WINTER SUPPLEMENTARY ESTIMATE 2007-08

  Thank you for your letter of 22 November. I apologise for the delay in replying.

NORTHERN ROCK

  I would like to address the points you raise in Questions 1 to 9 together.

  The Government has kept the House regularly informed of the issues relating to Bank of England facilities for Northern Rock plc and guarantee arrangements. The Chancellor wrote to the chairs of the Treasury Select Committee and the Public Accounts Committee on 21 September and 11 October. He made a written statement to the House on 8 October, the first day that the House sat following the summer recess. He made an oral statement to the House on 11 October, appeared before the Treasury Committee on 25 October and made a further oral statement on 19 November. The Chancellor has also answered questions on both instability in the financial markets and Northern Rock plc during normal House business.

  A Treasury Minute was laid on Monday 26 November. At the time that the guarantees and indemnity were granted, a formal minute was not laid. While I accept that a formal minute would have been preferable, the Chancellor was explicit about the guarantees and resulting contingent liabilities in his oral statement and letter to the chairs of the Treasury Select Committee and Public Accounts Committee, copies of which were placed in the Library of the House. I therefore consider that we have disclosed everything directly to the House—and the market—in a form that took into account the technical, commercial and policy issues. The Chancellor has committed to continuing to keep the Committee and the House informed of developments as and when appropriate. He will appear again before the Committee on 10 January 2008. We will also make a note of the contingent liability in the Spring Supplementary Estimates.

  The Treasury objectives in relation to Northern Rock plc include minimising the cost to the taxpayer. The design of the arrangements and facilities, through the fee on new retail deposits, the premium rate of interest on the facility, the security of the facility against all the assets of the company and the indemnity to the Government for certain costs, reflect that principle.

  Unless they are called upon, there will be no cost to the Exchequer from the guarantee arrangements, and even in those circumstances, only if liabilities exceeded assets, which is not currently the case. We are of course continuing to work with the other Tripartite authorities and the company to find a satisfactory solution which protects both the taxpayer and preserves wider financial stability. It would not be appropriate at this stage to speculate on alternative scenarios for the Treasury's contingent liability in relation to the company, which would involve second guessing highly volatile market valuations over the next few years. However, as stated above, we will continue to keep the Committee and Parliament updated and provide further information as soon as it is appropriate.

  You also asked about the interest premium to be paid ultimately to the Treasury. In support of the stabilisation arrangements for the company, this fee has been rolled-up and subordinated as tier two debt.

OGC SEVERANCE AND THE DEPARTMENTAL UNALLOCATED PROVISION

  The OGC conducted a zero-based review as part of the Government's programme of work to support the Comprehensive Spending Review. The outcome of that review was set out in "Transforming Government Procurement" (TGP), which was published in January 2007. TOP announced the Government's intention that OGC should become a "smaller, more focused, higher calibre organisation with the skills and powers needed to drive through the necessary changes within central government".

  In January, simultaneously with the launch of TGP, OGC introduced a voluntary early retirement and voluntary early severance scheme. This focused on reducing overall staff numbers to 250 by a April 2008, while retaining or—where sufficient skills to deliver the new agenda were not already present in OGC—recruiting, the skills needed to deliver TGP. The scheme has run throughout the calendar year, with some departures in financial year 2006-07, and the bulk in 2007-08.

  During the course of 2006-07, the OGC incurred £3.3 million in early severance and early retirement costs. Of these, £1.8 million were incurred as a result of the scheme announced following TGP, with the balance covering severances agreed as a result of other changes within the OGC. A total of 26 people left in 2006-07 on voluntary severance or retirement terms. During the course of 2007-08, the OGC plans to spend up to £10 million on severance and early retirement. The scheme is coming to an end and the number of staff leaving under the scheme in 2007-08 will be approximately 80. Staff numbers in the OGC are forecast to be 60 lower, by April 2008, than they would have been under previously agreed headcount targets (allowing for transfers of responsibility in and out of OGC) and will decline to 190 over the CSR years.

  The Departmental Unallocated Provision (DUP) was chosen to finance the OGC's staff exits because it forms part of the Treasury's DEL. When a department has a requirement for additional Supply Estimate spending, it is expected to manage the increase from within its existing DEL provision. This means either looking for savings or utilising unallocated provision before seeking to use sources of finance that would increase its DEL, such as End Year Flexibility or the DEL Reserve.

THE ROYAL MINT

  The new Service Level Agreement with the Royal Mint was agreed in October 2007 and covers the period April 2006 to March 2009. The then Chief Executive of the Mint informed the Treasury Committee that the SLA had been agreed when he appeared before them on 10 October 2007. Details of the delays to the agreement were given in the then Financial Secretary's letter of 17 May to Michael Fallon MP. The main change in the new SLA is for the cost of coinage to be paid on manufacture rather than on issue. This brings the Treasury in line with the Mint's other customers. There is also an agreement that the Mint would pay a royalty fee for the right to produce UK collector coins.

END YEAR FLEXIBILITY

  As stated above, the department had unallocated provision within its DEL which has to be used before claiming any of our stock of EYF. Some of the EYF stock may be utilised at the end of the CSR period to fund the effect of the Civil List renegotiation in the event that it cannot be accommodated within 2010-11 DEL provision, but there are no definite plans to use the stock of EYF at present. The postion will be kept under review and a case for take up of EYF made in the event that the department cannot accommodate the need for additional funding within its DEL.

NATIONAL SAVINGS AND INVESTMENTS

  I understand from the Chief Executive of National Savings and Investments that both the Supplementary Estimate and an accompanying memorandum have now been sent to the Committee.

OFFICE FOR NATIONAL STATISTICS

  The Office for National Statistics have confirmed that an Estimates Memorandum was sent to the Committee on 14 November. I understand another copy was sent to you by Karen Dunnell's office on 23 November.

  I hope that this letter provides you will all the information the Committee needs. Please do not hesitate to contact me if there are any other outstanding issues you would like addressed.

3 December 2007