Winter Supplementary Estimate 2010-2011

Department OF ENERGY AND CLIMATE CHANGE

WINTER 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 Winter Supplementary Estimate (WSE) 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 WSE. This includes information on comparisons with the resources provided in earlier years in Estimates and Departmental Expenditure Limit (DEL) Budgets, and with future financial plans for the Spending Review (SR) period as announced on 20th October.

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 Winter Supplementary Estimate (WSE) for 2010-11 requests additional provision above the Main Estimate totals of:

Net resource requirement £65.205m

Net voted capital expenditure -£1.049m

Net cash requirement £199.738m

2.2. These changes give revised figures as follows:-

Net resource requirement £3,004.484m

Net voted capital expenditure £0.001m

Net cash requirement £3,375.915m

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

· Resource DEL increases by a net £18,975,000 from £1,198,587,000 to £1,217,562,000 due to a revision of the Capital/Resource split of the £85m DECC contribution to the £6.2billion savings announced on 24th May 2010 by £18,325,000, and transfers to/from Other Government Departments totalling a net increase of £650,000.

· Capital DEL decreases by a net £18,325,000 from £1,922,026,000 to £1,903,701,000, due to a revision of the Capital/Resource split of the £85m DECC contribution to the £6.2billion savings announced on 24th May 2010 by £18,325,000.

· Resource AME increases by £41,505,000 from £2,006,995,000 to £2,048,500,000 due to revised forecasts for the Urenco Dividend, Concessionary Fuel provision, Coal Health and Coal Privatisation Liabilities, British Energy Liabilities and Coal Authority provisions.

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

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

· transfers to/from other government departments;

· changes in Annually Managed Expenditure (AME);

· transfers from non-voted DEL;

· changes in non-budget spending;

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

· any changes which have a neutral effect on the 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:-

· £943.776m net increase to voted DEL Resource, from -£536.578m to £407.198m, shown in sections A, B and D of the table below;

· £4.311m net increase to voted DEL Capital Grants, from £721.207m to £725.518m, shown in sections D and E of the table below;

· £40.118m net increase to voted AME Resource, from £102.045m to £142.163m, shown in section G of the table below;

· £227.000m increase to voted non-budget Grant-in-Aid, from £2,652.604m to £2,879.604m, shown in section H of the table below;

· £1,150.000m increase to non-budget operating appropriations-in-aid, shown in section H of the table below.

· There are also a number of neutral switches included in this Supplementary Estimate (shown in sections C and F of the table below).

Details are as follows:

Table S3.1

3.2. The total decrease of £1.049m in Capital results from an increase of £1.049m in voted DEL Capital income (non-operating appropriations in aid) in Estimate Subhead E8, reflecting additional Energy Efficiency loan repayments.

4.
Departmental Expenditure Limit

4.1. This Supplementary Estimate includes an increase of £18.975m to Resource DEL and a decrease of £18.325m 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 a transfer from Capital to Resource DEL of £18.325m (reflecting an adjustment to the Resource/Capital split of the £85m savings announced in May 2010) and transfers to/from Other Government Departments shown in Section 3 totalling a net £0.650m, the transfer from non-voted to voted DEL of £1.801m, and the £923m decrease in operating appropriations in aid for the NDA, offset by a matching increase in NDA non-voted DEL income.

4.3. The changes to Capital DEL arise from the transfer to Resource DEL of £18.325m set out above, and an increase in receipts of £3.262m for Energy Efficiency loan repayments classified as Consolidated Fund Extra Receipts (CFER) due to Parliamentary rules prohibiting a negative voted Capital total on the Estimate, offset by an increase in Capital Grant spending (which scores as Resource in the Estimate).

4.4. Due to the department’s £85m contribution to the £6billion savings announced by the Government in May 2010 being scored in the Main Estimate against line C, the switch of the £18.325m savings from Resource to Capital shows on this Supplementary as a switch from non-voted Capital to voted Resource.

4.5. The changes within the Request for Resources outlined in section C of Table S3.1 above together with the transfer from non-voted expenditure to subhead C3 shown in Section D of Table S3.1, reflect the re-allocation of the £85m savings across the Request for Resources combined with updates to the department’s internal budgets since the Business Planning round in 2009, on which the numbers in the Main Estimate were largely based.

4.6. 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

4.7. The 2009-10 figures have been updated since the Main Estimate to reflect provisional and final outturn figures for the Department and its NDPBs. Plans for 2011-12 to 2014-15 are in whole £million as per the Spending Review published numbers.

5.
DEL End Year Flexibility

5.1. Following the publication of the Provisional Outturn White Paper in July (Cm 7911) the Department’s updated 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 negative "Other Resource" balance on non-ring fenced stocks is 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. The department has secured Treasury approval to draw-down up to £50m of End Year Flexibility in 2010-11 to cover the cost of Carbon Capture and Storage FEED (Front End Engineering and Design) contracts, and up to £20m for Consumer Levies. In addition Treasury have approved draw-down of EYF for the Nuclear Decommissioning Authority for restructuring costs (up to £126m Resource DEL), and to cover the expected shortfall in Capital DEL receipts arising from delays to land sales. Any such draw down will be made in the Spring Supplementary Estimate.

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. There are no changes to the Administration Budget in this Supplementary Estimate.

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 departments 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 £12.399m.

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 £0.407m in operating CFERs reflecting a reduction in AME dividend income from Urenco (reflecting the actual dividend received this year rather than a forecast).

8.2. There is also a net increase in non-operating CFERs of £4.237m arising from additional Energy Efficiency loan repayments within DEL, reflecting parliamentary accounting rules which restrict the amount of income that can be appropriated in aid due to there being only £16.800m in voted Capital expenditure, resulting in this income having to be scored as CFER.

9. Provisions

9.1. Of the net £40.118m increase to new and adjusted Provisions within the WSE (shown in Part II: Resource to cash reconciliation), £52.598m relates to an increase in the British Energy liabilities Provision compared to the Main Estimate, £1.826m to an increase in Coal Health Compensation liabilities compared to the Main Estimate and £2m to an increase in Coal Privatisation liabilities compared to the Main Estimate, offset by a reduction of £16.306m in the Concessionary Fuel Provision compared to the Main Estimate.

9.2. The net £0.700m increase in use of Provisions reflects an increase of £1.400m in Concessionary Fuel Provision utilisation and a decrease in the planned utilisation of the British Energy liabilities Provision of £0.700m (both of which fall within DEL). These figures will be further updated in the Spring Supplementary Estimate to reflect the latest forecasts for the year.

9.3. 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. The list of Contingent Liabilities shown in the WSE reflects those recorded in the Department’s Resource Accounts which were published on 26 July 2010 (HC 209). This shows the position as at 31 March 2010.

11. Net Cash Requirement

11.1. As a result of this Supplementary Estimate the Department’s Net Cash Requirement has increased by £199.738m, bringing the full year balance to £3.376bn. As shown on the Estimate in Part II: Resource to cash reconciliation, this increase reflects the sum of the changes to net resources (£65.205m) and capital (-£1.049m), less £40.118m reflecting the increase in non-cash items within the Request for Resources, plus an additional £0.700m reflecting the increase in cash required for utilisation of Provisions and £175m forecast decrease in creditors. The latter reflects the high level of accruals in 2009-10, primarily relating to the Boiler Scrappage Scheme, Energy Efficiency loans and the Warm Front scheme, where the expenditure was recognised in 2009-10 but the cash was not required until the current financial year.

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. The only change to NDA Budgets since the Main Estimate is the reduction of £18.325m Capital reflecting the NDA’s contribution to the £85m savings announced in May 2010.

12.3. The NDA’s AME Budgets will be reviewed for the Spring Supplementary Estimate. Current forecasts show an increase in provisions for the NDA of £4.355billion together with Depreciation forecast at £300m and £20m movement in fair value of financial instruments. Significant uncertainty remains in the AME forecast in respect of the Sellafield Performance Plan, which will not be available until January 2011.

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

13.
Annually Managed Expenditure (AME)

13.1. Revised AME budgets following the changes outlined above in section 9 are shown in the following table:-

Table S13.1

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

BIS Department for Business, Innovation and Skills

CA Coal Authority

CCC Committee on Climate Change

CNPA Civil Nuclear Police Authority

CO Cabinet Office

DCLG Department for Communities and Local Government

DEFRA Department for Environment, Food and Rural Affairs

ME Main Estimate

NDA Nuclear Decommissioning Authority

WSE Winter Supplementary Estimate

SSE Spring Supplementary Estimate