DR 2:
Letter to the Clerk of the Committee from UK Trade & Investment
2010-11 UKTI ESTIMATES
MEMORANDUM
HM Treasury guidance
in Supply Estimates: a guidance manual specifies that departments
are required to provide an 'Estimates Memorandum' to their Select
Committee explaining the allocations sought in the Main Estimates
and how they link to the department's published targets.
I enclose UK Trade
& Investment's Estimate Memorandum for the forthcoming 2010-11
Main Supply Estimate. This allows the draw down of £92.9m
resource, £3.1m capital and a £95.3m net cash requirement,
in line with the Comprehensive Spending Review Settlement. This
includes the changes arising from the adoption of the International
Financial Reporting Standards; the Clear Line of Sight alignment
project and the £2.1m reduction in the UKTI contribution
to Regional Development Agencies (RDAs) for inward investment
support. Should the Committee require any additional information,
I would be happy to expand the Memorandum appropriately.
Main Estimates are
to be published Monday 21 June 2010.
Curtis Juman
Director of Finance
18 June 2010
UK Trade
& Investment Main Estimate 2010-11
INTRODUCTION
1 The purpose
of this memorandum is to provide the Select Committee with an
explanation of how the resources and cash sought in UK Trade &
Investment's (UKTI) Main Estimate will be applied to achieve departmental
objectives. This includes information on comparisons with the
resources provided in earlier years in Estimates and departmental
budgets, and also refers to future financial plans. Details of
changes in resources relative to original plans set out in the
last Comprehensive Spending Review (CSR) are provided.
MAIN
ESTIMATE
2 The UKTI's
Main Estimate for 2010-11 seeks the necessary resources and cash
for its programme and capital Vote.
3 UKTI's administration
costs are met from within the resources of the departments for
Business Innovation & Skills (BIS) and the Foreign & Commonwealth
Office (FCO). Consequently any changes related to the administration
costs fall within the BIS and FCO Estimates.
4 An explanation
of key terms used in this memorandum is provided in Annex A.
SUMMARY OF THE
MAIN SPENDING CONTROL
FIGURES CONTAINED IN
THE MAIN ESTIMATE
1 Provisional
figures
2 Depreciation,
which forms part of Net Resource DEL, is excluded from total DEL
as it is also included in Capital DEL. To include it again would
lead to double-counting.
3 IFRS
changes were introduced in 2009-10 and only impact on budgets
from 2009-10 onwards. This accounts for the increase in UKTI's
Capital DEL, which was transferred from BIS vote.
SUMMARY
OF ALL
CHANGES
5 Annually
Managed Expenditure: There is no change in the provision.
6 Net Resource
DEL: There have been a number of changes to UKTI budgets
from the ongoing CSR settlement. UKTI received additional funding
in the 2009 budget (£5m 2009-10, £5m 2010-11) to help
UK businesses better showcase their strengths to overseas customers.
International Financial Reporting Standards (IFRS) changes were
implemented in 2009-10.
7 Other changes
include: the transfer of support for defence exports from the
Ministry of Defence (MOD); the Alignment Project or 'Clear Line
of Sight' (CLOS); a £2.1m reduction in the UKTI contribution
to Regional Development Agencies (RDAs); and a £500k transfer
from BIS in 2009-10, which is being transferred back in 2010-11.
All of these changes are demonstrated in the table below:
8 Due to the
Alignment (or 'Clear Line of Sight') Project (CLOS) there is no
longer a non-cash element in Estimates. The decrease in near-cash
RDEL in 2010-11 compared with the previous year is due to the
IFRS changes; the reduction of the UKTI contribution to the RDAs
and the repayment of the £500k transfer to BIS.
9 Capital
DEL: There have also been changes to UKTI capital budgets
since 2009-10 as a result of IFRS. This required the reclassification
of expenditure from BIS Admin to UKTI Capital. These changes are
reflected in the tables below:
EXPLANATION
OF SIGNIFICANT
CHANGES IN
PROVISION COMPARED
WITH:
Spending Review
Allocations
10 At the start
of 2008-09 UKTI's allocation reflected a net flat-cash budget
settlement in the Comprehensive Spending Review (CSR) 2007 of
£89 million for each of the three years.
11 This funding
is for the delivery of UKTI's agreed targets; its marketing commitments
related to the Olympics over the CSR period; and a contribution
to the Regional Development Agencies (RDA) single pot of £17/16/16m
in relation to inward investment activities. The contribution
to the RDAs has been reduced by £2.1m from £16.002m
to £13.902m for 2010-11.
12 In 2008-09
the responsibility for defence exports promotion moved from the
Ministry of Defence to UKTI to provide greater integration with
the Government's general support activities. The related net budget
decreases over the CSR period, reflecting agreed efficiencies.
13 The provision
increases from 2008-09 as a result of additional resource (£5m
2009-10, £5m 2010-11), provided in the 2009 Budget to help
UK businesses better showcase their strengths to overseas customers
and markets which leads to an increase in UKTI's overall net resource
requirement as detailed above. During 2009-10, a transfer of £500k
was made to UKTI from BIS to support inward investment work that
was brought forward. This increased our Net resource DEL requirement
in 2009-10 but is offset by the repayment of £500k to BIS
in 2010-11.
14 IFRS changes
required the reclassification of expenditure from resource to
capital. This resulted in a transfer of funds from UKTI Resource
to UKTI Capital in both 2009-10 and 2010-11 and it also resulted
in a transfer from BIS Admin to UKTI Capital for the same period.
CLEAR
LINE OF
SIGHT - THE
ALIGNMENT PROJECT
(CLOS):
15 The Alignment
(or 'Clear Line of Sight') Project seeks to simplify government's
financial reporting to Parliament by better aligning the recording
of government spending in departmental budgets, Estimates and
resource accounts. Full details of the alignment reforms were
set out in Cm 7567 published in March 2009.
16 Changes to
the budgetary framework resulting from the Alignment Project have
been implemented in 2010-11. The main change is that the separate
near-cash and non-cash controls within resource budgets have been
removed. Of those transactions previously recorded in non-cash
budgets:
- cost of capital
charge has been removed from budgets, Supply Estimates and Resource
Accounts;
- provisions, revaluations,
write-off of bad debt and exchange rate gains/losses have been
moved from DEL budgets into AME; and
- depreciation,
impairments and notional audit fees have remained in Resource
DEL.
All figures were
subject to re-forecasting before the classification changes were
made.
17 These classification
changes, which are reflected in all departmental Estimates, have
the effect of reducing DEL budgets across departments in all years.
However, the adjustments have no impact on the purchasing power
of departments or the planned level of expenditure.
18 For the first
time, the Main Estimates are produced under the clear line of
sight guidelines.
19 The main effect
on UKTI's 2010-11 Main Estimate as a result of CLOS is that there
is no longer a distinction made between near-cash and non-cash.
For UKTI, this involves the total removal of the cost of capital
charge (-£79k) and the change of depreciation from non-cash
to near cash (£166k).
20 This results
in a £79k increase in the total 2009-10 UKTI budget. There
is no longer any non-cash element in the main estimate and all
budgets are now classed as near-cash.
Previous year
comparison (with 2009-10)
21 As set out
above, the RDEL provision decreases from 2009-10 due mainly to
the £2.1m reduction in the UKTI contribution to the RDA "single
pot", IFRS changes and the repayment of the £500k transfer
to BIS.
22 The CDEL provision
decreases from 2009-10, solely due to a reduction in UKTI's capital
spend as planned.
Net Cash Requirement
23 In comparison
to the previous year the main change in the net cash requirement
relates to UKTI having £3.5m less resource; £0.9m less
capital and £1.5m less required to satisfy creditors.
DEPARTMENTAL
STRATEGIC OBJECTIVE
24 UKTI is a
joint department of the Foreign & Commonwealth Office (FCO)
and the Department for Business Innovation & Skills (BIS).
Consequently UKTI's funding and human resources reflect this framework.
It shares its Departmental Strategic Objective (DSO) targets with
its parent departments, delivering through staff employed by either
the FCO or BIS.
25 These
shared objectives for FCO and BIS respectively are to Support
the British Economy and promote the creation and growth of business
and a strong enterprise economy across all regions. They are underpinned
by UKTI's Strategic Objective, and related targets:
By 2011, deliver
measurable improvement in the business performance of UK Trade
& Investment's international trade customers, with an emphasis
on innovative and R&D active firms; increase the contribution
of foreign direct investment to knowledge intensive economic activity
in the UK, including R&D; and deliver a measurable improvement
in the reputation of the UK in leading overseas markets as the
international business partner of choice.
DEPARTMENTAL
EXPENDITURE LIMIT
26 There has
been an upward movement in the DEL budget from 2007-08 due to
the transfer of defence export promotion activity to UKTI from
the MOD. The summary table on the first page compares outturn
from 2007-08 onwards with the provisional outturn for 2009-10
and planned DEL for the CSR period which includes the additional
£10m over two years announced in the 2009 Budget; the subsequent
IFRS and CLOS changes and the transfer and repayment of £500k
to BIS.
DEL END-YEAR
FLEXIBILITY
27 At the start
of 2010-11 UKTI will have an accumulated End Year Flexibility
(EYF) entitlement of £11.963m resource and £1.667m capital,
subject to any further adjustments that emerge during the finalisation
of the 2010-11 Resource Accounts.
28 The stock
of EYF arose as a result of planned reductions in resource over
a number of years. There are no plans to draw down any EYF during
the financial year.
PROVISIONS
29 UKTI does
not have any accounting provisions.
CONTINGENT
LIABILITIES
30 UKTI does
not have any contingent liabilities.
APPROVAL
OF MEMORANDUM
31 This memorandum
has been prepared with reference to guidance in the Supply Estimates:
a guidance manual provided by HM Treasury. The information in
this memorandum has been approved by Sir Andrew Cahn, KCMG, the
Accounting Officer for UKTI.
Annex A
Glossary of Key Terms
Accounting Officer
- a person appointed by the Treasury or designated by a department
to be accountable for the operations of an organisation and the
preparation of its accounts. The appointee is, by convention,
usually the head of a department or other organisation or the
Chief Executive of a non-departmental public body (NDPB).
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: civil service pay; resource expenditure on accommodation,
utilities and services. The Administration Budget is part of Resource
DEL.
Annually Managed
Expenditure (AME)
- a Treasury budgetary control. AME spending forms part of Total
Managed Expenditure (TME) and includes expenditure which is generally
less predictable and controllable than expenditure in DEL.
Ambit
- the ambit is set out in Part I of the departmental Estimate.
It describes the activities for which resources sought in the
RfR will be used.
Appropriations
in Aid
- income received by a department which it is authorised to retain
(rather than surrender to the Consolidated Fund) to finance related
expenditure. Such income is Voted by Parliament in Estimates and
accounted for in departmental resource accounts.
Capital Expenditure
- spending on the purchase of assets, above a certain capitalisation
threshold, which are expected to be used for a period of at least
one year. It includes the purchase of buildings, equipment and
land. The capitalisation threshold is set by each department:
items of a value below it are not counted as capital assets, even
if they do have a productive life of more than one year.
Clear Line of
Sight (CLOS) Alignment Project
- an HMT initiative to Align budgets, Estimates and accounts in
a way that allows Treasury to control what is needed to deliver
the fiscal rules, incentivises value for money and reduces burdens
on government departments
Comprehensive
Spending Review (CSR)
- a cross-government review of departmental aims and objectives
and analysis of all spending programmes. A CSR usually results
in the allocation of three year Departmental Expenditure Limits.
Consolidated Fund
- the Government's current account, operated by the Treasury,
through which pass most government payments and receipts.
Consolidated Fund
Extra Receipts (CFERs)
- Income
or related cash, which may not be appropriated in aid of an Estimate
and is surrendered to the Consolidated Fund.
Contingencies
Fund -
A cash-based Fund enabling the Treasury to make repayable cash
advances to departments for new or existing urgent services that
cannot await the voting of funds under the normal Supply procedure,
in anticipation of provision for those services by Parliament.
Contingent Liabilities
- potential liabilities that are uncertain but recognise that
future expenditure may arise if certain conditions are met or
certain events happen.
Cost of Capital
Charge
- reflecting the cost to the government of financing investment,
(i.e., the rate at which it borrows). This is charged to departments
to improve transparency under resource accounting and encourage
efficient use of assets. It is included in the calculation when
setting fees and charges and is calculated as a percentage of
the net asset value.
Current Expenditure
(or resource consumption)
- spending reflecting the consumption of goods and services in
that year (e.g., pay, grants, depreciation of assets).
Departmental Expenditure
Limit (DEL) -
a Treasury budgetary control. DEL spending forms part of Total
Managed Expenditure (TME) and includes that expenditure which
is generally within the departments control and can be managed
with fixed three-year limits.
Depreciation
- a measure of the wearing out, consumption or other reduction
in the useful life of a fixed asset whether arising from use,
passage of time or obsolescence through technological or market
changes.
Devolved Administrations
- the administrations established in Scotland, Wales and Northern
Ireland. They are responsible for devolved public services and
policies.
End-Year Flexibility
(EYF)
- a mechanism whereby departments are allowed to carry forward
unspent Departmental Expenditure Limit (DEL) provision into later
years.
Estimates
- a statement of how much money the government needs in the coming
financial year, and for what purpose(s), by which parliamentary
authority is sought for the planned level of expenditure and receipts
in a department.
Estimates Memorandum
- an explanation to the relevant departmental select committee
setting out the links to other spending controls and the contents
of a departmental Estimate.
Generally Accepted
Accounting Principles (GAAP)
- The common set of accounting principles, standards and procedures
that companies use to compile their financial statements. GAAP
are a combination of authoritative standards (set by policy boards)
and simply the commonly accepted ways of recording and reporting
accounting information.
Grant
- payments made by departments to outside bodies to reimburse
expenditure on agreed items or functions, and often paid only
on statutory conditions.
Grant in Aid
- regular payments made by departments to outside bodies (e.g.,
non-departmental public bodies) to finance their operating expenditure.
Main Estimates
- the means through which departments seek parliamentary approval
for their spending plans for the year ahead. Usually presented
within five weeks of the Budget Statement.
International
Financial Reporting Standards (IFRS)
- are Standards, Interpretations and the Framework adopted by
the International Accounting Standards Board.
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.
Net Cash Requirement
- the limit Voted by Parliament reflecting the maximum amount
of cash that can be released from the Consolidated Fund to a department
in support of its resource Estimate to carry out the functions
specified in the Estimate's ambits.
Non-cash
- costs where there is no cash transaction but which are included
in a body's accounts (or taken into account in charging for a
service) to establish the true cost of all the resources used.
Regional Development
Agencies
- they are located in the 9 English regions, and work towards
bringing together views of the people who live and work in each
region, and combining these with a unique set of business and
economic insights to make the most of the opportunities globalisation
brings.
Request for Resources
(RfR)
- the functional level into which departmental Estimates may be
split. RfRs contain a number of functions being carried out by
the department in pursuit of one or more of that department's
objectives.
Resource Accounting
- the accruals basis on which annual departmental accounts are
prepared.
Resource Budgeting
- the means by which the Government plans and controls public
expenditure.
Select Committees
- are appointed by the House to consider subjects, which fall
within their orders of reference. Most do not have executive powers
but make reports to the House containing their opinions based
on evidence they have taken. They are different to standing committees,
which proceed by formal debate.
Spending Review
- sets out the key improvements in public services that the public
can expect over a given period. It includes a thorough review
of departmental aims and objectives to find the best way of delivering
the Government's objectives, and results in the allocation of
three-year Departmental Expenditure Limits (DELs).
Subhead
- a single cell within a section within the Part II: Subhead detail
table in an Estimate.
Supplementary
Estimates
- seek parliamentary authority for additional resources and/or
cash, or vary the way in which resources are allocated. Normally
presented in the Summer (June), Winter (November) and Spring (February).
Supply the process whereby Parliament gives statutory authority
for both the consumption of resources and for cash to be drawn
from the Consolidated Fund.
Token Estimates
(or sections)
- where a department's expenditure within the Estimate (or the
section) is wholly offset by income, so that a token amount of
£1,000 is voted.
Voted Provision
- that which has been authorised by Parliament, in response to
Supply Estimates.
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