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
£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
|Total reduction in DEFRA contribution
|Of which the LDA's proportion is voted rather than non voted
|Reduction in Grant-in-Aid (the non voted impact)
BERR is unable to increase its contribution to the RDAs as there
is no surplus budget and no availability of End Year Flexibility
£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
- 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
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
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:
|LDA's voted budget in Main Estimate|| 389,674
|Reduction in respect of DEFRA contribution
|Budget "repaid" by LDA to RDAs
|LDA's proportion of the reduction in BERR's contribution (Capital in budgets but Capital Grants in the Estimate)
|LDA's voted budget in the Winter Supplementary Estimate
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
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
|DUP in Main Estimate||556
|Switch to British Shipbuilders' Liabilities
|PES transfer to Cabinet Office for Security Monitoring and Co-ordination Centre
|Switch to Insolvency Service||
|Switch to Icelandic Trawlermen liabilities
|Environmental Transformation Fund underspend switched into DUP
|Enterprise Capital Fund underspend switched into DUP
|Switch from RDA Capital||16,000
|PES transfer to DWP for Cold Weather Payments
|DUP in Winter Supplementary Estimate||0
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