ESTIMATES MEMORANDUM

  Departments are required under HM Treasury guidance PES (2004)14 to provide an "Estimates Memorandum" to their Select Committee explaining the changes sought in Supplementary Estimates and how these link to the Department's published targets.

  I am now enclosing the DTI's Estimates Memorandum for the forthcoming Winter Supplementary following the requirements expressed in the guidance you kindly sent us earlier this year. We have tried to ensure that the memorandum gives clarity to the changes being made to the Department's Estimate but should the Committee require any additional information to that provided, we will expand the Memorandum appropriately.

DEPARTMENT OF TRADE AND INDUSTRY WINTER SUPPLEMENTARY 2006-07 ESTIMATES

Summary of changes sought in the DEL Budget

  The total effect of the changes proposed is that the Resource DEL increases by £197 million from £5,416 million to £5,613 million and the Capital DEL increases by £79 million from £1,184 million to £1,263 million (an overall total of £276 million).

Resource and Capital DEL	Increases/(Decreases)
Resource DEL: voted	(£644m)
Resource DEL: non voted	£841m
Capital DEL: voted	(£4m)
Capital DEL: non voted	£83m
Total	£276m

  The Net Cash Requirement has increased by £928 million from £7,138 million to £8,066 million.

Net Cash Requirement	Increases/(Decreases)
Resource DEL: voted	(£644m)
Capital DEL: voted	(£4m)
Resource AME: voted	£1m
Capital AME: voted	£376m
Grant in Aid to NDPBs	£1,199m
Total	£928m

Detailed explanation of the changes

  The main purposes of this Winter Supplementary Estimate are:

(i)  to utilise £200 million of the Department's End Year Flexibility (EYF) arising from underspends in prior years (of which £107 million is resource and £93 million capital);

(ii)  to record a £75 million (and £150 million in 2007-08) increase in funding for subsidy of the Post Office Rural Network, and

(iii)  to return to the Science budget £50 million of the £115 million used for non-Science purposes in 2005-06 (the remaining £65 million to be returned in 2007-08).

  The principal uses of the EYF are:

£40 million	Regional Development Agencies EYF transferred to Department for Communities and Local Government for development of the 2012 Olympics site.
£24 million	Ring fenced capital grants for use by the Regional Development Agencies.
£20 million	Non-Science EYF utilised for the Science Research Councils.
£15 million	To cover an anticipated shortfall in capital receipts in respect of Launch Investments.
£10 million	Modernisation of the Post Office network (Urban Reinvention).
£10 million	Knowledge Transfer legacy schemes (where slippage in the take-up of the programme has resulted in unfunded commitments.
£9 million	National Measurement System to cover a shortfall in funding.
£9 million	Non cash to cover impairment costs in respect of Small Business Service Venture Capital funds.
£8 million	Administration EYF to provide near cash funding for payment of early retirement provisions.
£55 million	A number of smaller individual amounts including part funding of Departmental pressures.
£200 million	Total

  The Supplementary also includes:

—  Other minor EYF utilisation for University Innovation Centres, Nuclear decommissioning support to the Former Soviet Union, the renewable energy Performance and Innovation Fund, Business Support legacy schemes and S432 inspectorate costs associated with MG Rover;

—  several transfers to and from other Government Departments, including a Machinery of Government transfer to move £19 million for the Equal Opportunities Commission and women's equality programmes to the Department for Communities and Local Government, and £5 million transferred from the Department for Environment, Food and Rural Affairs in respect of Energy Demand Reduction Trials;

—  additional £19 million receipts from other Government Departments to be passed onto the Regional Development Agencies (to be matched by additional expenditure); and

—  additional £774 million receipts from external sources to be received by the Nuclear Decommissioning Authority (to be matched by additional expenditure).

Repayment of loan from the Science to Non-science budget in Spring Supplementary 2005-06

  In the Spring Supplementary of 2005-06, £115 million of Office of Science and Technology EYF was drawn down as a loan to non-Science to assist in funding British Energy liabilities. It has been agreed with Treasury that this should be returned by means of switches from the non-Science to Science budget within the Supplementary Estimates for 2006-07 (£50 million) and 2007-08 (£65 million). The following table shows the total related entries in the Winter Supplementary Estimate:

Reductions in various voted non-Science capital grants programmes, transferred to Research Councils' capital grants	£5 million
Reductions in various voted non-Science capital programmes, transferred to Research Councils' capital	£1 million
Utilisation of non-Science capital grants EYF transferred to Research Councils	£12 million
Administration non cash EYF utilised as capital for Research Councils	£8 million
Departmental Unallocated Provision (capital grants) transferred from non-Science to Science	£13 million
Departmental Unallocated Provision (capital) transferred from non-Science to Science	£1 million
Non cash related to Knowledge Transfer (RfR1 Function A) transferred to Research Councils' for non cash use	£10 million
Total	£50 million

Impact on the Department's Public Service Agreements (PSAs)

  The changes described above are unlikely to have a significant direct effect on the Department's performance against its PSA targets.

  Some of the changes are in respect of activities in areas not covered by the Department's PSAs or related to budgets that are not used directly for the pursuit of PSAs (for instance the additional funding in support of the Post Office rural network).

  Some of the changes reflect situations where money is made available when it is needed (through drawdown of EYF or repayment of the Science loan), but where this reflects an underspend on relevant PSAs in previous years with no overall effect on those PSAs.

  Some of the changes are of a technical nature and do not affect the overall amount of resource being deployed in these areas (for example the movement of funding in respect of the support package following the administration of MG Rover).

  The additional funding for the Regional Development Agencies (£19 million from other Government Departments plus £28 million utilisation of EYF) will benefit the pursuit of PSA 7 (Regional Economic Performance). However, this is a relatively small amount compared to the overall budget and is therefore unlikely to have a significant effect on this challenging, long-term target.

  There may be some indirect impact, particularly on targets PSA 1 (Productivity), PSA 2 (Science and Innovation), PSA 4 (Energy) and PSA 7 (Regional Economic Performance).

DEPARTMENTAL EXPENDITURE LIMIT (DEL)

  Figures for resource and capital DEL for 1999-2000 to 2005-06 and figures for 2007-08 were published in the Supplementary Budgetary Information in April 2006.

DEL End Year Flexibility

End Year Flexibility available at Main Estimate:	£913 million
Of which:
Departmental administration	£38 million
Non-Science current programme expenditure (including non-cash)	£391 million
Science current programme expenditure (including non-cash)	£182 million
Non-Science capital grants expenditure	£182 million
Non-Science capital expenditure	£114 million
Science capital expenditure	£6 million
End Year Flexibility drawn down in Winter Supplementary 2006-07:	£200 million
Of which:
Departmental administration	£34 million
Non-Science current programme expenditure (including non-cash)	£73 million
Non-Science capital grants expenditure	£79 million
Non-Science capital expenditure	£14 million

  The Department maintains a detailed account of the EYF generated and plans for its proposed utilisation over the Spending Review period. All of the remaining accumulated sum with the exception of £55 million non cash is ring fenced and not available to allocate to any emerging new priorities.

Administration cost limits

  The administration costs limit will be increased by £5 million from £331 million to £336 million.

  The net increase of £5 million is due to:

—  £9 million utilisation of EYF (of which £2 million is for Invest to Save projects for the Supplier Route to Government, the Chameleon project and the Insolvency Service);

—  £1 million transfer from the Cabinet Office in respect of the Parliamentary Counsel Office;

—  less £3 million transferred to the Department for Communities and Local Government for the Equal Opportunities Commission and Women's Equality activities;

—  less £1 million transferred to the programme budget for Business link funding; and

—  less £1 million transferred to the Department for Communities and Local Government for early release schemes within Government Offices for the Regions.

"MACHINERY OF GOVERNMENT" CHANGES OR OTHER TRANSFERS BETWEEN DEPARTMENTS

  The main change relates to £19 million transferred to the Department for Communities and Local Government for the Equal Opportunities Commission and Women's Equality activities. Other small changes are £0.3 million for the transfer of the Engineering Inspectorate to the Health and Safety Executive within the Department of Work and Pensions and £1 million for the transfer of the Social Enterprise Unit to the Cabinet Office.

PROVISIONS AND CONTINGENT LIABILITIES

  Information on the stock of the Department's provisions is included in Notes 22 to 24 of the Consolidated Resource Accounts for the year ended 31 March 2006 (published in August); information on the Department's Contingent Liabilities is shown in Annex B2 of the Departmental Report 2006.

November 2005