WINTER SUPPLEMENTARY ESTIMATES 2007-08

  This memorandum provides details of changes sought in the Treasury's Winter Supplementary Estimate for 2007-08 published in "Central Government Supply Estimates 2007-08: Winter Supplementary Estimates" HCxxx. Further details of the work of the Treasury and its finances can be found in the "HM Treasury Annual Report and Accounts 2006-07" HC 518. Supply Estimates and the Treasury's Departmental Report are available from http://www.hm-treasury.gov.uk/

  The purpose of this memorandum is to provide the select committee with an explanation of how the resources and cash sought in the Winter Supplementary Estimate will be applied to achieve departmental objectives and Public Service Agreement (PSA) targets. This includes information on comparisons with the resources provided in earlier years in Estimates and departmental budgets.

SUMMARY OF THE CHANGES SOUGHT IN THE ESTIMATE

  1.  The Estimate seeks a net increase of £14,519,000 in resources and £17,568,000 in the net cash requirement. The changes for which approval is sought are:

—  A Machinery of Government transfer of £4,028,000 from Cabinet Office following the transfer of the Prime Ministers Delivery Unit. (RfR 1);

—  An increase in near cash resources of £2,000,000 to finance the Thoresen Review. (RFR 1);

—  An increase of £8,491,000 for OGC to fund their voluntary early retirement and severance scheme;

—  An increase in the net cash requirement of £5,000,000 for finished coinage stocks. (RfR 2).

  2.  The headline changes in voted totals, compared to the provision in the Main Estimate, are:

—	Net Resources within RfR 1	increase of £6,028,000
—	Net Resources within RfR 2	Nil
—	Net Resources within RfR 3	increase of £8,491,000
—	Net total resources	increase of £14,519,000
—	Net Capital expenditure	Nil
—	Net Cash Requirement	increase of £17,568,000

DETAILED EXPLANATION OF THE CHANGES BEING SOUGHT

Request for Resources 1: Raising the rate of sustainable growth and achieving rising prosperity and a better quality of life, with economic and employment opportunities for all

Section A—Core Treasury

  3.  A Machinery of Government transfer was announced on 28 June transferring the Prime Ministers Delivery Unit from the Cabinet Office to HM Treasury. It was agreed that £4,028,000 in near cash DEL provision would be transferred from the Cabinet Office in the Winter Supplementary to cover the full year costs of the Unit.

  4.  The Estimate also seeks an increase in near cash resources of £2,000,000 to finance the Thoresen Review. The Review, led by Otto Thoresen, Chief Executive of AEGON UK, has a remit to develop a model that can meet the demands of those consumers most vulnerable to the consequences of poor financial decision-making. The provision will be funded from the Financial Inclusion Fund.

Request for Resources 3: Obtaining the best value for money from Government's commercial relationships on a sustainable basis

Section A—Office of Government Commerce

  5.  There is an increase in resources of £8,491,000 (£6,540,000 near cash and £1,951,000 non cash). This is to fund the OGC's voluntary early retirement and severance scheme costs arising from the Transforming Government Procurement review. The review launched a new strategy and part of the redefined remit resulted in OGC becoming a smaller, higher calibre organisation. To achieve the reduction in numbers, a programme of structural exits was instigated. The provision will be funded from the programme Departmental Unallocated Provision (DUP).

  6.  As explained in paragraph 14 below, these costs are exceptionally being classified as programme rather than administration costs. The programme DUP of £8,491,000 is therefore being utilised in full to finance the increase in RfR 3. The DUP provision will be split between near cash of £6,540,000 and non cash of £1,951,000.

NET CASH REQUIREMENT

  7.  In addition to the changes described above, the net cash requirement is being increased by a further £5,000,000 to provide funding to buy the stock of finished UK circulating coinage from the Royal Mint. In order to encourage more efficient scheduling of production, the new service level agreement between the Treasury and the Mint changes the basis on which HM Treasury pays for coinage from when coins are issued to banks to when they are produced.

IMPACT ON THE DEPARTMENT'S PUBLIC SERVICE AGREEMENT

  8.  The increase in RfR 1 of £2,000,000 for the Thoresen review has no impact on any of the Treasury's PSA targets. Spending on the review falls under the Treasury's Objective III: Promote efficient, stable and fair financial markets, for their users and the economy.

  9.  The cash increase related to RfR 2 (coinage) has no impact on the Treasury's PSA targets. Spending on coinage falls under the Treasury's Objective 1: Maintain a stable macroeconomic environment with low inflation and sound public finances in accordance with the code for fiscal stability.

  10.  The increase in RfR 3 will contribute to the achievement of PSA target 10: Deliver a further £3 billion saving by 2007-08 in central Government civil procurement (building on the savings achieved since 2000) through improvements in the success rate of programmes and projects and through other commercial initiatives.

DEPARTMENTAL EXPENDITURE LIMIT

  11.  The Supplementary Estimate increases the Resource DEL by £6,028,000 comprising £4,028,000 for the MoG transfer and £2,000,000 for the Thoresen review. The near cash total within voted resource DEL increases by £12,568,000 and the non voted element is reduced by £8,491,000. The following table shows a comparison between DEL plans between 2003-04 and 2006-07 (after changes made via Supplementary Estimates) and the outturns for those years, and the DEL for 2007-08, including the Winter Supplementary increases.

The underspend against resource DEL in 2004-05 includes an exceptional gain of £8 million on the disposal of 100 Parliament Street Further analysis of Treasury group spending trends can be found in Chapter 7 of "HM Treasury Annual Report and Accounts 2006-07" HC 518.

Figures in the table have been adjusted to include the budget and outturn for the Prime Minister's Delivery Unit, following the transfer of that budget from the Cabinet Office, and will differ from the figures in the 2007 Departmental Report accordingly.

DEPARTMENTAL UNALLOCATED PROVISION (DUP)

  12.  The Winter Supplementary Estimate includes draw down of the full amount of the programme DUP of £8,491,000. This is to finance the spending explained at paragraph 5 above. The administration DUP of £7,422,000 is not being drawn down at this time as it is being held in reserve to help fund this year's Group Shared Services restructuring costs.

END YEAR FLEXIBILITY

  13.  At present there are no plans to draw down any EYF in 2007-08. On that basis, our current EYF entitlement will be rolled forward into 2008-09 as follows.

£m
Administration	Other resources	Total resource EYF	Of which near cash	Capital	Total EYF
59	115	174	181	65	239

  14.  The need for use of any of the EYF entitlement will be kept under review in the context of the financial risks carried by the group (such as demand for coinage).

ADMINISTRATION BUDGET

  15.  The Administration Budget will increase by £6,028,000 to reflect the MoG transfer and the increase in respect of the Thoresen Review. The increase of £8,491,000 in RfR 3 for OGC structural exits would normally be classified as administration costs. However, as part of the SR04 settlement it was agreed that one-off exit costs incurred by the HM Treasury group in achieving managed staff reductions could be excluded from the department's administration budget.

The underspend against the Administration costs limit in 2004-05 contain the exceptional gain as referred to in the footnote to the DEL table above.

Figures in the table have been adjusted to include the budget and outturn for the Prime Minister's Delivery Unit, following the transfer of that budget from the Cabinet Office, and will differ from the figures in the 2007 Departmental Report accordingly.

12 November 2007