Administration and expenditure of the Chancellor's departments, 2008-09 - Treasury Contents

Spring Supplementary Estimates Memorandum 2008-09 submitted by HM Revenue and Customs INTRODUCTION   The HMRC spring supplementary for 2008-09 seeks the necessary resources and cash to support the functions of the Department.   The purpose of this memorandum is to provide the select committee with an explanation of how the resources and cash sought in the spring Supplementary Estimate will be applied to achieve Departmental Strategic Objectives. This includes information on comparisons with the resources provided in earlier years in Estimates and departmental budgets. Details of changes in resources relative to original plans set out in the last Spending Review are provided.   During this spring round, the increases in provision sought in this Supplementary Estimate relate primarily to: — £62,500,000 near-cash drawdown of the Modernisation fund (Resource DEL). — £13,000,000 drawdown of the Modernisation Fund (Capital DEL).   An explanation of key terms used in the memorandum is provided as an annex. SUMMARY OF THE MAIN SPENDING CONTROL FIGURES CONTAINED IN THE ESTIMATE VOTED PROVISION   The Supplementary Estimate provides a 3.3% increase in voted Net Resources and a 4.6% increase in the Net Cash requirement: — Increase in the Net Resource Requirement (NRR) of£514,892,000; RfR1 £172,248,000 RfR2 £2,644,000 RfR5 £340,000,000 — Increase in the Net Cash Requirement (NCR) of£723,559,000 BUDGETARY DATA The changes to key budgetary figures are: Resource Departmental Expenditure Limit increased by£62,248,000 The increase in resource DEL results mainly from a near-cash drawdown of the Modernisation Fund. Capital Departmental Expenditure Limit increases by£13,000,000 This increase is due to drawdown of capital from the Modernisation Fund. Annually Managed Expenditure£452,644,000 This increase is due to a £315,000,000 increase to the Child Benefit forecast, a £10,000,000 increase to the Child Trust Fund forecast, and a £15,000,000 increase to the Health in Pregnancy Grant forecast. There have also been increases of £22,644,000 to the revaluation losses forecast and an increase of £90,000,000 to the e-filing incentive payment forecast. Of the £22,644,000, RfR1 contains £20,000,000 within the same section as e-filing incentive payments in the Part II table of the Estimate. DETAILED EXPLANATION OF CHANGES IN PROVISION SOUGHT IN THE SUPPLEMENTARY ESTIMATE, AND IMPLICATIONS FOR BUDGETS
Amount	Description
	Movements in provision related to DEL
Draw down of Modernisation Fund
£75,500,000	Draw down of resources from a modernisation fund of £62,500,000 resource and £13,000,000 capital to support costs for various programmes supporting the modernisation of the Department. The following programmes are the recipients: Workforce Change Estates Consolidation Government Banking Modernising PAYE Processes for the Customer (MPPC) Carter Programme Enterprise Infrastructure Foundation Programme More details follow: The Estates Consolidation Programme will create a modern working environment rationalising areas where HMRC occupies multiple properties to create strategic zones. Several buildings have and are in the process of being optimised which means that HMRC will alter the property to maximise the potential and space these buildings have to offer; Workforce Change aims to put in the right people with the right skills into the right places. On current plans around 700 staff will be released this financial year through AER. We are also looking to fund low cost FES release schemes and other initiatives such as Assisted Home Moves and Public Sector Releases. MPPC will be predominantly complete by autumn 2010 and is aiming to modernise the existing 14 regional databases for PAYE records and replace them with a single integrated system encompassing workflow based on the NIRS platform which meets the latest security standards.  The Government Banking Programme is HMRC's solution to the Bank of England's decision to withdraw from the retail banking market. The projects under this banner will provide an integrated banking service for Departments and other public bodies. During 2009 HMRC will be moving its banking business from its existing bankers to the Royal Bank of Scotland (RBS) and Citibank; The Carter Programme has arisen as a result of Lord Carter's review of online services and will deliver more online capacity around the major heads of duty. The Modernisation Fund monies will be spent on 3 discrete projects within the Programme: Carter VAT; Carter Corporation Tax; PAYE In-Year forms (P45, P46 online). As part of the next phase of the Carter changes the Carter VAT project has been launched and is aiming to deliver a Local Test Service in April 2009 as the first step towards mandation of online filing by VAT traders in April 2010. In addition, the Carter Corporation Tax project has launched and will deliver a Local Test Service in February and a Third Party Validation Service for software vendors in April 2009; The Enterprise Infrastructure Foundation Programme is investing in more modern technology to improve the efficiency of HMRC's IT estate. (RfR1: subhead A1)
Transfers to Other Government Departments
-£252,000	Transfer to the Department for Innovation, Universities & Skills in respect of the Skills Strategy for Government. (RfR1: subhead A1)
£75,248,000	Total change in provisions related to DEL
	Movements in provision related to AME
Changes in AME
£340,000,000	Increases to the Child benefit, Child Trust Fund and Health in Pregnancy Grant forecasts of £315,000,000, £10,000,000 and £15,000,000 respectively. (RfR5: subhead A3, B3, C3)
£2,644,000	Increase of £2,644,000 to the revaluation of losses forecast (RfR2: subhead B2)
£90,000,000	Increase of £90,000,000 for e-filing incentive payments to bring funding in line with expected levels of payments. (RfR1: subhead B3)
£20,000,000	Increase to forecasts of £20,000,000 for annual impairment reviews which are required as part of our accounting policy. (RfR1: subhead B2)
£452,644,000	Total changes in provisions related to AME
	Movements in provision neutral in budgets
Transfer from non-voted DEL (Departmental Unallocated Provision)
£3,648,000	Draw down of non-voted Capital DUP of £3,648,000 taken up as voted provision to facilitate improvements to key activities, primarily on lockable storage. (RfR1: subhead A7)
£3,648,000	Total change from the take up of DUP
Changes in operating appropriations-in-aid (fully offset by changes in spending)
£65,204,000	An increase in near-cash admin receipts of £25,756,000 largely in respect of a compensation payment, and an increase in near-cash programme receipts of £39,448,000 in respect of National Insurance activity, due mainly to improved procedures in the identification of costs. These are matched by a commensurate increase in expenditure. (RfR1, RfR2: subhead A5)
£65,204,000	Total change in operating appropriations-in-aid
	Changes to net cash requirement
£723,559,000	This increase is made up of all entries within the "Movements in provision related to DEL and AME" sections above, plus adjustments to remove non cash items and to add in movements in creditors and use of provisions. The main factors are the utilisation of provisions for Child Trust Fund payments and forecast decreases in creditor balances.
	Increases in Consolidated Fund Extra Receipts
	Income
£68,000,000	This increase in "Other amounts collectable on behalf of the Consolidated Fund" is mainly due to new penalty regimes creating additional income.
	Receipts
£14,000,000	This increase in "Other amounts collectable on behalf of the Consolidated Fund" is mainly due to new penalty regimes creating additional receipts. The figure is lower than the income reported above due to the time lag between raising penalty charges and collecting them.
	Impact on Departmental Strategic Objectives
Objective I:- Improve the extent to which individuals and businesses pay the amount of tax due and receive the credits and payments to which they are entitled.
£75,500,000 Modernisation Fund Draw down of admin near-cash from the ring- fenced modernisation fund of £62,500,000 resource and £13,000,000 capital to support our transformational programmes and projects.
Objective II: -Improve customer experience, support business and reduce the compliance burden.
£75,500,000 Modernisation Fund As detailed in Objective 1.
Objective III: -To strengthen frontier protection against threats to the security, social and economic integrity and environment of the United Kingdom in a way that balances the need to maintain the UK as a competitive location in which to do business.

DEPARTMENTAL EXPENDITURE LIMIT

  This Supplementary Estimate will result in an overall increase in Capital DEL of £13,000,000, and an overall increase in Resource DEL OF £62,248,000. Details of DEL in Estimates are:

£ '000s	Voted	Non-voted	TOTAL
Resource DEL
Main Estimate	3,975,044	391,401	4,366,445
Winter Supplementary Estimate	4,082,544	347,739	4,430,283
Spring Supplementary Estimate	4,144,792	347,739	4,492,531
Capital DEL
Main Estimate	257,366	3,648	261,014
Winter Supplementary Estimate	284,866	3,648	288,514
Spring Supplementary Estimate	301,514	301,514
Revised Total DEL*	4,267,306	347,739	4,615,045
*Depreciation, which forms part of RDEL, is excluded from total DEL since CDEL includes capital spending and to include depreciation of those assets would lead to double counting.

  The table below compares outturn for 2005-06, 2006-07 and 2007-08 with planned DEL. The DEL provision for 2008-09 is also detailed in the table for comparison purposes:

Year	Voted	Non-voted	TOTAL	Outturn £ '000s	Variance
Resource
2005-06	4,236,827	349,051	4,585,878	4,392,771	-4.20% *
2006-07	4,271,163	347,939	4,619,102	4,574,712	-0.96% **
2007-08	4,164,498	372,813	4,537,311	4,410,929	-2.78% ***
2008-09	4,144,792	347,739	4,492,531
2009-10	3,868,769	389,724	4,258,493
2010-11	3,765,419	388,074	4,153,493
Capital
2005-06	374,269	2,977	376,635	377,889	+0.33% *
2006-07	338,331	0	338,331	305,613	-9.67% **
2007-08	288,230	3,739	291,969	260,427	-10.80% ***
2008-09	301,514	0	301,514
2009-10	250,955	3,559	254,514
2010-11	244,642	3,472	248,114
The Resource DEL outturn for 2007-08 of £4,410,929 represents an underspend of £126,382 compared to a final provision of £4,537,311k (equivalent to 2.78 per cent of Resource DEL). This was mainly attributable to Departmental Transformation Programme and general administrative underspends including paybill.
The Capital DEL Outturn for 2007-08 of £260,427k compares against a final provision of £291,969k. The underspends primarily relate to Information Technology.
* Removes baseline transfer and costs associated with a machinery of government change to SOCA in 2006-07. The outturn figure has been taken from the HMRC Spring Report.
** Figures are those published in the Public Expenditure Outturn White Paper published in July 2007 (CM7156).
*** Figures are those published in the Public Expenditure Outturn White Paper published in July 2008 (CM7419).

DEL End-Year Flexibility

  The 2007-08 EYF stock for HMRC was reported in the Public Expenditure Outturn White Paper 2007-08 (PEOWP) (Cm 7419). The breakdown below shows changes since the 2006-07 PEOWP (CM7156).

£'000	Admin Resource	Other Resource	Total	of which: Near-cash	Non-cash	Capital
PEOWP (July 2007)	61,825	63,106	124,931	155,790	-30,859	33,257
Take-up in Winter Supplementry Estamate	-	1,400	1,400	1,400	-	-
Balance of EYF After	61,825	61,706	123,531	154,390	-30,859	33,257
Spring Supplementary	-	-	-	-	-	-
Adjustments To PEOWP July 2007	1,500	1,500	-	-30,859	30,859	2,295
PEOWP (July 2008)	63,325	60,206	123,531	123,531	35,552	-
2007-08 Underspend	144,432	-18,050	126,382	62,289	31,202	-
Reductions For Virement Out of Admin Budgets	-18,050	18,050	-	-	-	-
Reductions for Reserve Claims	-30,000	-	-30,000	-30,000	-	-
Other Adjustments	299	-	299	299	-	-
2008-09 Entitlements	160,006	60,206	220,212	156,119	66,754	-
Administration Budget

  The Supplementary Estimate will increase the administration budget by £62,248,000 to £4,392,050,000. A comparison with earlier years (outturn) and plans is set out below.

Administration budget (previous years)
Year	Plans	Outturn
2005-06 *	4,447,899	4,246,352
2006-07 **	4,523,493	4,496,817
2007-08 ***	4,441,607	4,297,275
During 2005-06 an underspend was generated mainly as a result of the de-scoping and deferral of some projects following a review of our change portfolio. For 2006-07 there was a small voted underspend. An excess level of receipts was added to this, which led to a surplus of £26,676k for EYF purposes. The 2007-08 underspend of £144,332k mainly relates to Departmental Transformation Project and general administrative underspends including paybill. *Removes baseline transfer and costs associated with a machineryof government change to SOCA in 2006-07. The outturn figure has been taken from the HMRC Spring Report. **Figures are those published in the Public Expenditure Outturn White Paper published in July 2007 (CM7156). *** Figures are those published in the Public Expenditure Outturn White Paper published in July 2008 (CM7419).

  The changes to the current year's Administration Budget are:

Changes to administration budget in 2008-09

1 April 2008 at Main Estimate	4,265,924
Change announced in winter supplementary	63,878
Change announced in spring supplementary	62,248
Revised Administration Budget	4,392,050

Administration budget (remaining CSR years)

Year	Plans
2009-10	4,159,572
2010-11	4,055,972

Machinery of Government Changes

  There are no changes resulting from Machinery of Government.

Description	RfR and section	Date of transfer	Amount £000	Transferring Dept	Receiving Dept

  Approval of Memorandum This memorandum has been prepared with reference to guidance in the Estimates Manual provided by HM Treasury and that found on the House of Commons, Scrutiny Unit website. The information in this memorandum has been approved by the Chief Executive Officer of HMRC.

Glossary of Key Terms

  Appropriations-in-aid—income received by a department which it is authorised to retain (rather than surrender to the Consolidated Fund) to finance related expenditure. Such income is voted by Parliament in Estimates and accounted for in departmental resource accounts.

  Administration Budget—a Treasury control on the resources consumed directly by departments in providing those services which are not directly associated with frontline service delivery. Includes such things as: civil service pay, resource expenditure on accommodation, utilities and services. The Administration Budget is part of Resource DEL.

  Annually Managed Expenditure (AME)—a Treasury budgetary control for spending that is generally difficult to control, large as a proportion of the department's budget, and volatile in nature.

  Departmental Expenditure Limit (DEL)—a Treasury budgetary control for spending that is within the department's direct control and which can therefore be planned over an extended (Spending Review) period (such as the costs of its own administration, payments to third parties, etc).

  Departmental Unallocated provision (DUP)—a part, usually between 1% and 1.5% of a department's total DEL that is not allocated to particular spending, but held back by the department to meet unforeseen pressures.

  End Year Flexibility (EYF)—a mechanism whereby departments are allowed to carry forward unspent DEL provision into later years.

  Estimates—a statement of how much money government needs in the coming financial year, and for what purposes, by which Parliamentary authority is sought for the planned level of expenditure and receipts in a department.

  Estimates Memorandum—an explanation to the relevant department's select committee setting out the links to other spending controls and the contents of a department's Estimate.

  Near-cash—resource expenditure that has a related cash implication, even though the timing of the cash payment may be slightly different. For example, expenditure on gas or electricity supply is incurred as the fuel is used, though the cash payment might be made in arrears on a quarterly basis.

  Non-cash—costs where there are no cash transactions but which are included in the body's accounts (or taken into account in charging for a service to establish the true cost of all resources used).

  Request for Resources (RfR)—a function based description of the organisational level of the department. These can vary between one or more RfR and should be objective- based, referring to the purpose for which the functions being carried out by the department are intended to meet.

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Prepared 9 March 2010