Regional development agencies and the Local Democracy, Economic Development and Construction Bill - Business and Enterprise Committee Contents


APPENDIX 1 - CORRESPONDENCE FROM BERR ON THE WINTER SUPPLEMENTARY ESTIMATES

Winter Supplementary Estimate 2008/9

I am responding to your letter of 17 November in which you requested further information on BERR's Winter Supplementary Estimate 2008/9.

RDA Funding

£17.088m reduced contribution from Department for the Environment, Food and Rural Areas (DEFRA)

The funding for the Regional Development Agencies' (RDAs) and the London Development Agency (LDA) is managed through BERR as the central sponsoring Department. Contributions from other Departments, such as DEFRA, are channelled via BERR through a "single pot".

The reduction in DEFRA's contribution to the RDA "single pot" was due to DEFRA's need to set a balanced budget for 2008/9. This entailed a review of all areas of spend and a need to prioritise spending commitments.

All RDAs have more difficulty in accommodating reductions to Near Cash expenditure rather than Capital, and the impact is felt across all aspects of Programme activity. The biggest area for collective RDA expenditure is Business Support activity, and therefore it bears most of any Near Cash expenditure reductions. The reduction has been applied to a large range of schemes, for example - reduced support for Business Start-up, Business Transformation Programme and Grants for Business Investment (formerly Selective Finance for Investment in England).

The difference between the reduced contribution and the reduced Grant-in-Aid has arisen because the LDA, as a Local Authority, receives direct (i.e. voted) funding whilst the RDAs receive (non voted) funding via payments of Grant-in-Aid. The following table shows the relationship between the quoted figures of £20m and £17.088m:

  
Near Cash
Capital
  
£k
£k
Total reduction in DEFRA contribution
(20,000)
  
Of which the LDA's proportion is voted rather than non voted
2,912
  
Reduction in Grant-in-Aid (the non voted impact)
17,088
  


BERR is unable to increase its contribution to the RDAs as there is no surplus budget and no availability of End Year Flexibility (EYF) funding.

£17m reduction in Capital budget as a result of cold weather payments and warm front delivery

I have been advised that the reduction of £17m in the RDA's Capital budget is being accommodated through two means:

  • Identifying small schemes that can be delayed until the first quarter of 2009/10
  • Reviewing the contracted intervention rates for existing schemes and agreeing with other funding partners that RDAs will reduce contribution in 2008/09, and increase contributions in 2009/10

Typically, this will be across ten or more schemes per RDA. As both cuts were notified early in the financial year, the RDAs have managed the reductions through the project development and contracting processes. It should be noted that the cumulative effect of these reductions will inevitably lead to a reduction of, and in some cases cancellation of, schemes in the future. The impact for 2009/10 and prioritisation of expenditure going forward is currently under appraisal.

The forecast increase in the Department for Work and Pension's (DWP) Annually Managed Expenditure (AME) costs for Cold Weather Payments has been funded entirely by the reduction in BERR Departmental Expenditure Levels (DEL). There have been no specific cuts in DWP's DEL to fund this particular programme. However, DWP is continuing to make very significant efficiencies across its budget, to live within its challenging CSR07 settlement and respond to the pressures of rising unemployment.

Apart from BERR's £1m contribution, the £50m increase in the Warm Front programme for 2008/9 (announced as part of the Government's Energy Efficiency package on 11th September 2008) has been funded from DEFRA's Departmental Unallocated Provision (DUP). The DUP was set aside to provide a contingency fund to respond to unplanned events, such as large scale animal disease outbreaks and emergency situations. Therefore no spending programmes have been directly cut as a result of the Warm Front increase and DEFRA will look to flexibility within its budgets if it has to respond to an emergency situation in the current financial year.

The correct text in respect of the £17m transfer to DEFRA and the Department for Work and Pensions (DWP) should read "£1m to DEFRA for increased Warm Front Activity" and "£16m to DWP for Winter Fuel Payments".

The £16m was transferred via the Departmental Unallocated Provision (DUP) as the budget made available was Capital but the required form of funding needed by DWP was Near Cash. HM Treasury therefore facilitated the transfer via the DUP to change the nature of the funding.

Reduced grants to the London Development Agency (LDA)

Each year budgets are allocated to the LDA and RDAs from a "single pot" from Government. This single pot is made up of funding provided by a number of Government Departments, and is allocated on an agreed full formulaic basis.

Since actual in-year budgetary needs vary from initial allocations, the RDAs and LDA agree to "swap" budgets between themselves during the year to ensure maximum usage of the funding. Normally, "swaps" are made on the basis of the same type of budget (e.g. Capital swapped for Capital) and on the basis of timing (e.g. the RDAs switch budgets to the LDA one year and receive repayments the following year(s), depending on the arrangement agreed between the lending and receiving RDA).

The LDA had benefited from additional Capital budget "borrowed" from the RDAs in previous years for expenditure related to the 2012 London Olympics. The agreement was that this would be returned in 2008/9. The LDA's Capital budget was therefore reduced from the indicative allocation in the Main Estimate in respect of the return of the £39.5m borrowed from other RDAs. The overall reduction in the LDA's budget through the Winter Supplementary Estimate is as follows:

  
£k
LDA's voted budget in Main Estimate
389,674
Reduction in respect of DEFRA contribution
(2,912)
Budget "repaid" by LDA to RDAs
(39,501)
LDA's proportion of the reduction in BERR's contribution (Capital in budgets but Capital Grants in the Estimate)
(2,504)
LDA's voted budget in the Winter Supplementary Estimate
344,757

Insolvency Service Non Cash

The Insolvency Service receives fees in relation to insolvency cases but these are not realised until some time later when asset realisations have been completed. An annual provision has to be made for doubtful debts in relation to fee charges; this is calculated as a proportion of fees charged. The provision has increased in line with the number of cases being handled. An increase in such a provision currently results in additional (DEL) Non Cash charges, hence the £14.3m budget increase needed. In view of the current economic climate, there could be a need to increase this further through the Spring Supplementary Estimate.

The figures in the Main Estimate reflect the CSR07 Settlement which was agreed in 2007. In reality, the position by the beginning of any financial year seldom mirrors the situation envisaged at the time of a Settlement.

Departmental Unallocated Provision (DUP)

The movements in BERR's DUP are shown in the following table. As explained in the Memorandum to the Main Estimate for 2008/9, BERR's Capital CSR07 Settlement included planned use of certain EYF stocks and other flexibilities (although utilisation of these would need to be agreed by Treasury and included in a Supplementary Estimate). This resulted in a negative Capital DUP to balance in-year allocations.

  
Near Cash
Non Cash
Capital
  
£k
£k
£k
DUP in Main Estimate
556
15,028
(113,955)
Switch to British Shipbuilders' Liabilities
(516)
  
  
PES transfer to Cabinet Office for Security Monitoring and Co-ordination Centre
(40)
  
  
Switch to Insolvency Service
  
(14,300)
  
Switch to Icelandic Trawlermen liabilities
  
(728)
  
Environmental Transformation Fund underspend switched into DUP
  
  
27,000
Enterprise Capital Fund underspend switched into DUP
  
  
27,400
Switch from RDA Capital
16,000
  
  
PES transfer to DWP for Cold Weather Payments
(16,000)
  
  
DUP in Winter Supplementary Estimate
0
0
(59,555)

Part of the remaining £59,555k negative Capital DUP will be rectified by receipt of £35m from the Department for Innovation, Universities and Skills (part repayment of a loan made by BERR in 2007/8) through the Spring Supplementary Estimate.

In view of the 2008/9 fiscal position, HM Treasury have been unable to agree to any utilisation of EYF until the Spring Supplementary Estimate. BERR has been promoting Capital savings to redress the remaining negative balance but will be seeking use of EYF in the Spring Supplementary Estimate if this proves absolutely necessary.

9 December 2009



 
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