Revised Spring Supplementary Estimates
Memorandum 2008-09 submitted by HM Treasury
1. This memorandum provides details of changes
sought in the Treasury's Revised Spring Supplementary Estimate
for 2008-09 published in "Central Government Supply
Estimates 2008-09: Revised Spring Supplementary Estimates"
HC265. Further details of the work of the Treasury and its finances
can be found in the "HM Treasury Annual Report and Accounts
2007-08" CM 7048. Supply Estimates and the Treasury's Departmental
Report are available from www.hm-treasury.gov.uk
2. 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 objectives and Public Service Agreement
(PSA) targets. This includes information on comparisons with the
resources provided in earlier years in Estimates and departmental
budgets. The Revised Supplementary Estimate is being taken to
include provision for the cost of capital on the Treasury's financial
investments and loans.
SUMMARY OF
THE CHANGES
SOUGHT IN
THE ESTIMATE
3. The Estimate seeks an increase of £20,745,496,000 in
net resources and an increase of £4,102,071,000 in the
net cash requirement. The increase in resources is the net effect
of transfers to and from other Government departments and the
draw down of the balance of our administration Departmental Unallocated
Provision (DUP) and programme DUP. The increase in the net cash
requirement comprises the near cash consequences of the net resource
increase above plus capital payments in respect of financial institutions.
DETAILED EXPLANATION
OF THE
CHANGES BEING
SOUGHT
Request for Resources 1: Raising the rate
of sustainable growth and achieving rising prosperity and a better
quality of life, with economic and employment opportunities for
all
4. The increase in resources is the net
effect of the following:
Inter-departmental transfers
5. A transfer to the Department for Innovation,
Universities and Skills (DIUS) of £17,000 administration
costs as a contribution towards the implementation costs of the
Skills Strategy for Government.
Movements between RfRs
6. There is an increase of £2,450,000 administration
costs for core Treasury following the transfer of £250,000 from
RfR 2 outlined at paragraph 158 below, and £2,200,000 from
RfR 3 as outlined at paragraph 23.. This increase is to fund
increased spending in connection with financial stability.
Departmental Unallocated Provision
7. There is a draw down of administration
DUP of £3,106,000 and £1,025,000 for programme
DUP to fund increased spending in connection with financial stability
(administration) and spending on financial inclusion (programme)
for core Treasury. DMO administration spending is increasing by
£420,000 and programme spending by £800,000, funded
by draw down of DUP, to cover new administration activities, mainly
the Credit Guarantee Scheme, and increased programme spending
due to increased brokerage and transaction costs.
Increased spending offset by income
8. Income for core Treasury in Section A
is forecast to increase by £19,490,000 to offset a matching
increase in gross spending. The income arises from recharging
financial institutions for the cost of advisers fees. DMO income
in Section B is forecast to reduce by £487,000. This is the
net effect of an increase in programme income of £300,000,
mainly from increased commission from gilt purchases and sales,
less a reduction of £787,000 in administration income
mainly due to a forecast under-recovery of Public Works Loan Board
income.
Changes in forecasts—AME
9. The cost of capital charge on the Treasury's
investment in the Bank of England has been increased by £24,000,000 because
of a large increase in the forecast net asset value of the Bank
at 31 March 2009 due to increased profits.
Cost of capital charge on financial investments and
loans
10. There is provision of £700,000,000 for
the cost of capital charge on the Treasury's financial investments
in banks, and associated loans, which attract a cost of capital
charge of 3.5%, in accordance with the Financial Reporting Manual.
Impairment of value of fixed assets—AME
11. There is provision for impairment of
fixed assets totalling an estimated £20,016,635,000. The
impairment provision comprises £20,000,000,000 to reflect
estimated impairments on the Treasury's financial investments
and £16,635,000 in respect of the fall in the value
of the 1 Horse Guards Road land and building.
Capital AME
12. The increase in capital AME of £1,195,000,000 is
required for the following:
(i) Bradford & Bingley—the forecast
of the total working capital loan facility requirement for the
year is £6,000,000,000, which reflects an increase of £265,000,000 over
the £5,735,000,000 included in the winter Supplementary
Estimate.
(ii) London Scottish Bank—an increase of
£265,000,000 to finance a loan to the Financial Services
Compensation Scheme (FSCS) in respect of payments to depositors
in London Scottish. £100,000,000 will be paid in this
financial year, with the balance of £165,000,000 included
as a provision for payments in future years.
(iii) Kaupthing Singer & Friedlander (KSF)—an
increase of £665,000,000 to finance a loan to the FSCS
in respect of payments to depositors in KSF. £135,000,000 of
the total is included as a provision in respect of payments in
future years.
Capital DEL
13. There is an increase in capital DEL
spending of £700,000 financed from the capital DUP.
The increase is to finance the latest forecast of spending on
IT projects.
Request for Resources 2: Cost-effective management
of the supply of coins and actions to protect the integrity of
coinage
14. The reduction in resources is the net
effect of the following:
Changes due to revised forecasts of requirements—DEL
15. The cost of the manufacturing element
of coinage production is forecast to be in the region of £18.3
million, with the cost of capital on the manufacturing element
of coinage stock estimated to be £100,000 programme
DEL, which will be financed from the forecast underspend on coinage
production. The resulting reductions in existing provision of
£250,000 administration costs and £1,900,000 programme
costs are being reallocated to RfR 1.
Changes due to revised forecasts of requirements—AME
16. The forecasts for the cost of capital
charge on the Treasury's investment in the Royal Mint and on the
metal element of coinage stocks have both been reduced, by £1,325,000 and
£200,000 respectively.
Request for Resources 3: Obtaining the best
value for money from Government's commercial relationships on
a sustainable basis
17. The reduction in net resources of £1,935,000 is
the net effect of the following:
Inter-departmental transfers
18. Contributions from DH and DCMS towards
the costs of the Centre of Excellence in Sustainable Procurement
comprising near cash administration costs of £45,000 each.
The Centre of Excellence in Sustainable Procurement was created
within OGC in response to the Sustainable Development Commission's
6th Annual Sustainable Development in Government (SDiG) Report.
Departmental Unallocated Provision
19. A net increase of £175,000 in
programme spending to fund increases in provision for vacant leasehold
properties due to increases in business rates.
Neutral changes
20. The reclassification of £45,000,
from programme spending to the administration budget. The change
is in respect of a transfer received in the winter Supplementary
round from the UK Statistics Authority (UKSA). As the transfer
was to support OGC's administration costs spending, the transfer
was reclassified from programme costs to the administration budget.
21. There is an increase in gross provision
of £163,000 non cash programme spending for cost of
capital charge in respect of the investment in OGC.buyingsolutions,
offset by a matching increase in dividend income.
Reductions
22. There is an increase in appropriations
in aid within the administration budget of £1,890,000, mainly
arising from sales of products, resulting in a matching reduction
in net provision.
23. There is a reduction in gross administration
provision of £310,000 arising from forecast underspends
which, together with the £1,890,000 reduction is being
reallocated to RfR 1. The total transfer to RfR 1 amounts
to £2,200,000.
THE NET
CASH REQUIREMENT
24. The increase in the net cash requirement
amounts to £4,102,071,000. This comprises the increases covered
in paragraphs 5, 7, 11 and 12 plus the draw down of
£3,100,000,000 of a provision taken in the winter Supplementary
Estimate for payments in respect of the refinancing of Financial
Services Compensation Scheme loans to Icesave.
IMPACT ON
THE DEPARTMENT'S
PUBLIC SERVICE
AGREEMENTS
25. The increase in capital AME of £1,195,000,000 is
to support stability in the financial services sector and is in
line with Treasury DSO outcome DSO 2(e): "Supporting fair,
stable and efficient financial markets" and with PSA 6: Deliver
conditions for business success in the UK".
DEPARTMENTAL EXPENDITURE
LIMIT
26. The Resource DEL is increasing by £73,000 comprising
the inter-departmental transfers covered in the explanation of
the changes for RfRs 3 (paragraph 18 above), less the
transfer out from RfR 1 (paragraph 5). There is an increase
of £700,000 in Capital DEL. The following table shows
a comparison between DEL plans between 2004-05 and 2007-08 (after
changes made via Supplementary Estimates) and the outturns for
those years, and the DEL for 2008-09.
|
| Comparison of expenditure against Departmental Expenditure Limits
|
| £million | |
| | | |
| Year | Voted
| Non-voted | Total DEL
| Outturn | Variance
|
|
| Resource | |
| | | |
| 2004-05 | 217
| 31 | 247
| 192 | -55
|
| 2005-06 | 227
| 29 | 256
| 215 | -41
|
| 2006-07 | 225
| 21 | 246
| 206 | -40
|
| 2007-08 | 212
| 20 | 232
| 201 | -31
|
| 2008-09 | 21
| 222 | |
| |
| Of which near cash | 189
| 31 | 221
| | |
| Capital | |
| | | |
| 2004-05 | 8 |
- | 8
| -28 | -36
|
| 2005-06 | 5 |
-5 | -9
| -14 | |
| 2006-07 | 7 |
- | 7
| -1 | -8
|
| 2007-08 | 7 |
- | 7
| -1 | -8
|
| 2008-09 | 6 |
1 | 7
| | |
|
DEPARTMENTAL UNALLOCATED
PROVISION (DUP)
27. A total of £6,313,000 has been drawn down
from the DUP comprising £6,138,000 for RfR 1 and
£175,000 for RfR 3.
END YEAR
FLEXIBILITY
28. No EYF will be drawn down in the Spring Supplementary.
The following table shows the EYF entitlements for 2008-09.
|
| | |
| | £million
|
| Administration | Other
resources
| Total
resource
EYF
| Of which
near cash |
Capital | Total EYF
|
|
| 70 | 132
| 202 | 202
| 73 | 275
|
|
ADMINISTRATION BUDGET
29. The Administration Budget is increasing by £118,000.
This is the net effect of the increases set out in the explanations
for RfRs 1 and 3 plus a reclassification of £45,000 programme
spending to administration costs, as set out in paragraph 20 above..
The following table shows a comparison between administration
budget plans between 2004-05 and 2007-08 (after changes
made via Supplementary Estimates) and the outturns for those years,
and the budget for 2008-09.
|
| Comparison of Administration costs against limit
|
| £million | |
| | | |
| Year | Voted
| Non-voted | Total
| Outturn | Variance
|
|
| 2004-05 | 164
| 0 | 164
| 149 | 15
|
| 2005-06 | 167
| 0 | 167
| 161 | 8
|
| 2006-07 | 167
| 1 | 168
| 160 | 8
|
| 2007-08 | 171
| 0 | 171
| 160 | 11
|
| 2008-09 | 170
| 0 | 170
| | |
|
CONTINGENT LIABILITIES
30. The following changes have been made to the list
of contingent liabilities, in comparison with the winter Supplementary
Estimates:
(i) The liability concerning regulation of the Lloyd's insurance
market has been removed;
(ii) The guarantee arrangements for certain retail and wholesale
deposits in Northern Rock (NR) has now been quantified at up to
£16,000,000,000;
(iii) The Treasury's guarantee to the FSA concerning NR operating
above the minimum regulatory capital requirement has now been
quantified at up to £3,400,000,000;
(iv) An unquantifiable guarantee by the Treasury on indemnities
given by United Kingdom Financial Investments to its directors
against liabilities and losses in the course of their actions,
has been included;
(v) The back-up liquidity facility for NR has now been quantified
at up to £3,200,000,000;
(vi) The guarantee given on certain wholesale borrowings and
deposits with Bradford & Bingley (B&B) has now been quantified
at up to £17,000,000,000;
(vii) The liabilities in respect of Kaupthing non-Edge accounts,
Heritable Bank plc, Kaupthing Singer & Friedlander Ltd and
Landsbanki have been removed.
(viii) The Treasury's indemnity on the Bank of England Special
Liquidity Scheme to allow banks to temporarily swap high quality
mortgage-backed and other securities for Treasury Bills has now
been quantified at up to £185,000,000,000;
(ix) An indemnity given by the Treasury to the Bank of England
against losses arising from its purchase of £50,000,000,000 of
high quality private sector assets, as outlined in a letter from
the Treasury to the Treasury Select Committee dated 19 January
2009, has been included;
(x) A contingent liability, currently unquantifiable, arising
from the offer of capital and asset protection on those assets
most affected by the current economic conditions, as outlined
in a letter from the Treasury to the Treasury Select Committee
dated 19 January 2009, has been included. We expect this
to become quantifiable once further details of the scheme's operation
are announced;
(xi) A contingent liability, currently unquantifiable, arising
from plans to establish a new facility guaranteeing certain asset
backed securities, as outlined in the Treasury's letter to the
Treasury Select Committee dated 19 January 2009, has been
included; and
(xii) A contingent liability arising from the compensation
scheme established under the Bradford & Bingley plc Compensation
Scheme Order 2008, has been included. This is currently unquantifiable.
February 2009
|
