Non Cash Call on the Reserve of £21 million to fund
a provision for the new Enterprise Finance Guarantee Scheme to
provide for potential defaults resulting from the proportion of
Scheme lending in 2008-09.
7. On 27 January, the Secretary of State announced a further
£2.3 billion package of loan guarantees to Britain's automotive
manufacturers and large suppliers; primarily to support investment
in low carbon plant and research and development. The guarantees
will unlock loans of up to £1.3 billion from the European
Investment Bank (EIB) and BERR will offer guarantees to support
up to a further £1 billion of lending, or loans where appropriate,
to cover worthwhile investments not eligible for EIB support or
which will bring special value to Britain. As agreed with HM Treasury
when designing the Schemes, a Non Cash Call on the Reserve has
been made amounting to £25 million to fund potential defaults
under this new Automotive Assistance Programme.
8. The Department for Innovation, Universities and Skills
(DIUS) have repaid £35 million Capital in part repayment
of a loan made by BERR in 2007-08. This is being used to reduce
the negative balance on the Capital DDUP. The balance of £43
million Capital will be repaid in 2009-10.
9. A minor change in funding has been made to the RDA budget
through the virement of £1.196 million from Near Cash to
Capital to realign RDA allocations.
10. A transfer was made by the Department for Work and Pensions
(DWP) in respect of initial payments made to mesothelioma sufferers
amounting to £330k, of which £80k was transferred on
to DECC (Coal Health Liabilities). The £250k transferred
to BERR will fund reimbursements to DWP from British Shipbuilders'
Liabilities, where a claimant has entitlement to compensation
for mesothelioma and DWP have already made some payment of benefit
to the claimants. Funding amounting to £500k per annum has
also been provided for 2009-10 and 2010-11. As a consequence,
a Non Cash provision of £8.6 million has also to be made
from BERR's resources.
11. An additional Non Cash item has been added in 2008-09
following HM Treasury's decision to implement the financial instrument
standards (FRS 25, FRS 26 and FRS 29) from 2008-09. In the financial
year 2008-09, BERR anticipates the impact of the introduction
of the Standards to amount to £1.7 million. This figure comprises
£1.3 million for the Insolvency Service representing additional
discounted Non Cash costs for debtors at the end of 31 March 2009
and £0.4 million for the Department's liability to Investors
in the High Technology Investment Fund.
The Committee may wish to note that International Reporting
Standards (IFRS) will be implemented in 2009-10. To meet this
requirement all Departments will be required to:
— Prepare shadow IFRS-based accounts for 2008-09,
except where the entity can demonstrate, exceptionally, to HM
Treasury that it is unable to prepare full IFRS-based accounts
for that year; and
— Make any necessary changes to budgets as a result
of the switch to IFRS in the Winter Supplementary Estimates 2009.
Departmental Expenditure Limit—Neutral changes
10. These consist of:
— Identification of a £4 million underspend
in the Selective Finance for Investment in England (SFIE) Programme
due to slippage in large scale Capital projects vired into British
Shipbuilders' Liabilities to fund Public Dividend Capital payments;
and
— Identification of underspends in the Insolvency
Service's Capital budget of £1 million (slippage in an IT
project) vired into the negative Capital DUP.
11. The Committee may also wish to note that the budgets
for Energywatch, Postwatch and the National Consumer Council have
all been combined to form a single budget for the new organisation,
Consumer Focus. Consumer Focus is the new consumer champion working
in England, Wales, Scotland and, for postal services, Northern
Ireland.
Annually Managed Expenditure (AME)
12. The AME provision has decreased by £3,489 million
from £4,314 million to £825 million. This represents
Voted provision of £654 million and Non-Voted provision of
£171 million as shown in the following table:
| Resource
AME
| Capital
AME | Total
AME
|
| £m | £m
| £m |
Provision in Winter Supplementary Estimate
| 4,754 | (440)
| 4,314 |
| Amounts transferred to DECC as part of the MoG change
| (4,400) | 419 | (3,981)
|
| Non Cash—increase in RDA impairments on their portfolio of asset holdings due to the current economic climate
| 62 | | 62
|
| Redundancy Payments Service—increase in the level of expected payments because of the current economic climate
| 130 | | 130
|
| Shareholders Loan made to Royal Mail in accordance with the option granted under the terms of the Subordinated Credit Facility Deed dated 19 March 2007
| | 300 | 300
|
| Provision in Spring Supplementary Estimate
| 546 | 279 |
825 |
| |
| |
Net Cash Requirement
13. The Estimate decreases the Net Cash Requirement by
£2,011 million from £4,474 million to £2,463 million.
This decrease relates to the cash impacts of the changes outlined
above.
|
| £m |
|
| Net Cash Requirement in Winter Supplementary Estimate
| 4,474 |
| Change in Voted Departmental Expenditure Limit budget
| 892 |
| Decrease in Voted Annually Managed Expenditure
| (2,704) |
| Decrease in Payments against Provisions |
(573) |
| Increase in Debtors | 374 |
| Revised Net Cash Requirement in Spring Supplementary Estimate
| 2,463 |
|
| |
ADMINISTRATION LIMIT
14. The Department's Administration Cost Limit (reflected
in the DEL changes shown above) has decreased by £55.7 million
from £332.5 million to £276.8 million. The changes are
shown in the following table:
| | £m |
| Administration Cost Limit in Main Estimate
| 332.5 |
| MoG transfer to DECC | (52.5)
|
| PES transfer to DCLG for GO restructuring |
(1.2) |
| Transfer to Capital | (2.0)
|
Revised Administration Limit |
276.8 |
| |
15. 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 plan. As well as the
direct costs of the staff and functions transferring to DECC,
BERR has also provided an additional £4 million Admin towards
the costs of establishing DECC's Corporate Centre and increasing
staff numbers in the ex-Energy Group.
IMPACT ON
PUBLIC SERVICE
AGREEMENTS AND
DEPARTMENTAL STRATEGIC
OBJECTIVES
16. As part of the Spending Review process, the Department
agrees its PSAs and DSOs and the spending plans to deliver them.
The total funds required to achieve those targets are allocated
to Departmental Groups arranged by DSO.
17. The major funding movements within this Supplementary
Estimate relate to the MoG change due to the creation of DECC.
Responsibility for the delivery of two DSOs and PSA target 27
are being transferred alongside the funding. BERR will play a
full part in the governance structures for PSA 27 but will not
be classed as a contributing Department for performance reporting
purposes.
18. The additional (Non Cash) funding of £56 million
from HM Treasury will assist BERR to provide additional support
to business.
19. The Capital provided by DIUS (£35 million) will
not have any impact on the achievement of PSA targets as the allocation
of Capital budgets at the beginning of 2008-09 was premised on
receiving this sum.
20. A full report on progress against the Department's
DSO and PSA targets was provided in the Department's 2008 Autumn
Performance Report, and is available at: http://www.berr.gov.uk/aboutus/corporate/performance/service-standards/performance-reports/page24986.html
END YEAR
FLEXIBILITY (EYF)
21. Annex D provides a summary of the Department's remaining
EYF stock as reported to HM Treasury and published in the Public
Expenditure Outturn White Paper (Cm 7419) adjusted for the amounts
transferred to DECC as part of the MoG change. However, the two
fiscal stimulus packages have the potential to utilise these EYF
stocks to meet funding demands arising from potentially unavoidable
defaults on the Schemes.
PROVISIONS
22. 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 E. The preparation
of the interim Resource Accounts has indicated a requirement to
establish or maintain provisions for the following:
— Reduction in the onerous leases, due to new tenants
taking occupation;
— Increase in the Small Firms Loan Guarantee Scheme
due to the current economic climate;
— New Enterprise Finance Guarantee Scheme for potential
defaults; and
— New Automotive Assistance Programme for potential
defaults.
INCOME CHANGES
23. The total income variations allowed for within the
Spring Supplementary Estimate are itemised in the Introduction
to the Estimate. Operating (Resource) Appropriations in Aid have
decreased from £3,107 million to £2,038 million, a reduction
of £1,069 million, and Non Operating Capital Appropriations
in Aid remain as £6,450 million. The variations have been
calculated in accordance with the latest business projections
and are off-set by equivalent decreases in spend.
24. The changes are due to the MoG transfer of £1,130
million, reinstatement of £20 million in contributions from
Defra to the RDAs, new income of £36 million from DECC to
the RDAs and a £5 million increase in income expected by
the Insolvency Service.
PROCESS FOR
PREPARATION AND
APPROVAL OF
MEMORANDUM
25. 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)
AME 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 including
Grant in Aid paid to Non Departmental Public Bodies (NDPBs). Non-Voted
funds have by definition not been through that process. These
may include, for example, the resource consumption of NDPBs which
features within DEL. Expenditure funded by the National Insurance
Fund is also Non-Voted (for example the Redundancy Payments Service).
Annex B
RFR 1: TO
HELP ENSURE
BUSINESS SUCCESS
IN AN
INCREASINGLY COMPETITIVE
WORLD
Promotion of enterprise, innovation and increased productivity
delivered through market solutions designed to meet market imperfections
identified within the portfolios of innovation, international
trade and investment, regional investment, enterprise for small
firms and people & skills; support for business, including
support for specific industries, small businesses, regional programmes
and programmes to promote research and development, innovation,
best practice and sustainable development; promotion of strong,
fair and competitive markets at home and abroad including developing
fair and effective legal and regulatory frameworks and delivering
regulatory reform, measures to combat international bribery and
corruption, measures to protect investors, measures to promote
the interests of consumers, support for employment relations programmes
and measures to promote a skilled and flexible labour market;
efficient management and discharge of liabilities falling to the
Department, including nuclear waste management and decommissioning
and liabilities in respect of former shipbuilding industry employees;
provision of a repayable credit facility for Royal Mail; exchange
risk and other guarantee losses; subscriptions to international
organisations and fulfilment of international treaty obligations;
payments to other Government departments and the Devolved Administrations
in relation to programmes supporting BERR objectives; support
for Government Offices; grants and grants-in-aid to organisations
promoting BERR objectives, including Non-Departmental Public Bodies;
financial assistance to public corporations and trading funds
including Ofcom; managing the Government's shareholder interest
in the portfolio of commercial businesses wholly or partly owned
by Government; funding of the Department's executive agencies;
issuing budgets and making payments to Regional Development Agencies,
to which other Government departments will contribute by supplying
resources which BERR will appropriate in aid; payments to local
authorities in respect of Local Area Agreements and New Burdens
responsibilities; miscellaneous programmes, including payments
in respect of claims for the restitution of property of victims
of Nazi persecution, compensation for distant water trawlermen
and assistance to redundant steelworkers; Departmental administration
costs and a share of the administration costs of UK Trade and
Investment; payments towards the expenses of the Office of Manpower
Economics; associated non-cash items.
Annex C
SUMMARY OF ESTIMATE CHANGES
2008-09 Budget Control Total Movements
| Winter
Supplementary
Estimate
|
Movement | Spring
Supplementary
Estimate
|
| £m | £m
| £m |
| Departmental Expenditure Limit Resource |
2,157 | (712) | 1,447
|
| Of which: | |
| |
| Administration | 332
| 55 | 277 |
| Near-Cash | 2,048
| | 1,239 |
| Departmental Expenditure Limit Capital |
1,211 | (1,195) | 16
|
| Total Departmental Expenditure Limit
| 3,368 | (1,195) |
1,463 |
| | |
|
| Annually Managed Expenditure Resource | 4,754
| (4,208) | 546 |
| Annually Managed Expenditure Capital | (440)
| 719 | 279 |
| Total Annually Managed Expenditure |
4,314 | (3,489) | 825
|
| | |
|
| Total Resource | 6,911 |
(4,920) | 1,991 |
| Total Capital | 771
| (476) | 295 |
2008-09 Voted Control Total Movements
| Winter
Supplementary
Estimate
|
Movement | Spring
Supplementary
Estimate
|
| £m | £m
| £m |
| Request for Resources 1 | 4,474
| 1,872 | 1,517 |
| Total Voted Resource (Net) | 4,474
| 1,872 | 1,517
|
| | |
|
| Net Cash Requirement | 4,474
| 2,011 | 2,463
|
| |
| |
Annex D
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)
| 26 | 531 |
332 | 889 |
| Transferred to DECC as part of MoG change |
| (343) | (58)
| (401) |
| Current EYF Stock | 26
| 188 | 274 |
488 |
| |
| | |
Annex E
ANALYSIS OF PROVISIONS[3]
PROVISIONS FOR LIABILITIES AND CHARGES—NUCLEAR
| | UKAEA |
| £'000 |
| At 1 April 2007 | 157,593
|
| Amortisation of one year's discount | 3,467
|
| Increase/(decrease) in provision | 5,352
|
| Expenditure in year—At 31 March 2008 |
166,412 |
| |
PROVISIONS FOR LIABILITIES AND CHARGES—OTHER
| |
| | | | Consolidated
|
|
SFLG | UKAEA
Restructuring
| Early
Retirement | British
Shipbuilders
| Onerous
Leases | Other
| Total |
| £'000 | £'000
| £'000 | £'000
| £'000 | £'000
| £'000 |
(restated)
At 1 April 2007 | 133,434
| 32,846 | 60,379 | 79,213
| — | 13,827 | 319,699
|
| Amortisation of one year's discount | 2,936
| 723 | 1,300 | 1,743
| — | (68) | 6,634
|
| Increase/(decrease) in provision | 51,116
| (671) | (8,430) | 34,602
| 193,186 | 682 | 270,485
|
| Expenditure in year | (73,118)
| (3,572) | (17,974)
| — | —
| (1,962) | (96,626)
|
| At 31 March 2008 | 114,368 |
29,326 | 35,275 | 115,558
| 193,186 | 12,479 | 500,192
|
12 February 2009
1
The ambit provides the statutory description of departmental operations
funded through Supply and can only be extended or otherwise modified
by the presentation of a Revised or Supplementary Estimate subsequently
incorporated in an Appropriation Act. Back
2
Capital funding includes £131m of receipts from Launch Investment
giving a gross expenditure budget of £148 million. Back
3
Extracts from the Annual Report and Accounts 2007-08. Back
|
