Estimates Memoranda

Scrutiny Unit February 2012

FCO Supplementary Estimate

A. Summary

The Supplementary Estimate has increased resource DEL (Departmental Expenditure Limit) [1] in the FCO budget by 3.2% and capital DEL by 11.2%. Overall it has increased FCO’s budget by 3.4%.

	2011–12 Main Estimate £m	Supplementary Estimate £m	Absolute change £m	% change
Resource DEL	2,141.2	2,210.1	68.9	3.2
Capital DEL	107	119	12	11.2
Annually Managed Expenditure	75	75	0	0
	2,323.2	2404.1	80.9	3.4

B. Changes to the overall budget

Resource DEL changes

The main movements in the Resource DEL are caused by two claims on the Treasury Reserve (additional funding to the Department). They are two routine claims which happen very year:

· £37.0m programme expenditure of Consular Premiums [2] collected in the UK by the Home Office that are transferred to the FCO via the Treasury

· £32.0m grant expenditure arising from the FCO/Treasury 40/60 International Organisations Subscriptions cost sharing agreement.

There is also a transfer from the FCO to the Treasury (benefit to the Reserve) of £1.8m in respect of the operation of the FCO Foreign Currency Mechanism. Under the Foreign Currency Mechanism, the FCO is compensated for any fall in the value of sterling beyond a certain a baseline rate set in October 2010. However any strengthening of the Sterling above the rate, as occurred this year will see funding returned to the Treasury.

The remaining increase in Resource DEL is caused by transfers from other departments. The main transfers are one from the Department for International Development for £8.5m and one from the Ministry of Defence for £6m for conflict prevention. The Estimate Memorandum explains that "the majority of this transfer funded the Libya sub-programme (£9m) with the remainder going to top up other programmes such as Afghanistan, Wider Europe and Africa".

Capital DEL changes

The Supplementary Estimate has increased the capital DEL by £12m. The Estimate Memorandum (Tables 1 and 2) shows that there was internal transfer of £12m from resource to capital. The Estimate Memorandum also indicates that the Department is using its contingency reserve (the Departmental Unallocated Provision) to finance this internal transfer. According to para 3 of the Estimate Memorandum, the Department has:

taken up £10m of administration DUP (Departmental Unallocated Provision) [3] to cover a number of emerging pressures including the need to cover a budget transfer to capital from resource arising from a possible shortfall in capital receipts.

Although the Estimate Memorandum refers to a "possible shortfall in capital receipts", it also shows that the FCO has increased its projection of asset sales in the Supplementary Estimate:

[The FCO] continues to aim to achieve asset sales this financial year of £50m and have increased both our capital expenditure and receipts by £40m to reflect the level of asset disposal receipts. The increase in capital expenditure is fully offset by receipts and so this change is budget neutral.

As the table below illustrates, the combined impact of both the internal transfer from resource to capital and the increase in projected asset sales is to increase gross capital expenditure by £52m from £117m as per Main Estimate (p 348) to £169m as per Supplementary Estimate ( p 365). The £52m is comprised of the £12m transfer from resource to capital and the increase of £40m in projected asset sale receipts which will finance additional capital expenditure. Net capital is only affected by the £12m transfer as the increase in capital expenditure offset by receipts is budget neutral.

	Gross Capital £m	Net capital £m
Main Estimate 2011–12	117	107
Transfer from resource to capital	12	12
Increase in capital exp due to asset sales receipts	40
Supp Estimate 2011–12	169	119

Reclassification of programme spend

The Estimate Memorandum, para 12 notes that around £500m of spend in support of front-line activities has also been re-classified as programme from administration costs. The Committee could request the Department to justify the re-classification and explain why it was not done before.

Suggested questions

1. The Estimate Memorandum, para 3 explains that the FCO has "taken up £10m of administration DUP to cover a number of emerging pressures including the need to cover a budget transfer to capital from resource arising from a possible shortfall in capital receipts" However para 8 of the Estimate Memorandum states that the "FCO continues to aim to achieve asset sales of £50m".

o How much asset sales is the FCO currently expecting to achieve this financial year?

o What assets will it have to sell to achieve the £50m target ? What assets has it sold already?

o If the FCO does not achieve its asset sales of £50m, what asset purchases will it have to forgo?

2. The Estimate Memorandum, para 12 notes that £500m has been reclassified as programme from administration costs. What does that £500m comprise?

o Why has this expenditure been reclassified at this time?