Excess Votes 2008-09 - Public Accounts Committee Contents

1  Excess Votes in 2008-09

1. Resource-based Supply requires departments to estimate and manage the financial resources necessary during each financial year on an accruals basis, and for commitments to provide services and the cash they will require as commitments mature. Parliament authorises departments' cash spending and use of resources.

2. In 2008-09, Parliament granted total net resources of £493.2 billion and total cash of £516.4 billion in Supply Estimates to 56 departments, pension schemes and other vote-funded bodies.[1] This total included an unusual 'out-of-turn' estimate, a provision of resources outside the usual supplementary estimates, for an additional £42,200 billion to HM Treasury's net cash requirement.[2]

3. The resource-based Estimates reflect accruals and non-cash consumption of resources, such as depreciation. However, a cash limit is also voted by Parliament. A breach of the total resource-based Estimates, or a cash limit, result in an Excess Vote.Figure 1: Summary of 2008-09 Excess Votes required

Amount to

be voted

HM Treasury

RfR 1 (Raising the rate of sustainable growth and achieving rising prosperity)

Excess Expenditure

Less: Savings available from elsewhere within the RfR



Home Office

RfR 1: (Working

together to protect the public)

Excess Expenditure


BERR UKAEA Pensions Schemes.

RfR 1: (UKAEA Pensions Schemes)

Excess Expenditure

Less: Savings available from elsewhere within the RfR



Total 23,893,853

4. Three departments overspent net resources by a total of £23.9 billion in 2008-09. This was an exceptional year due to the financial stability measures government introduced towards the end of the period. Figure 1 shows the gross excess, the capacity of each department to apply savings from elsewhere to meet some of the overspend, and the net additional resource that Parliament is therefore being asked to approve.

HM Treasury: Excess on Request for Resource

5. In January 2009, the Government announced its intention to offer an Asset Protection Scheme, as part of a range of measures to reinforce financial stability and increase market confidence. Under this Scheme, HM Treasury will provide banks with protection against future credit losses on certain assets in exchange for a fee. A 'first loss' remains with the bank but the Government's protection will cover 90% of credit losses above this amount, with the participating bank retaining the residual exposure.

6. On 26 February 2009, HM Treasury announced further details of the Scheme and an agreement in principle that the Royal Bank of Scotland Group would participate in the Scheme by seeking to protect some £325 billion of eligible assets for a fee made up of £6.5 billion of non-voting ordinary shares. The Bank will also agree, over a period to be finalised, not to claim certain UK tax losses or allowances. On 7 March, Lloyds Banking Group announced that it would also participate in the Scheme.

7. The banks signed pre-accession agreements with HM Treasury on the dates the announcements were made.[3]

8. In accounting for this Scheme, HM Treasury have concluded that, at the balance sheet date, it had a 'present obligation' under Accounting Standards to make payments arising from this Scheme. HM Treasury had no legal obligation at the balance sheet date, but it had taken actions which created an expectation that the Scheme would be implemented. These actions included public statements, ongoing negotiations with the participating banks, and advertising for the post of Chief Executive of the Asset Protection Agency, the body set up to administer the Scheme.

9. At this stage, HM Treasury has estimated the scale of the expected losses on the Scheme at some £25 billion. It was known from the outset that the Scheme would result in a significant loss but the amount could not be estimated until the banks had confirmed their participation in March. It was therefore too late at this stage for HM Treasury to seek extra resources from Parliament to meet these losses which it has recorded as a provision against expenditure. It therefore breached its expenditure limit on Request for Resources 1.[4]

Home Office: Excess on Request for Resource

10. The Police Pension Regulations 2007 (the Regulations) require police authorities to maintain a police pension fund into which officer and employer contributions are paid, and out of which pension payments for retired officers are made. Under the Regulations if, in any given year, a deficit or surplus arises on these funds, they are to be balanced through a top up grant from the Home Office, or payment back to the Department by the police authority.

11. In May 2008 the Home Secretary, on the advice of the Government Actuary's Department, introduced new tables of lump sum commutation factors for the police pension schemes to be applied from 1 October 2007. On 17 March 2009, a Judicial Review judged that application of the new commutation factors should be backdated to 1 December 2006. This ruling resulted in an additional £130m in back payments owed to police pensioners (and associated HM Revenue and Customs charges), for which, in accordance with its obligations under the Regulations, the Department was liable. The Department has provided for these costs in its 2008-09 Resource Accounts. The funding payments to police authorities were made in 2009-10.

12. The risks and the financial consequences of the Review ruling against the Department before the financial year end were assessed by operational teams and reported to management at the highest level. The Department concluded that it was probable that it would win the case and did not request resource cover in its Supply Estimate for the £130m, estimated as costs of back dating the commutation rates to December 2006. As the Review ruling came in March, after the final Supplementary Estimate for 2008-09, the Department did not then have the opportunity to make a further request for resources and, as a consequence, breached the expenditure limit authorised by Parliament.[5]

13. In May 2009, a report by the C&AG[6] concluded that the Department had improved substantially its financial management since weaknesses had been highlighted by the Public Accounts Committee (PAC) in 2006.[7] It was noted, however, that the Department had not reached the stage of maturity at which good financial management is part of 'business as usual' operations.[8]

14. The Department had assessed the financial risk of losing the court case but had not fully anticipated the funding and accounting consequences. However, we do not consider that the Excess Vote can be attributed wholly to this failure. As he set out to the PAC in June, the Accounting Officer is aware of the challenge of ensuring that the business understands and acts on the financial impacts of operational and policy decisions and has an appropriate financial improvement strategy in place to address it.

UKAEA Pension Schemes: Excess on Request for Resource

15. The UKAEA Pension Schemes have many participating employers, including former employees of British Nuclear Fuels plc (BNFL). When the Main Supply Estimate was being constructed by the Department, the timing of the transfer of a large number of BNFL staff to the Nuclear Decommissioning Authority (NDA) Pension Scheme was uncertain and an assumption had to be made. In March 2008, the NDA confirmed to UKAEA that the transfer would take place on 24 November 2008. This was later than had been assumed when the Main Estimate was prepared.

16. Although the timing of this confirmation provided sufficient time to change the forecasts underpinning the Main Estimate, and for the Department to seek additional funding via the Winter or Spring Supplementary Estimates, this information was not factored into any revised forecasts. By the time the Government Actuary was asked in February 2009 to provide revised estimates to take account of the actual timing of the transfer, this was too late for the approved Request for Resources to be changed via a Supplementary Estimate.

17. Consequently, the Spring Supplementary Estimates continued to be based on an assumption that the BNFL employees would leave earlier in the year than was actually the case, leading to the current service cost for accrued benefits exceeding the amount authorised, and it is this that led to the resource excess.[9]

18. Following the breach of the Net Cash Requirement last year,[10] the Department concluded that responsibilities for sponsorship and communication with the UKAEA pension managers had been eroded. To address this, the Department took steps to reinstate the sponsorship role for the Pension Schemes within the Department's Shareholder Executive.

19. The Department has examined the circumstances giving rise to the current resource excess and has concluded that the action taken last year did not go far enough, and that more needs to be done to ensure that all aspects of the Pension Schemes' finances are managed in a co-ordinated manner.

20. There are a number of parties involved in managing the financial aspects of the Pension Schemes: the Pension Administrators within UKAEA; the Government Actuary's Department; the Departmental Sponsor in the Shareholder Executive; the Shareholder Executive Finance Team; and the Department's Central Finance Team. However, no one party currently has lead responsibility. Consequently, the Department intends to further strengthen its sponsorship role by appointing a lead in the Central Finance Team who will liaise with all of the parties involved. Formal meetings are planned to coincide with the planning for the Main Estimate in time to reflect any changes necessary to the Winter and Spring Supplementary Estimates.

21. The steps taken by the Department in response to the breach of the Net Cash Requirement last year to reinvigorate its sponsorship role for the UKAEA Pension Schemes have failed to prevent another Excess Vote this year. The Department recognises that, because the Resource Account has now experienced Excess Votes in the last two years, further action needs to be taken as a matter of priority to prevent any recurrence.

Ministry of Defence: Limitation of Scope on Votes A

22. During the audit of the 2008-09 financial statements, the C&AG was unable to obtain sufficient evidence to support the accuracy of certain service personnel numbers reported to Parliament as part of Votes A as shown in Note 38 to the Resource Accounts.[11] The Army have been unable to provide the maximum number of Service Reserves as monthly figures for Reserves have not been collated during the year. The Royal Navy have also been unable to provide numbers for the Royal Navy reserve 'List 7'. Whilst they have been able to provided maximum numbers for the Royal Fleet Reserve (Navy and Marines), the Royal Naval Reserve and the Royal Marines Reserve they have been unable to provide evidence to fully support the figures that have been disclosed.

23. The evidence available was not maintained to a sufficient standard to enable a report to Parliament to be made as to whether or not the approved Estimates (Votes A) had been exceeded.

24. The Department needs to pay particular attention to ensuring that it can meet its statutory requirements for reporting to Parliament on Votes A manning levels.

1   HM Treasury, Central Government Supply Estimates 2008-09, February 2009, HC 265. Back

2   HM Treasury, Central Government Supply Estimates 2008-09, Out of Turn Supplementary Estimates, October 2008, HC 1061 Back

3   Since this time, Lloyds TSB have confirmed that they will no longer participate in the Scheme. The terms of the RBS participation have also changed as a result of due diligence and to ensure consistency with EU requirements in relation to State Aid. Back

4   HM Treasury, Annual Report and Accounts, July 2009, HC 611 Back

5   Home Office, Resource Accounts, July 2009, HC 466 Back

6   C&AG's Report, Financial Management in the Home Office, HC (2008-09) 299 Back

7   Committee of Public Accounts, Sixtieth Report of Session 2005-06, Home Office Resource Accounts 2004-05 and follow-up on Returning failed asylum applicants, HC 1079 Back

8   The PAC heard evidence in June 2009 and reported their findings in October, (Committee of Public Accounts, Forty-sixth Report of Session 2008-09, Financial Management in the Home Office, HC 640), recommending that "the Home Office needs to sustain momentum by incorporating strong financial management as standard across its business". Back

9   Department for Business, Enterprise and Regulatory Reform, Combined Resource Accounts for the UKAEA Pension Schemes 2008-09, July 2009, HC 490 Back

10   Department for Business, Enterprise and Regulatory Reform, Combined Resource Accounts for the UKAEA Pension Schemes 2007-08, August 2008, HC 876 Back

11   Ministry of Defence, Resource Accounts, July 2009, HC 467 Back

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Prepared 10 February 2010