DEPARTMENT: HM TREASURY, Supplementary Estimate 2013-14 INTRODUCTION and KEY POINTS
The Estimate covers the administration costs of the core Treasury, the Debt Management Office (DMO), United Kingdom Financial
Investments Limited (UKFI),Infrastructure UK (IUK), Office of Tax
Administration (OTS) and the Department’s Arms Length Bodies (ALBs), Office for Budget Responsibility (OBR), the Royal Mint Advisory
Committee (RMAC), the Financial Services Compensation Scheme (FSCS), Money Advice Service (MAS – formerly the Consumer Financial Education Body),the Sovereign Grant to the Royal Household, UK Asset Resolution Limited, UKAR Corporate Services Limited and Help to Buy (HMT) Limited. Programme spending on coinage and financial stability is also included.
Changes sought in the 2013-14 Supplementary Estimate 2013-14 Budgets
and net cash requirement
£’000
Current limit
Change Voted Non-voted
New limit Departmental
Expenditure Limit (DEL)
Resource 169,969 -339,496 -500 -170,027
Of which
Administration 140,938 -3,224 - 137,714
Capital 14,140 -18,930 - -4,790
Annually Managed Expenditure (AME)
Resource
-1,658,839
12,264,123 - 10,605,284
Capital
-1,448,225
Net cash requirement -2,699,962
-5,895,725 - -8,565,687
Significant differences in provision compared to the 2013-14 Main Estimate.
DEL
The Main Estimate provided a resource DEL of £169.9m which included an administration budget of £140.9m and a capital DEL of £14.1m. Resource DEL outturn (excluding FCA fine income) is forecast to be at least £8m lower than the current limit. It has been agreed that of that underspend, £4m will be carried forward under the Budget Exchange (BX) scheme reducing Resource DEL by £4m. As part of the BX scheme, departments are required to surrender any BX rolled forward that remains unused at the end of the year. We are therefore obliged to surrender a further £3.8m, the amount we carried forward into 2013-14.
Within DEL programme spending there is a reduction of £318m as a result of an increase in income arising from the surrender of fines income by the Financial Conduct Authority. Additionally, spending on UK coinage manufacturing costs has been reclassified to AME.
AME
Resource AME provision in the 2013-14 Main Estimate was -£1.658bn. The Supplementary Estimate increases the total by £12.264bn. The bulk of this change relates to a decrease in the fair value of the assets within the Bank of England Asset Purchase Facility Fund (BEAPFF) which are forecast to decrease in value by £13.654bn.
DETAILED BREAKDOWN (Section lettering reflects the Supplementary Estimate changes)
Section A Core Treasury – net reductions of £1.9m administration, £321.7m programme and £2.7m capital.
The administration reduction is the net effect of an increase in income of £3.8m from provision of accommodation, partially offset by an increase in gross spending of £1.9m to cover a small increase in staff costs.
The decrease in programme spending of £321.7m is the net effect of income of £318m from the Financial Conduct Authority relating to fines levied on financial institutions. The two main fines were a £138m fine for JP Morgan for ‘London Whale’ trades and £105m for Rabobank for LIBOR rate fixing. The balance of the reduction relates to increased income of £4m from fees and interest on loans made by Infrastructure Finance Unit Ltd.
Capital spending has reduced by £3.5m through increased receipts of £4m from the redemption of further shares in Partnerships UK,
partially offset by a transfer from the Cabinet Office of £0.54m
towards the operational costs of the Joint Workspace Solutions team. Section B Debt Management Office – a net increase in administration spending of £4.18m, a reduction in programme spending of £0.55m and a reduction in capital spending of £1.3m. The increase in
administration spending is the net effect of an increase in gross spending of £1.28m, offset by the correction of the income figure shown in the Main Estimate. The net reduction in programme spending of £0.55m reflects increased income of £0.1m plus reduced gross spending of £0.45m. The decrease in capital expenditure of £1.3m relates to an IT systems upgrade that has been postponed until 2015-16.
Section D Infrastructure Finance Unit Limited reduction in net capital spending of £14.17m. The bulk of the reduction arises from the surrender of £11.3m planned spending on loans for the Greater Manchester Waste project that are no longer required. Additionally, there have been loan repayments relating to the same project of £2.8m.
Section E Office of Tax Simplification – a reduction of £0.045m to reflect the latest forecast of requirements.
Section F. Office for Budget Responsibility – an increase of £0.065m. Coinage Manufacturing costs – the Chief Secretary has agreed to spending on UK coinage manufacturing being reclassified from programme DEL to AME. The decision to reclassify was on the basis that the manufacture of coinage is demand led, one of the
characteristics of AME spending, and reclassification would enable all the elements of coinage production (manufacturing and metal) to be in one place.
Departmental Unallocated Provision (DUP) – the administration DUP has been reduced by £5.5m to zero.
The DEL ambit has been amended to include spending (£56k) on consumer credit policy that was transferred from the Department for Business, Innovation and Skills with effect from 13 November. The ambit has also been amended to cover spending on preparatory work on alternative investment finance (sukuk).
AME
Section I UK Coinage metal costs – a net reduction of £28.5m. The reduction is due to income arising from the sale of scrap metal, mainly arising from the Proactive Replacement Programme (PRP) to replace cupronickel coins in circulation with Nickel Plated Steel coins.
Section J Northern Rock – increase of £8.4m. NR accelerated its profile of loan repayments at the end of last year and in the early part of this year. As a consequence, the loan balance upon which our original interest forecast was based has reduced resulting in lower interest income being due. NR are continuing with their accelerated repayment profile resulting in a reduction in capital of £1,000m.
Section K Assistance to Financial Institutions – a net increase of
value of the Bank of England Asset Purchase Facility Fund (BEAPFF) of £13,600m non-cash. The fair value of the BEAPFF derivative represents the best estimate of the amount due to HM Treasury from the Bank of England on settlement of the scheme. It is arrived at by calculating the difference between the fair value of the assets as at the reporting date and their purchase price in the quantitative easing, less administration and interest charges. The value of the Fund is volatile – in last year’s Supplementary Estimate the value of the Fund increased by £14,000m. In the same Section there is also a reduction in income of £320m from RBS for contingent capital fees. To ensure that RBS was adequately capitalised under the Prudential Regulation Authority’s (PRA) stress tests, the Treasury made available £8,000m of contingent capital to RBS in return for a premium of 4 per cent. The commitment could be ended by RBS subject to the consent of the PRA. The PRA have agreed to the termination of the facility so the £320m premium is no longer payable.
Section M Administration of the Equitable Life Payments Scheme – an increase of £2.8m. Spending has increased mainly to fund increased tracing activity to trace policy holders and the specialist support, in line with NAO and PAC recommendations.
Section Q Credit easing – a net increase of £9m. Income included in the Main Estimate has been corrected resulting in a reduction of
£11m. Spending, mainly on fund management fees, has been reduced by £2m.
Section V Bradford & Bingley (B&B) increase of £18m resources and £250m capital reduction – the resource increase arises from a
reduction in interest due to the loan balance being lower than forecast. The capital reduction of £250m reflects B&B’s forecast of loan
repayments being higher than originally anticipated.
Section U Loans to Ireland – reduction of £3m. The forecast of interest payable has been recalculated now that all loan instalments have been paid. This results in the forecast of interest payable this year
Section V UK Coinage manufacturing costs – increase of £34m. Coinage manufacturing costs have been reclassified, as explained in the DEL section above. The reclassification from DEL accounts for £14m of the increase with the remaining £20m being for the PRP. Section W Sale of shares. Whilst the sale of shares realised £3,775m, for accounting purposes this is shown split between resources (-£1,690M) and capital (-£2,085m).
Section X UK Asset Resolution Limited (UKAR) – a new section with token net provision of £1k. UKAR is the holding company established on 1 October 2010 to bring together the businesses of B&B and NRAM. The core objective of UKAR is to maximise value for taxpayers through the prudent management of NRAM’s and B&B’s closed mortgage
books, while treating all stakeholders fairly.
Section Y UKAR Corporate Services Limited (UKARcs) – a new Section with token net provision of £1k. UKARcs became responsible for the administration of the Government’s Help to Buy Mortgage Guarantee Scheme. Operating costs of UKARcs will be funded by payments from Help to Buy (HMT) Limited.
Section Z Help to Buy (HMT) Limited – a new Section with net provision of £9m. This body’s spending will normally be funded through
guarantee fees charged to lenders. However, as the scheme only launched on 2 January, fees are unlikely to arrive in sufficient time to offset all spending in this financial year. A sum of £9m has therefore been allocated to fund operations in this financial year.
The AME ambit has been expanded to include spending on UK Coinage manufacturing and by UKAR, UKARcs and Help to Buy (HMT) Limited.
SUPPLEMENTARY INFORMATION DEL and AME budgets
The tables below show outturn and plans by budget category from 2008-09 up to the end of the Spending Review period.
Resource DEL £m
Year Voted
Non-voted
Total DEL Outturn Variance
2008-09 159.5 12.3 171.8 149.8 -22 (-11.7%)
2009-10 190.5 12.5 203.0 168.0 -35 (-16.2%)
2010-11 165.5 12.6 178.1 163.6 -14.5 (-8.1%)
2011-12 156.6 13.0 169.6 146.6 -23.0 (-13.6%)
2012-13 -78.7 12.0 -66.7 -194.9 -128.2
(-192.2%)
2013-14 -181.5 11.5 -170.0
2014-15 1,2 123.4 11.5 134.9
2015-16 1 109.7 11.5 121.2
1These figures reflect reductions following the Autumn Statement of £1.59m in 2014-15 and £1.47m in 2015-16.
2Figure for 2014-15 reflects a Budget Exchange transfer of £4m.
Administration Budget within Resource DEL £m
Year Voted
Non-voted
Total DEL Outturn Variance
2008-09 144.5 - 144.5 128.2 -16.3 (-11.2%)
2009-10 171.9 - 171.9 150.4 -21.5 (-12.5%)
2010-11 150.3 - 150.3 140.0 -10.3 (-6.8%)
2011-12 146.8 - 146.8 131.1 -15.7 (-10.7%)
2012-13 140.0 - 140.0 135.2 -4.8
(-3.4%)
2013-14 137.7 - 137.7
2014-15 2 124.3 - 124.3
2015-16 111.7 - 111.7
Capital DEL £m
Year Voted
Non-voted
Total DEL Outturn Variance
2008-09 7.0 - 7.0 2.8 -4.2 (-60%)
2009-10 156.9 - 156.9 56.2 -100.7
(-64.1%)
2011-12 60.7 - 60.7 36.5 -24.2 (-39.9%)
2012-13 27.5 - 27.5 18.0 -9.5
(-34.5%)
2013-14 14.1 - 14.1
2014-15 5.2 - 5.2
2015-16 3.3 - 3.3
Resource AME 3 £m
Year Voted
Non-voted
Total AME Outturn Variance
2008-09
2,039.3 10.2 20,403.6 41,179.1 20,775.5 (101.8%)
2009-10
-7,279.8 10.2 -7,290.0
-30,877.3
-23,587.3 (-323.5%)
2010-11
2,372.4 10.2 2,382.6
-12,979.9
-15,362.5 (-644.7%)
2011-12
-3,096.1 11.1 -3,085.0
-18,755.5
-15,670.5 (-507.9%)
2012-13
-15,712.5 3.3
-15,715.7 -18,729.9 -3,014.1 (-19.2%) 2013-14
-109.9 3.3 -113.2
2014-15
-118.9 3.3 -122.2
2015-16
-244.4 3.3 -241.1
Capital AME 3 £m
Year Voted
Non-voted
Total AME Outturn Variance
2008-09 86,444.2 - 86,444.2 85,525.5 -918.7 (1.0%)
2009-10 49,047.4 - 49,047.4 41,480.7 -7,566.7 (-15.4%)
2010-11 3,311.9 - 3,311.9 -2,344.4 -5,656.3 (-170%)
2011-12 -3,105.8 - -3,105.8 -4,569.7 -1,463.9 (-47.1%) 2012-13 -2,286.9 - -2,286.9 -3,591.8 -1,304.9
(-36.3%)
2013-14 804.1 - 804.1
2014-15 351.2 - 351.2
2015-16 100.0 - 100.0
3AME forecasts beyond 2013-14 exclude UK financial stability related spending and
income due to commercial confidentiality.
The table below shows the balance of provisions in 2013-14 for the Group and their expected use.
£m Provisions for
liabilities and charges
Early departure
s
Equitable Life Payments Scheme
Financial stability
Other Total
Estimated balance at 1 April 2013
0.6 869.4 0 5.5 875.5
Provided in year
0 0.0 0 -0.3 -0.3
Provision expected to be used in year
-0.2 -370.0 0.0 0.0 -370.0
Estimated balance at 31 March 2014
0.4 499.4 0 5.2 505.5
Changes to contingent liabilities
The following changes have been made to the list of contingent liabilities included in the 2013-14 Main Estimate.
• The value of the liability for the UK Guarantees scheme has increased by £1,089m to £1,164m following the inclusion of further projects in the scheme.
• The liability for the provision of contingent capital to RBS has been removed. This follows the cancellation of HMTs
commitment which was agreed with the PRA.
• The text on the liability for the National Loan Guarantee Scheme (NLGS) has been amended to reflect the fact that the NLGS is not currently open for guarantees.
• A new liability to cover the Help to Buy mortgage guarantee scheme.
• The text on the liability for compensation to former
shareholders of Northern Rock plc has been updated to include details of the outcome of the Court of Appeal hearing on the Upper tribunal’s decision to uphold the valuer’s decision that no compensation was payable.
