We have since conducted a review of all spending decisions approved by the previous Government in their final months of office, and I presented the conclusions of this review to the House on 17 June 2010.
I also informed the House on 17 June that, while conducting this review, we had discovered yet another legacy issue that needed to be addressed. The previous Government made billions of pounds of spending commitments for this financial year that relied upon underspending across Government via the end-year flexibility (EYF) system or on additional funding from the reserve.
However, it was highly unrealistic to expect that underspending would have been sufficient to cover these commitments. There is insufficient contingency in the reserve to cover the remainder. Without remedial action, the difference would result in higher borrowing this year. It is clear that commitments of this scale should never have been entered into.
In order to address this serious situation, the Treasury has worked with Departments to cancel £1.5 billion of commitments that relied upon access to the reserve and EYF to deal with the most serious pressures. These decisions are an unavoidable consequence of the unaffordable level of previous commitments. The details are given in the table below.
As these commitments relied upon the drawdown of additional funding later this year rather than money already in budgets, the existing departmental expenditure limits (DELs) of these Departments will remain unchanged.
The EYF and reserve deals for other Departments remain under review, in the usual way, until later in the financial year when likely departmental underspending figures for 2010-11 will become clearer. Final allocations of EYF and reserve funding will be determined on a basis of need, realism and the wider fiscal position, and announced at the time of spring supplementary estimates later in the financial year.
Cancelling the commitments for additional funding set out above and working to manage down remaining claims over the course of the year, will help create contingency in the reserve to meet further pressures that might arise over the course of the year, without increasing borrowing.
The Government will meet the previous Government's EYF and reserve commitments to the devolved Administrations, including those in the financial package agreed with the Northern Ireland Executive to support the devolution of policing and justice powers.