Department for Work and Pensions Main Estimate 2013/14 Select Committee Memorandum. Table of Contents. Introduction 1-2. Overview of Estimate 3

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1 Department for Work and Pensions Main Estimate 2013/14 Select Committee Memorandum Table of Contents Section Paragraph Introduction 1-2 Overview of Estimate 3 Explanation of Estimate Funding 4-17 Comparison with 2012/13 Supplementary Estimate Provisions and Contingent Liabilities 25 Approval of Memorandum 26 Summary of Changes in Estimate Departmental Expenditure Limit Dual Key Funding Explanation of key terms used in the Memorandum Annex A Annex B Annex C Annex D - 1 -

2 Introduction 1. The purpose of this Memorandum is to provide the Select Committee with additional information in respect of the Department s Main Estimate for 2013/14. The Memorandum includes information on variances from the 2012/13 Supplementary Estimate to the 2013/14 Main Estimate, Departmental budgets and control totals. Annex A provides a summary of all funding sources so that the Committee can readily see the source and movements in funding by Estimate Section. 2. An explanation of key terms used in the Memorandum is provided at Annex D. Overview of Estimate 3. The Estimate shows both voted and non-voted provision. Within the Main Estimate: Total Departmental Expenditure Limit funding is 8,128.4m (Resource 7,756.7m and Capital 371.7m). Further details are provided at paragraphs 4 to 8 and Annex B. Total Annually Managed Expenditure funding is 163,784.0m (Resource 163,737.8m and Capital 46.2m). Further details are provided at paragraphs 9 to 15. Total voted Non Budget funding is 2,403.4m relating to the grant from the Consolidated Fund to the Social Fund. The resulting voted net cash requirement is 80,852.3m. Further details are provided at paragraphs 16 and 17. Explanation of Estimate Funding Departmental Expenditure Limit 4. The Departmental Expenditure Limit is based on the Department s 2010 Spending Review settlement, adjusted for funding transactions in subsequent Estimates. Transactions impacting Departmental Expenditure Limit are summarised below and at Annex B. A summary of Departmental Expenditure Limit outturn for 2010/11 and 2011/12 compared to funding for 2012/13 to 2013/14 is also provided at Annex B. Funding Transfers to Other Government Departments 5. The Departmental Expenditure Limit has been adjusted for transfers of funds: Community Care Grants and Crisis Loans previously funded from the Social Fund ceased from 31 March Local Welfare Provision has been provided by Local Authorities since 1st April Departmental Expenditure Limit funding has been transferred to the devolved administrations of Scotland ( 28.8m) and Wales ( 12.4m). The Department will pay grants to English Local Authorities during the current Spending Review. Overall, Departmental Expenditure Limit funding increases by 137.0m. The Estimate includes equivalent reductions in Annually Managed Expenditure spend (paragraph 10)

3 Armed Forces Independence Payments are introduced from 8 April The benefit provides financial support to members of the Armed Forces who have been seriously injured as a result of their service, covering the extra costs they may have due to their injuries. The Department is returning Departmental Expenditure Limit funding ( 0.2m) to HM Treasury to offset an equal increase in Annually Managed Expenditure. Early Intervention Foundation was launched on 4 March The Department for Education is the lead sponsor with the Department for Communities and Local Government, Department of Health and the Department for Work and Pensions contributing funding. Early intervention is a preventative approach to support children in achieving their full potential, reducing costs to the state of later educational failure and offering a wide range of associated benefits in participation, employment, productivity, behaviour, health, social cohesion and social mobility. The Early Intervention Foundation will champion and support the move to greater use of early intervention approaches. The Estimate includes a transfer of 1.0m to the Department for Education. Budget 2013 Funding Impacts 6. The Budget 2013 announced that departmental resource budgets will be reduced by a further one per cent in 2013/14 and 2014/15 to fund investment elsewhere. This reduced the department's funding by 75.5m in 2013/14. Shared Service Centre 7. The Main Estimate also reflects increased income and expenditure resulting from new arrangements for the Department s Shared Service Centre. Following the publication of the Next Generation Shared Services Strategy in December 2012, the Department s Shared Service Centre was identified as a founding member of a second Independent Shared Service Centre. As a first step, accountability for the current Shared Service Centre has transferred to the Cabinet Office, with the Department adopting a role as a supplier of services to the Cabinet Office. Staff will remain Employees of the Department for Work and Pensions. Formal frameworks have been put in place to assure the services exchanged between the Department and the Shared Service Centre, and services in both directions will be subject to a commercial regime. Dual Key Funding 8. Dual Key funding is included in the Main Estimate within the Unallocated Provision section ( 1,217.9m Resource Departmental Expenditure Limit and 248.7m Capital Departmental Expenditure Limit). The Main Estimate does not include any draw down of dual key funding. Funding draw downs will be included at the Supplementary Estimate with approval from HM Treasury. Further detail of the Dual Key funding is provided at Annex C. Annually Managed Expenditure 9. Annually Managed Expenditure included within the Main Estimate is consistent with the forecasts used by the Office for Budget Responsibility to inform the Budget 2013, and approved by HM Treasury. The forecasts take account of latest actual expenditure and current economic assumptions

4 Social Fund 10. Non-Voted Annually Managed Expenditure funding for Community Care Grants and Crisis Loans is reduced to 6.0m with 178.2m transferring to Resource Departmental Expenditure Limit. The residual 6.0m will fund final awards arising in early 2013/14. The application of funds to support Local Welfare Provision is covered at paragraph 5 above. Council Tax Benefit 11. The Main Estimate reflects the cessation of Council Tax Benefit. From April 2013 Council Tax Benefit will be replaced by local Council Tax support which will be administered by Local Authorities and will not be accounted for by the Department for Work and Pensions. Funds have been transferred to the Department for Communities and Local Government as a Machinery of Government transfer. Universal Credit 12. The Main Estimate includes funding for Universal Credit introduced in the Welfare Reform Act. Universal Credit is a single means-tested benefit for working age households that replaces a range of existing means-tested support, including Income Support; income based Jobseeker s Allowance; and income related Employment and Support Allowance. Universal Credit will also encompass support for housing costs for low income families currently provided through Housing Benefit and Support for Mortgage Interest, and provide support for those in work on low earnings currently provided by tax credits. 13. As a result of changes in benefit calculation, Universal Credit will restructure the pattern of entitlements. Combined with increased take-up and the impact of greater simplicity, Universal Credit has an overall forecast steady state net cost to the Exchequer of around 0.1bn. This does not allow for the potential benefits from the dynamic impacts intended by the policy. 14. For 2013/14, changes in entitlement rules and increased take-up, result in forecast spend of 72.4m on Universal Credit running costs, this which will be offset by reductions in processing Jobseeker s Allowance awards, Job Grant, Return to Work Credit and In Work Credit. This is not a full year steady state cost, it reflects the anticipated cost of processing and maintaining the limited volume of Universal Credit Claims expected in 2013/14 within our existing roll out plans. Personal Independence Payments 15. Personal Independence Payments replace Disability Living Allowance. Following the introduction of Personal Independence Payments expenditure for disabled people in the age group is expected to significantly reduce compared to existing forecasts for Disability Living Allowance. The first Personal Independence Payments will be awarded during 2013/14. The funding included in the Main Estimate covers a controlled start that will run in one Disability Benefit Centre covering claims in North West and North East England, plus national New Claims from June 2013 and reassessment of existing Disability Living Allowance cases where current awards expire from October

5 Net Cash Requirement 16. The voted Net Cash Requirement included within the Main Estimate is 80,852.3m. This is in accordance with the approved Departmental Expenditure Limit and Annually Managed Expenditure budgets, adjusted for non-cash items and forecast working capital movements. 17. The tables below show the net cash requirement outturn for 2010/11 and 2011/12 compared to the current provisions for 2012/13 to 2013/ / / / /14 m m m m Outturn Outturn Provision Provision Net Cash Requirement 77, , , ,852.3 Comparison with the 2012/13 Supplementary Estimate 18. To give additional context to the 2013/14 Main Estimate, the Department has provided a comparison with the resource funds drawn down in the 2012/13 Supplementary Estimate in Annex A. Departmental Expenditure Limit 19. There has been an increase in the Departmental Expenditure Limit of 178.6m (2.2%) in the Main Estimate 2013/14 compared to the Supplementary Estimate 2012/13. The table below shows a summary of the main variations. Paragraph m Supplementary Estimate 2012/13 7, Universal Credit Welfare Reform Other investment Other reductions in non-baseline (205.5) 5 Local welfare provision Autumn Statement 2011 (30.4) 22 Autumn Statement 2012 (77.4) 6 Budget 2013 (75.5) 22 Other reductions in baseline (322.0) Overall Departmental Expenditure Limit increase Main Estimate 2013/14 8, Dual key funding to support Universal Credit, Welfare Reform and other investment increases from 2012/13 to 2013/14. Amounts included in the Supplementary Estimate reflected the draw downs agreed with HM Treasury, whereas amounts included in the Main Estimate are still subject to agreement. In the Supplementary Estimate 332.7m of dual key funding was not drawn down. Additional information on dual key funding included in the Main Estimate is provided at Annex C

6 21. Other reductions in the non-baseline funding are primarily due to changes in funding between 2012/13 and 2013/14 agreed as part of the SR10 Settlement. The settlement provided additional non-ring fenced funding in each year to cover the cost of higher (than baseline) volumes of activity. The additional volumes were forecast to fall year on year, hence the agreed funding also reduces. 22. As part of the Spending Review 2010 Settlement the Department was required to deliver real-term savings of 26% against its baseline expenditure over the Spending Review period. The Department underwent a significant organisational transformation in 2011/12, enabling significant savings to be delivered. For 2013/14 the continued reduction in baseline costs equates to a decrease of 429.8m, in line with the original Settlement and subsequent Autumn Statement announcements. 23. Annex A provides a comparison of funding between the Supplementary Estimate 2012/13 and the Main Estimate 2013/14 by section. Reasons for significant variances ( 50m / 10%) are: The Supplementary Estimate included the draw down of 649.3m dual key funds. In the Main Estimate funding is still held as Unallocated Provision. This gives rise to variances on the Sections: Operational Delivery ( 100.6m); Employment Programmes ( 85.0m); Support for Local Authorities ( 74.8m); and Departmental Operating Costs ( 388.8m). Other reductions in funding for Operational Delivery are primarily a result of reductions in baseline funding being delivered through operational efficiency (see paragraph 22). The funding impact of foreign exchange rate movements impacting the European Social Fund section are only included at the Supplementary Estimate stage. The remaining increase in funding for Support for Local Authorities is due to arrangements to pay grants to Local Authorities in England to support local welfare provision (see paragraph 5). Funding from the National Insurance Fund for delivery of Social Security Benefits reduces as a reflection of efficiencies and cost savings in delivery of the benefits. Annually Managed Expenditure 24. Annually Managed Expenditure has decreased from the 2012/13 Supplementary Estimate by 3,095.8m (1.9%). Significant variations are: Employment and Support Allowance has increased by 2,953.6m (Non- Contributory 2,119.9m and Contributory 833.7m). The increase is mainly driven by the continuing migration of Incapacity benefit cases to Employment and Support Allowance. The 2,332.0m decrease in Incapacity Benefit funding is due to cases migrating to Employment and Support Allowance

7 Income Support has decreased by 2,097.6m due to the migration of incapacity cases to Employment and Support Allowance; the impact of the Lone Parent Obligations Policy; and migration of child amounts to Child Tax Credit. The Main Estimate includes funding to cover a 185.3m increase in the provision requirement for the Financial Assistance Scheme from the 2012/13 year-end provision. The increase in year-end provision included in the 2013/14 Main Estimate represents the latest forecast growth in the provision as new member schemes are added during the year. The Supplementary Estimate included 4,874.4m funding for Council Tax Benefits which is not included in the 2013/14 Main Estimate funding (see paragraph 11). The decrease in funding for the Social Fund ( 283.8m) is primarily due to the transfer of Community Care Grants and Crisis Loans to Local Welfare Provision (see paragraph 10). In addition, the Supplementary Estimate included funding to protect against fluctuations in forecasts for Cold Weather Payments. At the Supplementary Estimate we will assess whether additional funding is required for Cold Weather Payments in 2013/14. Provisions and Contingent Liabilities 25. The forecast increase in the Financial Assistance Scheme provision is covered at paragraph 24 above). The Main Estimate reflects the Department s latest assessment of contingent liabilities. Approval of Memorandum 26. The Memorandum has been prepared with reference to the guidance in the Estimates Manual provided by HM Treasury and that found on the House of Commons Scrutiny Unit website. The information in this memorandum has been approved by the Departmental Accounting Officer

8 Summary of Changes in Estimate Annex A Budgetary Limit Supplementary Estimate 2012/13 1. Figures as presented may not sum, as a result of rounding to millions. Movement Main Estimate 2013/14 m m m Resource Departmental Expenditure Limit 7, ,756.7 Voted 6, ,145.3 Non-Voted (94.5) Administration 1, ,276.8 Capital Departmental Expenditure Limit (54.8) Voted (54.8) Non-Voted Total Departmental Expenditure Limit 7, ,128.4 Resource Annually Managed Expenditure 166,794.7 (3,056.9) 163,737.8 Voted 76,926.1 (4,606.1) 72,320.1 Non-Voted 89, , ,417.7 Capital Annually Managed Expenditure 85.1 (38.8) 46.2 Voted Non-Voted 85.1 (38.8) 46.2 Total Annually Managed Expenditure 166,879.8 (3,095.8) 163,784.0 Voted Non-Budget 2,798.5 (395.1) 2,

9 Summary of Funding Variations by Section Resource Only Section Reference Section Description Supplementary Estimate 2012/13 Main Estimate 2013/14 Movement m m m % Spending in Departmental Expenditure Limits Voted expenditure 6, , A Operational Delivery 2, ,123.3 (470.4) (18.1) B Child Maintenance Group Child Maintenance and Enforcement Commission (Net) (155.3) C Health and Safety Executive (Net) (8.7) (5.2) D Financial Assistance Scheme (16.9) (15.3) E European Social Fund (118.8) (95.3) F Executive Non-Departmental Public Bodies (Net) G Employment Programmes (139.4) (15.9) H Support for Local Authorities I Other Programmes (37.7) (53.9) J Departmental operating costs 1, ,284.3 (199.3) (13.4) K Unallocated provision 0.0 1, , Non-voted expenditure (94.5) (13.4) L National Insurance Fund (94.7) (13.4) M Consolidated Fund Extra Receipts (0.2) (100.0) Total Spending in Departmental Expenditure Limit 7, ,

10 Section Reference Section Description Supplementary Estimate 2012/13 Main Estimate 2013/14 Movement m m m % Spending in Annually Managed Expenditure Voted expenditure 76, ,320.1 (4,606.1) (6.0) N Severe Disablement Allowance (38.9) (4.3) O Industrial Injuries Benefits Scheme (7.0) (0.8) P Universal Credit Q Jobseekers Allowance 4, ,601.8 (58.5) (1.3) R Employment and Support Allowance 4, , , S Income Support 5, ,280.0 (2,097.6) (39.0) T Pension Credit 7, ,208.3 (352.3) (4.7) U Financial Assistance Scheme V TV Licences for the over 75s W Attendance Allowance 5, , W Personal Independence Payment Y Disability Living Allowance 13, , Z Carer's Allowance 1, , AA Housing Benefit 17, ,659.5 (121.7) (0.7) Council Tax Benefit 4, (4,874.4) - AB Rent Rebates 5, ,647.4 (123.7) (2.1) AC Statutory Sick Pay and Statutory Maternity Pay 2, ,441.8 (6.5) (0.3) AD Other Benefits (12.1) (2.8) AE Other Expenditure (15.2) (6.2) 9.1 (59.5) AF Other Expenditure ENDPBs (Net) (2.5) (100.0)

11 Section Reference Section Description Supplementary Estimate 2012/13 Main Estimate 2013/14 Movement m m m % Non-voted expenditure 89, , , AG Incapacity Benefit 3, (2,332.0) (71.4) AH Jobseekers Allowance (16.9) (2.5) AI Employment and Support Allowance 2, , AJ Maternity Allowance AK State Pension 80, , , AL Bereavement benefits (27.8) (4.6) AM Expenditure incurred by the Social Fund 2, ,378.6 (283.8) (10.7) AN Consolidated Fund Extra Receipts (0.1) (100.0) Total spending in Annually Managed Expenditure 166, ,737.8 (3,056.9) (1.8) Non-Budget spending Voted expenditure 2, ,403.4 (395.1) (14.1) AO Cash paid in to the Social Fund 2, ,403.4 (395.1) (14.1) Total Non-budget spending 2, ,403.4 (395.1) (14.1) Total for Estimate 177, ,897.9 (3,218.6) (1.8) 1. Section letters refer to individual sections within the Estimate to assist in cross-referencing. 2. Figures as presented may not sum, as a result of rounding to millions

12 Departmental Expenditure Limit Annex B Departmental Expenditure Limit 2010/11 to 2013/14 Limit Outturn Variance m m m Administration 2010/11 5,843 5, /12 1,426 1, /13 Supplementary Estimate 1, /14 Main Estimate 1,277 Resource 2010/11 9,007 8, /12 7,636 7, /13 Supplementary Estimate 7, /14 Main Estimate 7,757 Capital 2010/ / /13 Supplementary Estimate /14 Main Estimate /11 figures published in the Public Expenditure Outturn White Paper 2010/11 (Cm 8133) /12 figures published in the Department for Work and Pensions 2011/12 Annual Report and Accounts /13 figures published in the Supplementary Estimate 2012/13 (HC 576) 4. As part of the Comprehensive Spending Review 2010 it was agreed with HM Treasury that the Department would reclassify the costs of delivering front line services from Departmental Expenditure Limit Administration to Departmental Expenditure Limit Programme. 5. Figures as presented may not sum, as a result of rounding to millions. Detailed explanations of the variance between outturn and funding are provided in the Department s Annual Report and Accounts, which can be found at the following site:

13 Changes to Departmental Expenditure Limit following the Spending Review 2010 Paragraph Description Resource m Capital m Comprehensive Spending Review , ,952.0 Main Estimate 2011/12 Closing Position 7, ,951.4 Supplementary Estimate 2011/12 Closing Position 7, ,967.9 Main Estimate 2012/13 Closing Position 7, ,182.4 Supplementary Estimate 2012/13 Closing Position 7, , Return To HM Treasury Armed Forces Independence Payments (0.2) 0.0 (0.2) 5 Transfer to Department for Education Early Intervention (1.0) 0.0 (1.0) 5 Transfer from Annually Managed Expenditure Crisis Loans and Community Care Loans 5 Transfer to Scotland Crisis Loans and Community Care Loans (28.8) 0.0 (28.8) 5 Transfer to Wales Crisis Loans and Community Care Loans (12.4) 0.0 (12.4) 6 Budget % funding reduction (75.5) 0.0 (75.5) Main Estimate 2013/14 Closing Position 7, , Figures as presented may not sum, as a result of rounding to millions. Total m

14 Annex C Dual Key Funding The Department s funding includes the following ring fenced funds that are subject to dual key arrangements. 2012/ / /15 m m m Universal Credit Welfare Reform Pension Reform Recession Volumes Youth Contract Fraud and Error Total Dual Key Funds , , Figures as presented may not sum, as a result of rounding to millions 2012/13 shows the funds drawn down in the 2012/13 Supplementary Estimate. For remaining years funding is held as Unallocated Provision and will be drawn down in the Supplementary Estimate with HM Treasury approval. Universal Credit Funding covers delivery costs and additional costs associated with the payment itself. Drawdown is subject to the latest agreed policy parameters and delivery timetable. Welfare Reform Funding supports delivery of welfare reforms announced at the June Budget 2010 and Spending Review Drawdown is subject to HM Treasury approval of plans. Pension Reform Funding is provided to support the creation of a single tier State Pension. Drawdown is subject to HM Treasury agreement of the overall reform plan. Recession Volumes Funding enables employment programmes to absorb the additional volumes resulting from long-term unemployment. Draw down is subject to actual financial pressures on the programmes and latest evidence of their effectiveness in reducing benefits expenditure. Youth Contract The Autumn Statement 2011 provided 7.0m funding for Youth Contract to cover weekly signing due to higher volumes. Fraud and Error Budget 2012 announced additional funding to implement a strategy for tackling fraud and error in the benefit system. The final level of funding is still under review, but 176.8m (sum of the 3 years) represents the minimum level of funding

15 Annex D Explanation of key terms used in the Memorandum Departmental Expenditure Limit Spending within the Department s direct control and which can therefore be planned over an extended period, such as the costs of its own administration, payments to third parties e.g. within Employment Programmes, Housing Benefit administration subsidies to Local Authorities, and the European Social Fund. Annually Managed Expenditure In the Department for Work and Pensions, Annually Managed Expenditure is primarily demand led expenditure on social security and social assistance benefits. It is generally less predictable and controllable than expenditure in the Departmental Expenditure Limit. Annually Managed Expenditure does not fall within the Departmental Expenditure Limit. Unallocated Provision Unallocated Provision contains funding set aside by HM Treasury to be accessed by Departments when certain criteria have been met; as in the case of dual key funding where access is conditional on claimant volumes rising as anticipated. Voted Funds Parliament consents in principle to the use of public funds through legislation to enable specified policies. It approves use of public resources to carry out those policies year by year as defined by the specific Ambits of the Department by voting on the published Parliamentary Supply Estimates in the House of Commons. Non-Voted Funds Although such expenditure appears in the departmental Estimate it is not voted by Parliament but may nevertheless fall within the budget and/or accounts; and mainly relates to Contributory Benefits such as Contributory Retirement Pensions and Incapacity Benefit which are financed from the National Insurance Fund. Budget and Non-Budget Funds The terms Budget and Non-Budget apply to whether the funds impact the HM Treasury Budgetary Controls. Funds specified as Budget will impact HM Treasury controls whereas funds defined as Non-Budget will not impact HM Treasury controls

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