COMMITTEE FOR FINANCE AND PERSONNEL
OFFICIAL REPORT
(Hansard)
Outcome of June 2009 Monitoring Round and Provisional
Out-Turn 2008-09
7 July 2009
Members present for all or part of the proceedings:
Mr Mitchel McLaughlin (Chairperson)
Mr Peter Weir (Deputy Chairperson)
Dr Stephen Farry
Mr Simon Hamilton
Ms Jennifer McCann
Mr David McNarry
Mr Declan O’Loan
Ms Dawn Purvis
Witnesses:
Deborah McNeilly )
Paul Montgomery ) Department of Finance and Personnel
Leo O’Reilly )
The Chairperson (Mr McLaughlin):
We are here to discuss the June monitoring round and the provisional out-turn for 2008-09. We are joined by Leo O’Reilly, who is the permanent secretary at the Department of Finance and Personnel (DFP); Paul Montgomery of the central expenditure division in DFP’s central finance group; and Deborah McNeilly, who is the finance director in DFP.
I remind witnesses, Committee members and people in the public gallery that the meeting is being recorded by Hansard. Mobile phones must be turned off completely, because they interfere with the electronic recording equipment.
Earlier today, we had a plenary sitting on the June monitoring round. Therefore, in order to make economical use of our time, I suggest that we move directly to questions.
Mr O’Loan:
The Minister referred in his statement to £215 million that is being allocated to Departments as part of the June monitoring round as a consequence of decisions that the Executive took. No details are provided. During the debate, I wondered about what the Minister was talking. Can you clarify what those allocations are and when they were made?
Mr Paul Montgomery (Department of Finance and Personnel):
The allocations to which the Minister referred relate primarily to the shortfall in funding for the Department for Regional Development as a result of the decision to defer water charges into 2009-2010. There is additional funding as a result of the decision as part of the December monitoring round to freeze, in cash terms, regional rates. There is also additional funding for the integrated development fund and for shared services, as well as for the Northern Ireland Assembly.
Mr O’Loan:
I am not clear at all about what that means. Are you saying that a number of items adds up to that £215 million? Explain them to us again, please.
The Chairperson:
Previously, the Committee received a table that indicated how the money was to be broken down. However, I could be mistaken.
Mr Montgomery:
That table related to specific spending bids that Departments had submitted, while this relates to previous spending commitments. I can go through the exact figure work for each bid.
The Chairperson:
You can provide us with that breakdown?
Mr Montgomery:
Yes. The figure for the shortfall from deferred water charges is £174·5 million. The figure for frozen regional rates is £8 million. For proactive slippage from the December monitoring round, the figure is £1·8 million. For shared services, the figure is £15·2 million. The figure for the integrated development fund is £9·6 million. The figure for the Northern Ireland Assembly’s running costs is £6·1 million.
Mr O’Loan:
In what sense are those further allocations?
Mr Montgomery:
In the sense that, as a result of the allocations, money is being transferred to Departments. You will be aware from the strategic stocktake that, at that time, the Department for Regional Development bid for £179 million for the deferral of water charges. Therefore, that is simply the allocation of that money to that Department.
Mr O’Loan:
Are all those allocations outcomes of the strategic stocktake?
Mr Montgomery:
No. Some relate to decisions that were made in the December monitoring round. Others relate to decisions that were made in the Budget.
The Chairperson:
They are a continuation of the monitoring process, which identifies, for example, pressures that cannot be met in the immediate circumstances, but that will be scheduled —
Mr Montgomery:
For the in-year monitoring process.
Mr O’Loan:
That is OK, Chairman.
Dr Farry:
Welcome, lady and gentlemen. First, I want to return to the question that I tried to explore with the Minister in the Chamber on the Barnett consequentials that arise out of the UK Budget of April 2009. Can you clarify how much money was allocated to Northern Ireland for the current financial year? Has that money now been transferred? If so, where does it appear in the figures that were presented to the House earlier?
Mr Montgomery:
That money does not appear in the figures. It is being held centrally while a decision is taken on its potential to fund accelerated projects from 2010-11.
Dr Farry:
When you say that that money is being held centrally, do you mean that it is being held centrally in Northern Ireland?
Mr Montgomery:
Yes, although it has not been formally allocated to a specific Department.
Dr Farry:
By whom is it held? Who is controlling it?
Mr Hamilton:
Sammy.
Mr Weir:
It is all going towards wind farms.
Mr Leo O’Reilly (Department of Finance and Personnel):
It is not money in the bank but a Budget allocation. It is a figure that is available to us.
Mr Montgomery:
It is not in the DFP departmental budget. It is money held in central finance group that is free for allocation. The Executive have decided that it should be used for accelerated projects to offset the impact of the £122·8 million funding reduction that the Chancellor of the Exchequer decided to make.
Dr Farry:
Do any of those efficiency savings impact on the current financial year, or will their impact be entirely on 2010-11?
Mr Montgomery:
The impact will be entirely on 2010-11. The efficiency savings relate to Whitehall Departments, and we have the Barnett consequentials impact of those savings. However, they all relate to 2010-11.
Dr Farry:
Therefore, owing to the anticipated need to meet those efficiency savings in 2010-11, you are bringing spending forward into this year, and therefore upping the money to meet the efficiency savings in 2010-11. Was any consideration given to taking a different approach to using that money rather than simply to plug the gaps in the Budget?
Mr Montgomery:
The scale of the gaps, and the financial position that we are likely to face in 2010-11, meant that we felt that, rather than adding to the pressures, it would be better to try to ameliorate them as far as possible.
Dr Farry:
I appreciate that you may not be able to comment on this, but my difficulty, and I am sure that Declan would say the same, is that all this playing-around has been on the margins of the Budget rather than at a deeper, more searching level. No real consideration was given to investing that money along similar lines to the UK Government, or to trying to find efficiency savings elsewhere from within existing policies and programmes. It was simply a case of balancing the books, and that seems to be the Executive’s primary concern when it comes to the economy. That is the conclusion that I draw from the Executive’s approach.
Mr Montgomery:
That was an Executive policy decision.
Dr Farry:
Can you comment on the fact that there is a considerable volume of DFP bids in particular? At least £10 million of DFP bids are listed, and that is relative to a budget of around £190 million. What sort of conclusions should the Committee draw from the fact that, already in the financial year, the Department is making bids of that scale?
Mr O’Reilly:
As you can see from the form that DFP has submitted, the bids were mainly to maintain the estate and for some money for rating reform. However, more than half the sum that you mentioned relates to the maintenance of the Civil Service estate, and those pressures are arising for two reasons. First, there is a classification issue, which Deborah can explain, concerning cash and non-cash.
Secondly, the new approach that we are developing for the future development and maintenance of the estate, outwith the previous Workplace 2010 arrangement, will define new spending issues that we will need to address. Ideally, it might have been good to address some of those issues this year. However, if the money does not become available at some point this year, we will have to look to future years. Deborah, do you want to say more about the cash and non-cash issue?
Ms Deborah McNeilly (Department of Finance and Personnel):
We received previous capital allocations as part of standards maintenance assessment (SMA) strategies . However, we were unsuccessful at that time in getting the associated non-cash. That pressure in non-cash has now come to the fore, and we must look at how we finance that gap in the totality of the office estate budget. That is another reason that the pressure has arisen.
Dr Farry:
To what extent would you classify the bids as inescapables rather than optionals?
Ms McNeilly:
All the bids that the Department put forward were subject to scrutiny at departmental board level. From that perspective, they are required in order to continue the delivery of services. Some of the bids relate to contractual commitments, such as those with the Northern Ireland Statistics and Research Agency (NISRA) and the General Register Office for Northern Ireland (GRONI). Others relate to commitments to provide matched funding for EU projects. If we are not able to do that with those additional requirements, it is inevitable that we will have to consider what we can stop doing somewhere else. From that point of view, the bids are inescapable, in that there is no funding available at the moment to provide the required service.
Dr Farry:
There seems to have been a persistent pattern in the past number of monitoring rounds of similar DFP bids being made, which, by and large, are not met. That begs the question of whether the Budget was fundamentally wrong to begin with. There are clear issues of fundamental importance to the work of the Department if the provision of services cannot be met as a result.
Mr O’Reilly:
The budget profile for the Department of Finance and Personnel across the three-year Budget period shows that the real amounts of money that are available to the Department drop quite sharply. The Executive took that decision, which also reflects the cumulative 5% efficiency savings that each Department must deliver in its administrative costs. As the Committee will know, DFP’s budget comprises almost entirely administration costs, so we face a bigger challenge than other Departments. It is very challenging, and we must seek to live as best we can within the resources that the Executive have approved for the Department.
Dr Farry:
Deborah touched on the work on the Civil Service estate’s arising out of the shelving of Workplace 2010. If the work is necessary in 2009-2010, will that necessitate further bids being made along those lines in future quarters?
Ms McNeilly:
Yes. Potentially, we see a further need to revisit that, for example, in the September monitoring, and in future years.
Dr Farry:
Land and Property Services (LPS) has made a bid for £3 million to take forward the lone pensioners’ and disabled pensioners’ allowances. Will you be able to deliver on those policy commitments if the money is not there?
Ms McNeilly:
We have been liaising with LPS in order to address its financial position for the current year. LPS has looked intensely at the various strands of its business delivery. On the operational side, the delivery of rate relief, and so on, is paramount. LPS has looked closely at its other work streams with a view to possibly redirecting resources to other business areas. I cannot give a guarantee as to whether LPS will be able to continue to deliver the required level of service in the required timescale. The options that LPS have developed are under intense scrutiny and will be discussed further at our departmental board meeting in August.
Dr Farry:
I have two further questions on the out-turn figures. Having been critical of many aspects of the June monitoring round, it is worth noting the impressive level of spending relative to budgets across a number of Departments. The Office of the First Minister and deputy First Minister (OFMDFM) seems to be the dishonourable exception in that regard, which may be something that its Committee will explore in due course.
Given that the June monitoring round came relatively late, do we have the ability at this stage to compare our performance with the other UK regions? Have all regions been moving in unison in the direction of having tighter expenditure in response to the economic downturn?
I will raise my other point in a second.
Mr Montgomery:
The figures to which you refer will appear in the public expenditure 2008-09 out-turn White Paper, which the Treasury usually publishes in late July or early August. We do not have those figures at present.
Dr Farry:
OK. Given the tighter figures that are now being produced and that, it is to be hoped, will be the norm, does that fundamentally change the Department’s attitude to planned overcommitment as a way in which to approach Budgets?
Mr O’Reilly:
Yes; absolutely. It is the biggest lesson that has come out of all this. Much of our approach to overcommitment was based on the fact that we had high and unacceptable levels of underspending in the past. Now that we are in a different situation, we must review our approach and look carefully, as we move through the rest of the financial year, at the overcommitment position. As of this point in the year, we are £100 million less overcommitted, if I can put it that way, than we were at the same time last year. Therefore, that is action that we are already taking to cut back significantly on the level of overcommitment in the system owing to those changed figures.
Dr Farry:
Have Departments achieved those figures primarily as a response to the economic downturn? Is it a pressure of devolution, with politicians really pressing for delivery? Are systems working better? Is it a combination of all three?
Mr O’Reilly:
It is a combination of two of the reasons that you gave. First, there is a significant pressure on all Departments, which have been scrutinised on their out-turn positions by Committees and Ministers in the same way as DFP has been scrutinised. Speaking to colleagues over the past six months, I have found that that has been a major focus in every Department, including our own. The other key consideration is that, as resources become tighter in the system, the scope for Departments not to spend reduces accordingly.
Ms Purvis:
When the Committee was considering the Executive’s draft Budget, it raised concerns about financing the Civil Service reform programmes. We were told at the time that the intention was to allocate money from the 2008-09 monitoring rounds. Despite that, most departmental bids in 2008-09 were unsuccessful. The Minister said in September 2008 that improved LPS performance in rate collection, about which you spoke, Deborah, would fund the residual costs of the reform programmes.
In a previous briefing to the Committee, DFP bid in June for £15 million for various Civil Service reform projects and informed the Committee that if that money were not allocated, it would cause sever disruption. However, the bids that appear in table C, which is annexed to the Minister’s statement do not amount to £15 million. Why were all the bids not included in that list of bids?
Ms McNeilly:
The Minister’s statement referred to the pre-commitment. I believe that Paul spoke about some pre-commitment figures, with £15 million having been allocated to the Department as part of the pre-commitment at June monitoring. From a departmental perspective, therefore, we will have received the money necessary for the reforms, and that was outlined in a previous paper to the Committee as a shortfall.
Ms Purvis:
OK. Therefore, is the Department confident that it has received all the money that it needs to continue with the reform programmes?
Ms McNeilly:
Yes, for those and for shared services.
Ms Purvis:
Is a budget required for the individual reform programmes as opposed to the original business cases? How are the original business cases measuring up to the budget as it stands?
Ms McNeilly:
The Department recently checked with all the senior responsible officers (SROs) for each project, who confirmed that they are still within their approval tolerance for the business cases. Each business case is given a tolerance level over the lifetime of the project, and each SRO has confirmed that they are still within that tolerance. Each SRO was also issued with an indicative budget in January and February 2008. Although there has been some variance between projects, the variances have not been so significant as to set alarm bells ringing. From that point of view, therefore, I am content that the SROs are managing their budgets tightly.
Mr Weir:
Stephen helpfully asked some of the questions that I was going to ask.
Dr Farry:
Sorry.
Mr Weir:
That is all right. At this time of change, I suspect that this may be the last time that the permanent secretary will be before the Committee in this capacity. With the Chancellor hinting at or threatening additional efficiency savings for 2010-11, when is Westminster likely to provide more information in order to put more meat on the bones of that? Indeed, is that likely to happen in the run-up to an election?
Mr O’Reilly:
I do not think that we will get any more information on the efficiency savings. We refer to them as efficiency savings, but they are simply reductions in our Budget that are applied by Whitehall. They are different from the other efficiency savings that were in our Budget.
We may receive further information on how individual Whitehall Departments are addressing their particular issues, but, beyond that, the Treasury has simply been given the figure with which we will have to manage next year.
Mr Montgomery:
The £122·8 million is based on a breakdown: the Barnett formula applied to the specific amount for each individual Whitehall Department. We know that, but it does not inform us much, apart from our being able to tell our counterparts here that, for example, the Department of Health, Social Services and Public Safety has achieved a certain amount of savings — look at what it can do.
Mr Weir:
Efficiency savings seems to be the rare example of an irregular noun, in that I am seeking efficiency savings and you are imposing budgetary cuts or cuts to front-line services. Stephen has touched already on the financial management side, and we welcome the improvements. However, did any Departments breach the Executive’s public expenditure limits, and, in those circumstances, what was the evidence that there had been a breach?
Mr O’Reilly:
There are two angles to that, and Paul will talk about the follow-up action. There were particular circumstances behind those breaches last year, especially around the December economic package. There are two key areas: one is the Department for Regional Development, which had an unexpected in-year pressure because, as you may already know, the Treasury reclassified Northern Ireland Water as a public body, and that had an immediate hit on its budget that was totally outwith its control. That was primarily the reason that the difficulty arose in DRD, and it was largely outside the Department’s control.
A similar situation occurred with the farm nutrient management scheme in the Department of Agriculture and Rural Development (DARD). Again, issues arose around the timing of the funding. In December, the hope was that we would be able to find some extra money for DARD. However, in practice, that did not prove possible at the end of the financial year.
Mr Montgomery:
We have presented a position at departmental level on capital and current. We have gone through the detailed figures, and we have asked Departments to identify why each individual breach occurred. Departments may say that there was a breach and that they knew what was going to happen but that we did not give them any money to deal with the situation. We then ask what action Departments took to avoid the breach and what action they will take to avoid a breach in future. We are looking at those three angles. Our colleagues in Supply are working with Departments to try to collate information to produce a summary position to see what lessons can be learned at the centre.
Mr Weir:
Stephen has raised with you the idea of trying to work out where improvements have been made. He asked to what extent it was a question of improved processes and to what extent it was the pressures of the financial situation. Has the Pannell Kerr Foster (PKF) report on financial forecasting and monitoring, which was produced in 2007, been implemented fully?
Mr O’Reilly:
As you know, the report was circulated to all Departments. Indeed, we provided further assistance to Departments to follow up on the actions taken. However, it is an area of ongoing work for us. It is not finished, and we will have to continue to work with Departments, including our own, to ensure that we make further improvements in the quality of our financial forecasting. The underspend level is one key measure of performance here, but, beneath that, there are other measures of performance that we can use to give us the ability to target resources in particular areas.
Mr Weir:
On a related issue, previous indications showed that you had a target date of full implementation of Account NI by April 2009. What is the latest position on that?
Ms McNeilly:
The final wave — wave 5 — of Account NI went live yesterday.
Mr Weir:
Would it be fair to say that it is more or less implemented fully?
Ms McNeilly:
We will have to stabilise the new Departments that have gone on to wave 5; however, as I said, wave 5 went live yesterday.
Mr O’Reilly:
It is fully implemented in the sense that all Departments are now using the system as of yesterday. However, as Ms McNeilly said, there will be a period of stabilisation.
The Department is faced with a tricky situation of underspend. On the one hand, everyone wants to bring departmental underspend down to an absolute minimum, but, on the other hand, by doing so, an entire departmental expenditure limit ( DEL) could be exceeded. It is about trying to juggle those two balls in order to get it right.
Mr Weir:
Yes, I am aware of that. However, by the same token, the Department will want to minimise underspend, but not in such a way that there are large amounts of cash left at the end of the financial year. It is a question of striking a balance between the achievement of targets and not spending money foolishly.
Mr O’Loan:
I will comment first on overall financial management. Sometimes members of the Committee, including me, are critical of certain things that emerge from DFP. However, I must say that the overall financial management of the June monitoring round has been extremely good. For the Department to have come as close as it has to breaking even on underspend must be commended.
On the issue of capital realisation, the 2008 Budget set targets for the three years of the comprehensive spending review (CSR) of: £486 million for 2008-09; £266·5 million for 2009-2010; and £612·4 million for 2010-11. What realisations were made in the last financial year against the £486 million target? Furthermore, the figures of £266·5 million for this year and £612·4 million for next year are rather large; therefore, what are the Department’s expectations of meeting those targets, and what contingencies has it made to deal with the fall in capital receipts?
Mr O’Reilly:
I will deal with the first part of the member’s questions. As the member has correctly said the forecast receipts for 2008-09 were £486 million, which included £175 million that was anticipated from Workplace 2010, and the provisional out-turn shows that £185 million of capital receipts were realised in 2008-09. The shortfall was caused by the failure of Workplace 2010, the decline in land and house sales, which particularly affects the Department for Social Development (DSD), and an additional shortfall of £60 million in receipts from the Capital Realisation Task Force. However, notwithstanding that, the Department was still able to bring the net total capital spend close to the original forecast figures for 2008-09.
Moving forward, some Departments have indicated further shortfalls in receipts for the current financial year in the June monitoring round.
Mr O’Loan:
How did the Department manage to achieve the original forecast figures for 2008-09 when the capital receipts fell so significantly short of target?
Mr Montgomery:
The Department managed to achieve it through a mixture of unallocated end-year flexibility (EYF), resource-to-capital switching and additional borrowed allocations.
Mr O’Loan:
OK. Go on.
Mr Montgomery:
In 2009-2010, the target for capital receipts is significantly lower at £266·5 million. Furthermore, less of that target relates to asset sales and the exposure is much less than in 2008-09. Moreover, the Department has also accommodated the asset sales from the Central Realisation Task Force as part of the June monitoring round. That was not an allocation but a pressure that the Department addressed.
A large proportion of the £266.5 million target for 2009-2010 relates to social housing, and the Minister for Social Development has identified a £67 million shortfall, but she is the only Minister to have identified a shortfall in that area for 2009-2010. That shortfall was, in part, addressed through the £20 million allocation made to DSD in the June monitoring round, but that Department has also taken proactive action to reduce part of that pressure by reducing the unit cost of social housing. That proactive departmental action and the £20 million allocation, DFP has taken large steps towards addressing that shortfall.
Mr O’Loan:
You said that less of the capital realisation in 2008-09 was targeted as coming from asset sales. From what other sources do capital receipts come?
Mr Montgomery:
Capital receipts can be obtained from a large number of sources, including capital grants or loan repayments from companies. The capital receipts that are specified are not all down to asset sales but can be obtained for other purposes.
Mr McNarry:
Previously, the Committee was informed that, for the period from 2008 to 2011, the Departments forecast £363 million, £128 million and £475 million from the disposal of assets, specifically from plant receipts at an aggregated level. Will you supply to the Committee the individual departmental assets that relate to those figures? What were the figures at the end of March, and has any change occurred since?
Mr Montgomery:
We do not hold that level of detail on individual asset disposals. We hold only the information at aggregate level by Department.
Mr McNarry:
I am told that you do not routinely identify the individual assets, which means that you do so sometimes. I take your point that detailed identification is a matter for the individual Department. Therefore, I merely ask that, although you do not routinely identify those figures, could you go out of your way to do so? Is it difficult for you to obtain the figures for individual departmental assets?
Mr Montgomery:
You used the word “routinely”, but I do not recognise that quotation.
Mr McNarry:
It appears in a paper that your Department presented to the Committee. If you wish, I will read it to you.
Mr O’Reilly:
On occasions, if there are substantial asset disposals, a receipt will become known to us simply because it is large and specific. For example, during today’s plenary sitting, members heard about the Royal Exchange project. However, as Paul said, a degree of fine detail is involved.
The Chairperson:
What detail is recorded in the central assets register? It seems strange that we cannot drill down to that fairly basic level of information. Our queries are predictable and reflect the public interest.
Mr Montgomery:
The central assets register has not been developed.
The Chairperson:
It was supposed to have been developed.
Mr Montgomery:
Yes, that is true. When the register has been developed, that level of detail will be available. However, as far as our management of public expenditure is concerned, we deal at a more aggregated level.
Mr McNarry:
Thank you for that defence, but I am simply asking a reasonable question. A document dated 28 April from your Department states:
“This Department does not routinely identify the individual assets which underpin this total.”
I accept that, but, if you do not “routinely” identify the individual assets, the suggestion is that you do so sometimes. To be able to put together the figures, someone must do it.
Mr O’Reilly:
As I have explained, I suspect that “routinely”, in that instance, refers to large assets of which we are aware and with which certain risks or issues are associated. We take the information that Departments give to us. If a Department forecasts a particular level of receipts, that is built into its budget figure work. Departments must either deliver the forecast level of receipts or adjust their level of expenditure accordingly.
Mr McNarry:
That is the point that I am trying to get at: the original figures for that period were £363 million, £128 million and £475 million, which amounts to quite a few pounds. I simply want to know what the situation was in March — surely to goodness someone would have known then — and had any major change occurred by June?
Mr O’Reilly:
Those totals were disaggregated by Department in the Budget figure work, and Paul has stated that one Department —
Mr McNarry:
Is it difficult for you to find that information for me?
Mr Montgomery:
We can provide the figures at departmental level. However, it depends on the level of detail that you want. For example, do you want details on every single asset?
Mr McNarry:
I asked whether you could supply to the Committee the individual departmental assets. Someone started off with a ballpark figure, no? I want to know whether your starting point reflected the situation at the end of March and whether there was any change by the end of June. That is all that I want to know, and I would have thought that it was a simple request, but it may not be.
Mr O’Reilly:
We rely on Departments to provide us with the original figure. Subsequently, we rely on them to provide updated figures, as required, and one Department did so during the June monitoring round. So far this year, the other Departments have maintained their published levels of forecast receipts.
Mr McNarry:
Ministers stand up in the House and deal with questions. Therefore, I would expect the Minister of Finance and Personnel to be in a position to answer that question, because he should have the necessary information. Is it the case that he does not have that information, and that the Committee should write to each individual Department to ask for it?
Mr O’Reilly:
The Minister of Finance and Personnel does not have the information and detail for each individual Department. It is for each Minister to answer questions about the position of the forecast receipts in his or her Department.
Mr McNarry:
I would have thought that the Minister of Finance and Personnel would be required to have that information, if only to answer a question such as that which I have just posed to you. It is clear that you do not have the information.
Mr O’Reilly:
There is a boundary between our responsibility and the departmental responsibility.
Mr McNarry:
You do not do it routinely, so has your Department given us misinformation?
Mr O’Reilly:
Absolutely not.
Mr McNarry:
Do you do it routinely or not?
Mr O’Reilly:
What you have in front of you is each Department’s individual forecast receipts for the current financial year.
Mr McNarry:
No; I am talking about the statement that the Department does not routinely identify changes. That suggests that you identify those sometimes, because you need to know that information.
Mr O’Reilly:
As I have explained to you, we take particular interest in cases in which Departments have forecast receipts that are associated with large or risky areas and in which there is a question mark about whether the receipt will be realised.
Mr McNarry:
Therefore, you are unable to help me at this moment in time.
Mr O’Reilly:
I can provide you with all the information on receipts that the Department holds.
Mr McNarry:
Do you mean the information for individual Departments?
Mr O’Reilly:
Yes, for individual Departments. However, as I have stressed, those —
The Chairperson:
The provision of further detail may need to be pursued with the individual Minister or Department.
Mr O’Reilly:
Yes, the individual positions can be found from each Department.
Mr McNarry:
It might be helpful if we were given the information that the Department holds, because we may be able to identify what is missing.
Mr O’Reilly:
We can identify the breakdown; Departments’ indications of shortfalls against the receipts in the current year; and any issues or problems concerning receipts in Departments. That is the information that we hold, and we can provide that to the Committee.
Mr McNarry:
That would be helpful. I have three sets of figures with millions and millions of pounds that relate to asset disposals. I am trying to get my head around where we are with that information. That figure was identified in 2008, but what is the figure now? What is it likely to be? I need to see a pattern of where we are going.
Mr O’Reilly:
The current figure is the figure that was contained in the published Budget figure work, unless a Department has notified us of a change. For example, DSD notified us of its estimate that its receipts for this year will fall around £66 million short of what is published in the Budget figure work.
Mr McNarry:
It is relevant for us to know what assets are held, at what value they were taken and what the realisable asset value is now. I would be grateful if you would help us much as you can on that.
Mr Hamilton:
By now, I am almost contractually obliged to ask a question on housing. That will be a source of great relief to Declan and Fra, who will be relieved of that duty. A capital allocation of £20 million was made to the Department for Social Development for grants. The Minister of Finance Personnel stated earlier today that that would be matched by the Minister for Social Development’s reallocating from her own maintenance budget. Will that allocation be matched in its entirety? Where will that be found in the DSD budget?
Mr Montgomery:
The difficulty that we had was that, in order to address the shortfall in the capital budget, items of expenditure were reclassified, in accounting terms, as current expenditure. The budget cover would normally be transferred from capital to current, but that was not done because of the pressures in the Department for Social Development’s capital budget. The £20 million capital allocation is for social renovation, but that means that the money then frees up the current expenditure budget. Therefore, there is a benefit in both.
The allocation was made on the basis that the money would be made available to the Egan contractors. This year, there was a 10·6% increase in the social housing maintenance budget, so we feel that there is scope for the Minister for Social Development to reallocate the current expenditure budget in order to address that pressure.
Mr Hamilton:
Is the reallocation also for £20 million?
Mr Montgomery:
Yes.
Mr Hamilton:
On a different subject altogether, we are coming out of this monitoring round with £70 million of overcommitment on capital. Earlier, you said that this year’s £17 million capital overspend was because of expected problems that arose throughout the year. Therefore, is it fair to conclude that addressing the £17 million overspend on capital last year is no more difficult or problematic than addressing the £70 million of overcommitment?
Mr Montgomery:
We are facing similar difficulties. However, as Leo said, this year’s £70·4 million of overcommitment compares with £128·5 million last year, so we are already managing that down. Although the levels of reduced requirements last year were lower than in previous years, reduced requirements of £80 million were declared in September 2008, December 2008 and February 2009. We feel that that will be sufficient to address that. In the event that it is not, we can easily switch from resource to capital in accordance with the Treasury rules, not the other way around. However, if there is a pressure, as we did last year, we will be able to switch money from resource to capital. In that way, it is better to have the overcommitment in capital, although we would much rather have it the other way around.
Ms J McCann:
When you appeared before the Committee last November, you mentioned the ongoing negotiations with the British Treasury over end-year flexibility. The Departments failed to spend £358 million, which went back to the Treasury. The Minister said that he would update the Committee on how those negotiations have progressed since November.
During the Minister’s statement today, he spoke about the funding for the integrated development fund projects that were previously committed to. A number of those projects has been waiting for quite a while to hear what was happening with the monitoring round. Do you have a breakdown of what projects secured funding and how much they secured?
Mr O’Reilly:
Paul will answer the second question. On the first question, the Committee knows that the entire previous stock of EYF was allocated to the Executive at the time of the 2008 Budget. Since then, we have accumulated EYF at the end of 2007-08 and 2008-09. We have not yet secured access to those resources from the Treasury. It is a continuing engagement, but we do not expect an imminent decision from the Treasury to release that additional funding to us. In fact, that debate and discussion could continue for at least several months.
Ms J McCann:
Therefore, there is no update on that?
Mr O’Reilly:
I am afraid that the only update is that there has been no further progress in the discussions with the Treasury.
The Chairperson:
Is that the normal timeline, or is it because of exceptional circumstances?
Mr O’Reilly:
No, as I said, in the previous Budget at the end of the CSR period, the end-year flexibility that we were allocated was an accumulated figure from three years previous. Unfortunately, the Treasury tends not to release money back to Departments too quickly.
The Chairperson:
They do not rush it.
Mr O’Reilly:
That is correct.
Mr Montgomery:
I shall summarise the allocations for the integrated development fund projects, and we will send you further details later. The main allocations are: £2·9 million for the education initiative in west Belfast and the greater Shankill area; £2·2 million for the Centre of Excellence in Intelligent Systems in the north-west; £1·7 million for the Churches’ tourism projects, also in the north-west; and £2·6 million for urban regeneration projects for the Department for Social Development. We will provide the Committee with more details on those projects.
Mr McNarry:
In November 2008, when giving evidence to the Committee, departmental officials talked about the Treasury making access to an additional £100 million available to meet pressures in 2009-2010. I know that it is a hardy annual, but can you confirm whether that money is additional? Furthermore, will you outline the key pressures in 2009-2010 for which additional money will be required? Finally, will you give us details of the reserves that are available to the Executive to meet those pressures?
Mr O’Reilly:
As Mr McNarry said, this matter has come up a few times, which is understandable given that it was the subject of an announcement that came after discussions with the Prime Minister. As I explained to the Committee before, the arrangement that has been agreed with the Treasury provides the Executive with access of up to £100 million of resources. As Committee members know, that would involve bringing forward capital spends from future years and, if necessary, reclassifying it as current spend as well as being able to borrow additional resources. Adding those component parts together, we arrive at “access to £100 million”. That is the arrangement that was reached.
As we said, that money may be used to address a range of potential pressures —
Mr McNarry:
Is it being treated as additional money?
Mr O’Reilly:
I am attempting to describe it precisely: it is giving “access to”. For example, if a large proportion of —
Mr McNarry:
Is it access to something that the Department does not have?
Mr O’Reilly:
It means access to something to which we do not have access at the moment; for example, being able to borrow extra money. I do not want to sell it as simply being “additional”, because it could be said that it is not really additional; rather, it is simply taking out a loan.
Mr McNarry:
A number of things could be said about it, which is why I am trying to categorise it. Do you have a preference for the way that you categorise it?
Mr O’Reilly:
I prefer to describe it “access to” additional resources.
Mr McNarry:
Therefore, it is access that you did not have previously. It is access to that sum of money if you find that there is a need. The end result is that it will be borrowed.
Mr O’Reilly:
Yes, if the money were to be accessed, it would result in borrowing.
Mr McNarry:
Yes, if it were to be accessed.
Mr O’Reilly:
Yes, and that brings me to the second part of your question about what pressures that money could be used to address. As I said, a number of potential pressures exist, including the equal pay issue, which may be coming down the line. The judgement of the current and previous Ministers of Finance and Personnel is that we must keep that facility in reserve because of the possibility that the equal pay issue could materialise at relatively short notice and cost a relatively large amount of money. Therefore, we feel that it would be prudent and sensible to have that access facility available to address such a major pressure immediately.
The final issue that you asked about was —
Mr McNarry:
Are there any other pressures? I do not want to get into too much detail about the Civil Service equal pay issue, because I will return to it in a minute. Are there are any other pressures on the Department?
Mr O’Reilly:
The equal pay pressure is the biggest that we anticipate. As the bids show, a number of potential pressures —
Mr McNarry:
How much of the £100 million will the Department want to access to settle the equal pay issue? Will it be 100%, 60% or 50 %?
Mr O’Reilly:
That depends on the cost of the equal pay settlement. If it is relatively large, we may need to access the full amount. However, we may want to ascertain whether any other potential ways exist to meet that pressure when it materialises.
Mr McNarry:
That is useful. Is there a time limit in which to access the money?
Mr O’Reilly:
No.
Mr McNarry:
Is access to the money conditional?
Mr Montgomery:
Access to the money is restricted to 2008-09 or 2009-2010.
Mr McNarry:
If the money is not accessed in that time, will it be lost?
Mr Montgomery:
If the money is not required in 2009-2010, we will negotiate for it to be carried over.
Mr McNarry:
Is the fact that the Department’s notional sum — and I can put it no stronger than that — of what may be required to settle the equal pay issue preventing it from accessing some of the £100 million for other purposes? Are you trying to keep your options fully open?
Mr O’Reilly:
The equal pay settlement is a significant consideration. To put it bluntly, we are reluctant to use the money for other purposes, given the potential pressure of that settlement.
Mr McNarry:
If the equal pay settlement is £100 million or more, has the Department made provision for access to an additional sum of money?
Mr O’Reilly:
Not at the moment.
Mr McNarry:
Would you contemplate making such a provision?
Mr O’Reilly:
We do not have such provision at present. If the equal pay settlement was substantially more than £100 million, our first port of call would probably be the Treasury. However, that would be a decision for the Minister of Finance and Personnel.
Mr McNarry:
Is it fair to say that the Department would borrow the money that is necessary to settle the equal pay issue?
Mr O’Reilly:
If we used that facility, borrowing would be involved.
Mr McNarry:
I understand what you are saying, but it appears that no other facility is open to the Department. If the £100 million existed somewhere else, surely you would tell us about it.
Mr O’Reilly:
No other facility exists at present. When the decision is made in x months, the wider public expenditure position will inevitably have moved as it always does over the course of a year.
Mr McNarry:
I am sure that you are as mindful as everyone else that public opinion on the equal pay issue is that it should be settled as soon as possible. Is the condition of not having to spend the money by 2009-2010 allowing you to stretch the process out?
Mr O’Reilly:
We are certainly not consciously stretching the process out. As was said at previous Committee meetings, it is everyone’s wish, and most certainly the Department’s, that the issue is resolved sooner rather than later. Paul Montgomery highlighted the time limit for using the facility, and that condition places additional pressure on us to seek a solution to the equal pay issue.
The Chairperson:
It is now a legal requirement to resolve the matter, which is why we are engaged in this discussion. There is no opportunity to opt out.
Mr O’Reilly:
We have to meet our equal pay obligations.
The Chairperson:
I am making the point that that is a legal requirement.
Mr McNarry:
I do not want to make political points, but having to borrow money to settle legal obligations means that the sooner it is done the better. I am grateful for —
Mr O’Reilly:
I am trying to respond carefully in order not to say anything that could mislead.
Mr McNarry:
I am grateful for that, because hardly a day goes by in which MLAs — I am sure that I am the same as most Members — do not receive some contact, which sometimes comes in waves, from people who are concerned about the matter and are seeking an answer from us. It is important that we do our best to answer correctly and that we do not mislead anybody. Therefore, I am grateful for what you have said.
What about the reserves?
Mr O’Reilly:
As I said, no specific sum has been set aside. Generally, we do not hold reserves.
Mr McNarry:
I simply meant reserves in general.
Mr O’Reilly:
We allocate all available resources.
Mr McNarry:
OK.
Mr O’Reilly:
In fact, as you know, we over-allocate —
Mr McNarry:
Yes, I understand that. We will not go down that road.
The Budget for 2008-2011 included annual limits for admin spend for DFP of £141 million, £135 million and £132 million respectively. The reclassification of spend from other resource to admin was a common feature in DFP submissions in last year’s monitoring rounds and it continued in June 2009. What is the significance of the admin limits that are set in the Executive’s Budget? What was DFP’s admin spend last year against the limit of £141 million?
Ms McNeilly:
The need for reclassification has arisen in DFP for a variety of reasons. As Committee members know, we are trying —
Mr McNarry:
I understand all that. I have heard it being explained before, very eloquently, Deborah. What was the spend last year?
Mr Montgomery:
Do you mean spend at the total level? That is how it is measured.
Mr McNarry:
In simple terms, we understand that the Department had a limit of £141 million last year for admin spend. Further limits of £135 million and £132 million respectively take us up to 2011. If you do not have the answer to my question now, you can write to us.
Mr O’Reilly:
Sorry, we do have it. I am trying to find that particular figure in the paperwork.
Ms McNeilly:
We had a total underspend of £0·6 million of our admin budget. That was the total level of underspend against the February plan on which the out-turn is measured.
Mr McNarry:
I have learnt not to argue with Deborah, so I will not do it again. I accept Deborah’s figure of £0·6 million.
Given that last year’s spend was nearly at the limit of £141 million, how are you going to decrease that to the £135 million and £132 million limits, which is quite a jump downwards? What are you going to do that takes spend down to those lower limits? Given that the Department was so close to last year’s limit, it will be difficult to have a chance of making the lower limits, especially when things are so tight. Are you confident that you can do it?
Mr Montgomery:
It is not a matter of achieving the figure in the budget, because one reason for in-year monitoring is to review the budget plans. Therefore, the figure that is in the budget is not necessarily the final planned position against which provisional out-turn is measured. The Executive agree changes, and, in the June monitoring round, they agreed an increase of the admin budget for DFP. That was agreed in the context of the admin budget position for the Executive as a whole, ensuring that we remain within the overall total for admin spend.
Mr O’Reilly:
Although, as Dr Farry said, there is still a residual pressure on DFP to manage within its numbers.
Mr McNarry:
A good example is being set. However, I am concerned about how the Department will meet the other targets. You are telling me that they are not targets, yet I have information that suggests that they are. Are you telling me that the figure of £135 million has been revised?
Mr Montgomery:
Yes.
Mr McNarry:
Up or down?
Mr Montgomery:
The figure has been increased to include shared services. It is now £150 million.
Mr O’Reilly:
Paul is referring to additional money to include shared services, which Ms Purvis referred to earlier. That is additional money that is being allocated specifically in —
Mr McNarry:
Let us go like for like.
Mr O’Reilly:
Like for like, there is still a pressure.
Ms McNeilly:
The Department requested some reclassifications as part of June monitoring, but was unsuccessful in achieving them. They have to be looked at in the context of the overall control totals from HM Treasury. Therefore, we have to again try to get them reclassified during the September monitoring round. One problem is that the money that is transferred to us for shared services comes through the wrong category of budget, and we are trying to cleanse it into the correct category. That is why the Department made significant requests for reclassification.
Mr McNarry:
Is that a trend that might be typical between now and 2011? Do you think that other Departments may look at that variance and think that that is the way to do it?
Ms McNeilly:
The Department receives a large portion of the money. Money is transferred from the other Departments that have it only in other resources. If we get that, we cannot spend it, so we have to have it reclassified into admin spend. Our access to be able to do that is dependent on the headroom in the Northern Ireland block level. If we are granted access and are able to reclassify it to admin spend, the overall control total in the Northern Ireland block level is the key percentage that is reported back to the Treasury.
Mr Montgomery:
The money transferred for shared services is slightly different in that there was a pre-commitment, therefore, the Executive have already agreed to it. That is why that additional admin budget allocation was made, while the other reclassifications, to which Deborah referred, were rejected because of the position at the overall Executive level.
Mr McNarry:
That is enough information to be going on with. Thank you.
The Chairperson:
I thank our visitors, who, as usual have been very helpful. Leo, I did not think that this meeting would be your final appearance before the Committee, but thank you for your help over the term. I wish you all the best.