Spring Supplementary Estimate 2010-11

Department OF ENERGY AND CLIMATE CHANGE

SPRING Supplementary Estimate 2010-11

select committee memorandum

Table of Contents

In accordance with the wishes of Treasury Ministers and the Select Committee and as originally set out in the Treasury PES paper (2004) 14 Annex D, we present the following Estimates memorandum. This memorandum has been prepared with reference to guidance in Supply Estimates: a guidance manual provided by HM Treasury, and on the House of Commons Scrutiny Unit website. The information in this memorandum has been approved by Edmund Hosker, Director General Corporate Support and Shared Services, on behalf of Moira Wallace, Permanent Head of Department and Accounting Officer of the Department of Energy and Climate Change.

A final draft of the Supplementary Estimate is attached.

1. Introduction

1.1. The Department of Energy and Climate Change Spring Supplementary Estimate (SSE) for 2010-11 seeks the necessary resources and cash to support the continuing functions of the Department.

1.2. The purpose of this memorandum is to provide the Select Committee with an explanation of the changes proposed in the SSE. This includes information on comparisons with the resources provided in earlier years in Estimates and Departmental Expenditure Limit (DEL) Budgets, and to future financial plans for the Spending Review (SR) period as announced on 20th October 2010.

1.3. The main changes in provision sought in this Supplementary Estimate relate to:

An explanation of key terms used in the memorandum is provided at annex A.

2.
Summary of changes sought

2.1. The DECC Spring Supplementary Estimate (SSE) for 2010-11 requests additional provision above the Winter Supplementary Estimate totals of:

Net resource requirement £103.161m

Net voted capital expenditure No change

Net cash requirement £47.031m

2.2. These changes give revised figures as follows:-

Net resource requirement £3,107.645m

Net voted capital expenditure £0.001m

Net cash requirement £3,422.946m

2.3. The changes to key budgetary figures are as follows:-

· Resource DEL increases by a net £73,017,000 from £1,217,562,000 to £1,290,579,000 due to the agreed drawdown of £72,855,000 End Year Flexibility, and transfers to/from Other Government Departments totalling a net increase of £162,000.

· Capital DEL increases by a net £84,232,000 from £1,903,701,000 to £1,987,933,000, due to the agreed drawdown of £84,000,000 End Year Flexibility, and transfers to/from Other Government Departments totalling a net increase of £232,000.

· Resource AME increases by £105,876,000 from £2,048,500,000 to £2,154,376,000 due to revised forecasts for Coal Health and Coal Privatisation Liabilities, British Energy Liabilities, Concessionary Fuel, Coal Authority and Civil Nuclear Police Authority (CNPA) provisions, Nuclear Decommissioning Authority (NDA) movements in fair value of financial instruments, and the write off of bad debts on Energy Efficiency loans.

· Capital AME remains unchanged at -£77,800,000.

2.4. The Introduction to the SSE follows the form set by HM Treasury to show the detailed changes proposed. It sets out changes including:

· take up of DEL End Year Flexibility (EYF)

· transfers to/from other government departments;

· changes in Annually Managed Expenditure (AME);

· transfers to/from non-voted DEL;

· changes in non-budget spending;

· switches between voted Capital Grants (Resource in Estimates) and voted Capital;

· any changes which have a neutral effect on the Request for Resources (RfR) but which affect the detailed sub-heads in Part II of the Estimate.

3. Detailed explanation of the changes

3.1. The total increase in resources proposed comprises:-

· £47.622m net increase to voted DEL Resource, from £407.198m to £454.820m, shown in sections A, B and C of the table below;

· £0.768m net decrease to voted DEL Capital Grants, from £725.518m to £724.750m, shown in sections B and D of the table below;

· £54.657m net increase to voted AME Resource, from £142.163m to £196.820m, shown in section F of the table below;

· £1.651m increase to voted non-budget Grant-in-Aid, from £2,879.604m to £2,881.255m, shown in section G of the table below;

· £0.001m decrease to other non-budget, shown in section G of the table below as the sum of changes in subheads H2 and H5;

· There are also a number of neutral increases to income and matching expenditure included in this Supplementary Estimate (shown in section E of the table below).

Details are as follows:

Table S3.1

3.2. There is no net change to voted Capital. An increase of £1.000m in Capital in Estimate Subhead F7 for expenditure on IT and Estates is offset by an additional £1.000m in voted DEL Capital income (non-operating appropriations in aid) in Subhead C8, reflecting Energy Efficiency loan repayments which in the Winter Supplementary Estimate were scored as CFER due to Parliamentary rules preventing departments from appropriating-in-aid more income than expenditure in the Estimate. This has reduced the amount of DEL Capital CFER income (all of which is Energy Efficiency loan repayments) to £3.237m.

4.
Departmental Expenditure Limit

4.1. This Supplementary Estimate includes an increase of £73.017m to Resource DEL and an increase of £84.232m to Capital DEL; there are also a number of transfers between voted and non-voted DEL. These are summarised in the following table (a detailed breakdown is included in Section 3 "Detailed explanation of the changes"):-

Table S4.1

4.2. The changes to Resource DEL arise from the take up of £72.855m End Year Flexibility, a transfer from Defra for the Committee on Climate Change of £0.172m non-voted DEL, the transfer to the Northern Ireland Executive of £0.010m shown in Section 3 above, and the transfer from voted to non-voted DEL of £5.223m.

4.3. The changes to Capital DEL arise from the take up of £84.000m End Year Flexibility, transfers from the Ministry of Justice and to the Northern Ireland Executive shown in Section 3 totalling a net £0.232m, and an increase in non-operating appropriations in aid of £1.000m for Energy Efficiency loan repayments formerly scored as DEL Consolidated Fund Extra Receipts (CFER).

4.4. The following table shows prior year DEL outturn together with plans for this year and the forthcoming Spending Review period until 2015:-

Table S4.2

5.
DEL End Year Flexibility

5.1. Following this Supplementary the Department’s residual End Year Flexibility (EYF) stocks are as shown in the table below:-

Table S5.1

Notes:-

1. International Subscriptions has negative EYF stocks due to subscriptions costing more than originally planned for the SR period due primarily to currency fluctuations.

2. The large negative "Other Resource" balance on non-ring fenced stocks arises due to the deduction, during the reclassification at the time of the 2010 PEOWP exercise following the implementation of Clear Line of Sight changes to Budgets, of £54.1m relating to Concessionary Fuel non-cash in 2008-09, which should not have taken place.    

5.2. In this Supplementary the department has taken up £43m of Resource End Year Flexibility to cover the cost of Carbon Capture and Storage FEED (Front End Engineering and Design) contracts, and £9.855m Administration EYF for consumer levies administration costs. In addition Treasury have approved draw-down of non-voted EYF for the Nuclear Decommissioning Authority for restructuring costs (£20m Resource), and to cover the shortfall in Capital DEL receipts arising from delays in the timing of the recognition of proceeds from the sale of NDA land (£84m Capital).

5.3. As announced in the Spending Review the Government is abolishing the EYF scheme at the end of 2010-11, including all accumulated stocks, and replacing it with a new system from 2011-12 which will retain an incentive for departments to avoid wasteful end-year spending and strengthen spending control. Further detail will be set out later this financial year.

6. Administration Budget

6.1. The only change to the Administration Budget in this Supplementary Estimate is the take up of £9.855m EYF for the administration costs of the consumer levies.

6.2. The following table shows prior year Administration Budget outturn together with plans for this year and the forthcoming Spending Review period until 2015:-

Table S6.1   

6.3. Administration Budget plans for 2011-2015 are not directly comparable to 2005-11 as for the Spending Review period the Administration Budget now includes Administration costs of the department’s Arms Length Bodies, which previously were scored to Programme costs. For comparison purposes, the 2010-11 baseline, including the Arms Length Bodies costs, is £239m, of which £3m is depreciation. Plans for 2011-12 to 2014-15 are in whole £million as per the Spending Review published numbers.

6.4. As shown in Table S5.1 the Department holds Administration Budget EYF of £2.544m following the take up of £9.855m in this Supplementary.

7. Machinery of Government changes

7.1. There are no Machinery of Government changes in this Supplementary Estimate.

8. Consolidated Fund Extra Receipts (CFERs)

8.1. Within this Supplementary Estimate there is a reduction of £1.000m in non-operating CFERs for Energy Efficiency loan repayments scored as CFER, reflecting parliamentary accounting rules which restrict the amount of income that can be appropriated in aid to the amount of voted Capital expenditure. As an additional £1.000m of Capital expenditure has been transferred from Capital Grants, this allows the department to appropriate-in-aid an additional £1m of loan repayments.

8.2. There is also a reduction in Other amounts collectable on behalf of the Consolidated Fund, reflecting the accounting change of petroleum licensing receipts now being recorded in a Trust Statement rather than the department’s Accounts.

9. Provisions

9.1. Of the net £55.320m increase to new and adjusted Provisions within the SSE (shown in Part II: Resource to cash reconciliation), £28.308m relates to an increase in the British Energy liabilities Provision compared to the Winter Supplementary Estimate and £37.706m to an increase in Coal Health Compensation liabilities compared to the Winter Supplementary Estimate, offset by a reduction of £0.700m in Coal Privatisation liabilities compared to the Winter Supplementary Estimate and a reduction of £9.994m in the Concessionary Fuel Provision compared to the Main Estimate.

9.2. The net £4.112m increase in use of Provisions reflects within DEL a decrease of £3.100m in Concessionary Fuel Provision utilisation and an increase in the planned utilisation of the British Energy liabilities Provision of £9.612m, together with AME reductions of £2.400m reflecting a decrease of £0.400m in Coal Health Compensation liabilities utilisation and a decrease of £2.000m in Coal Privatisation liabilities utilisation.

9.3. The increases to the British Energy liabilities Provision are driven by the rate of RPI inflation as the payments are contractually linked to RPI (this also applies to the increase in utilisation of provision this year). The reduction in the increase in the Concessionary Fuel Provision (and the cash utilisation) is due to the specific measure of inflation which drives the cash in lieu payments being negative in 2010. The large increase in the Coal Health provision is due largely to an increase in administration costs reflecting the defence of the two main current litigation processes of Knee Injuries and phurnacite, where the department is seeking to challenge future liability.

9.4. Full details of the Department’s Provisions as at 31 March 2010 are contained within pages 97 to 101 of the 2009-10 Resource Accounts (HC 209).

10. Contingent Liabilities

10.1. There are no changes to Contingent Liabilities in this Supplementary Estimate.

11. Net Cash Requirement

11.1. As a result of this Supplementary Estimate the Department’s Net Cash Requirement has increased by £47.031m, bringing the full year balance to £3.423bn. As shown on the Estimate in Part II: Resource to cash reconciliation, this increase reflects the sum of the changes to net resources (£103.161m), less £60.242m reflecting the increase in non-cash items and changes to debtors within the Request for Resources, plus an additional £4.112m reflecting the increase in cash required for utilisation of Provisions.

12.
Nuclear Decommissioning Authority (NDA)

12.1. Following this Supplementary Estimate the NDA’s DEL and AME Budgets are as follows:-

Table S12.1

12.2. As noted in section 5 above EYF of £20m Resource and £84m Capital has been taken up by NDA in this Supplementary.

12.3. The NDA’s AME Budgets have been updated as above. The revised plan for Sellafield was expected at the end of January and is due to be assured by the NDA by end of March 2011. As noted in the Winter Supplementary Estimate memorandum there remains a risk that the provision will need to vary dependant on the Sellafield plan. This risk was estimated in the Winter Supplementary as a further increase of around £2billion but this risk is, as yet, not quantified.

12.4. As per advice from Treasury, NDA’s non-Budget grant-in-aid is the sum of the actual net cash flow support required from the Department plus the commercial income.

12.5. The NDA’s ringfenced DEL as set out in the Spending Review is as follows:-

Table S12.2

12.6. The latest NDA forecasts for AME for the Spending Review period are shown in the table below:-

Table S12.3

13.
Annually Managed Expenditure (AME)

13.1. Revised AME budgets following this Supplementary are shown in the following table:-

Annex A

Explanation of Key Terms and Glossary of Abbreviations

Departmental Expenditure Limit (DEL)

This is spending that is within the Department’s control and can therefore be planned over an extended period. It is a Treasury budgetary control that is set for three-year periods. Examples include administration costs, payments for goods and services, grant scheme payments and non-cash costs such as depreciation.

Annually Managed Expenditure (AME)

This is spending that is generally less predictable and controllable than expenditure in DEL. It is a Treasury budgetary control that is reviewed twice a year with Departments via the Supplementary Estimates.

Request for Resources (RfR)

This is the functional level at which the departmental Estimates may be split. DECC has one RfR:

RfR1: Supporting the provision of energy that is affordable, secure and sustainable; bringing about a low-carbon UK; securing an international agreement on climate change; promoting low carbon technologies at home and in developing countries; and managing historic energy liabilities effectively and responsibly.

Virement

The use of savings on one or more sections or subheads to meet excesses on another section or subhead within the same Request for Resources (RfR) of an Estimate.

Departmental Unallocated Provision (DUP)

Part of a Department’s total DEL that is not allocated to particular spending, but held back by the Department to meet unforeseen pressures.

End of Year Flexibility (EYF)

A mechanism that enables the Department to plan the use of resources over Spending Review years and therefore carry forward unspent provision in the Departmental Expenditure Limit in one year to subsequent years.

Voted and Non-Voted Expenditure

Voted Expenditure is that which has been approved in Main or Supplementary Estimates ("Vote"). Non-voted expenditure has not been through this Parliamentary process. Voted expenditure comprises the Requests for Resources and voted Capital expenditure. Most of DECC’s non-voted expenditure is the resource and capital expenditure by NDPB’s. The grant-in-aid (cash) which the department pays to NDPB’s is within the Vote.

Administration Budget

A Treasury control on the resources consumed directly by departments and agencies in providing those services which are not directly associated with frontline service delivery. Includes such things as: pay, resource expenditure on accommodation, utilities and services.

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. Under Clear Line of Sight the distinction between Near and Non-cash (see below) is no longer used in Budgetary terms

Non-cash

Costs where there is no cash transaction but which are included in a body’s accounts to establish the true cost of all the resources consumed e.g. depreciation.

Spending Review (SR) / Comprehensive Spending Review (CSR)

A cross-government review of departmental aims and objectives and analysis of all spending programmes. Results in the allocation of three or four-year Departmental Expenditure Limits.

COINS

COINS (Combined Online INformation System) is a Treasury database holding departmental public expenditure data (outturn and plans) for a run of years.

Non Departmental Public Body (NDPB)

Public bodies which are outside of Departments but usually funded by a Department through the mechanism of grant-in-aid e.g. the Nuclear Decommissioning Authority and the Committee on Climate Change.

Clear Line of Sight Project (CLoS)

HMT led project to align Supply Estimates, Resource Accounts and Budgets. The first changes under the project were implemented for the 2010-11 Main Estimates when the distinction between Near-cash and Non-cash within Resource was removed and most Non-cash items in DEL have now been transferred to AME, although the Cost of Capital charge is no longer be scored in Budgets and Depreciation remains in DEL. From 2011-12 further changes are planned to align Estimates with Budgets, including bringing the spending of NDPBs within the Estimate rather than the grant-in-aid funding.

Other Abbreviations

CA Coal Authority

CCC Committee on Climate Change

CCS Carbon Capture and Storage

CNPA Civil Nuclear Police Authority

DEFRA Department for Environment, Food and Rural Affairs

FEED Front End Engineering and Design

ME Main Estimate

MOJ Ministry of Justice

NDA Nuclear Decommissioning Authority

NOMS National Offender Management Service

SSE Spring Supplementary Estimate

WSE Winter Supplementary Estimate