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
| Department
| Resources
|
| Excess
£'000
| Amount to
be voted
£'000
|
| HM Treasury
RfR 1 (Raising the rate of sustainable growth and achieving rising prosperity)
Excess Expenditure
Less: Savings available from elsewhere within the RfR
|
23,815,859
(7,289)
|
23,808,570
|
| Home Office
RfR 1: (Working
together to protect the public)
Excess Expenditure
|
79,094
|
79,094
|
| BERR UKAEA Pensions Schemes.
RfR 1: (UKAEA Pensions Schemes)
Excess Expenditure
Less: Savings available from elsewhere within the RfR
|
6,406
217
|
6,189
|
| 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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