Department for Education Supplementary Estimate 2016-17 Memorandum to the Education Select Committee February 2017
Department for Education Supplementary Estimate 2016-17 Select Committee Memorandum Table of Contents Page Introduction and Summary... 2 Key Activities Supported by the Above Provision... 3 Explanation of Estimate Funding... 4 Structural Changes to the Estimate... 6 Significant Changes to Programmes and those with Increased Remit... 7 Annually Managed Expenditure... 13 Net Cash Requirement... 15 Departmental Control Total... 16 Provisions and Liabilities... 17 Contingent Liabilities... 18 Departmental Accounting Officer... 19 Annex A Detailed breakdown... 20 Annex B Control Totals... 22 Annex C Budgetary limits: outturn and plans 2012-13 to 2020-21... 24 Annex D Analysis of Schools Capital Budgets... 25 Annex E Breakdown of Schools budgets and expected spending per pupil... 29 Annex F Explanation of key terms used in the Memorandum... 30
Introduction and Summary 1. The purpose of this memorandum is to provide the Education Select Committee with additional information about the Department for Education s (DfE s)supplementary Estimate for 2016-17. The memorandum includes information on the department s key priorities, as well as outlining the latest departmental budget control totals, and the impact of the new sector account on the voted budgets. 2. The Supplementary Estimate budgets (and comparison to 2016-17 Main Estimate equivalent budgets) are summarised in the table below. Table 1 Estimate Control Totals 2016-17 Budget Main Estimate Supp Estimate Increase / 2016-17₁ 2016-17 (Decrease) m m m Departmental Expenditure Limit A. Resource - Parliamentary control 54,282.1 74,232.7 19,950.6 Of which ring-fenced: 15.3 14,128.5 14,113.2 Adult Further Education - 100.0 100.0 Higher Education - 13,977.0 13,977.0 Depreciation 15.3 51.5 36.2 B. Capital Parliamentary control 5,264.0 5,975.8 711.8 C. Total Departmental Expenditure Limit (Line A +B) 59,546.1 80,208.5 20,662.3 Annually Managed Expenditure D. Resource 10.0 (1,208.5) (1,218.5) Of which ring-fenced: Depreciation and impairment - (1,452.0) (1,452.0) E. Capital - 14,630.6 14,630.6 F Total Annually Managed Expenditure (Line D+E) 10.0 13,422.1 13,412.1 G. Total Managed Expenditure (LineC+F) 59,556.1 93,630.7 34,074.6 Of which ring-fenced: 15.3 12,676.5 12,661.2 Adult Further Education - 100.0 100.0 Higher Education - 13,977.0 13,977.0 Depreciation and Impairment 15.3 (1,401) (1,415.8) Resource Budget Adjustments₂ H Grants paid to Academies (Resource) (15,527.5) (16,792.2) (1,264.6) I Grants paid to Academies (Capital) (610.6) (610.6) 0.0 J Academies Resource DEL 17,027.5 17,833.2 805.6 Of which ring-fenced: Depreciation and impairment 1,500.0 1,301 (199.0) K Academies Capital DEL 610.6 1,040.6 430.0 L Academies AME 1,246.0 1,794.0 548.0 M Total Resource DEL budget (A+H+J) 55,782.1 75,273.7 18,686.0 N Total Capital DEL Budget (B+I+K) 5,264.0 6,405.8 1,141.8 O Total AME Budget (F+L) 1,256.0 15,216.1 13,960.1 P Total Managed Expenditure 62,302.1 96,895.7 33,787.9 Q. Net Cash Requirement 59,530.8 77,570.1 18,039.3 ₁The Main Estimates budgets do not include the budgets for the functions that transferred from the former Department for Business, Innovation and Skills ₂ The adjustments to resource budgets relate to the underlying academies net expenditure that are not part of the Parliamentary spending control totals. 2
3. The 93.6 billion total managed expenditure included in the Parliamentary controls in the Resource Estimate cover the direct costs of the department, its agencies and arm s length bodies (ALBs), including grants paid to academies and student loan financing. The main reason for the increase in budgets this year the Machinery of Government change (MoG), which transferred responsibility for Higher Education, Further Education and the Apprenticeships programme from the former Department for Business Innovation and Skills (BIS), announced in July 2016. This increased total managed expenditure by 21.8 billion. See paragraphs 12-22 for more information on the changes to the control totals. 4. The total budget excludes the net expenditure by the academy sector, which from 2016-17 is no longer part of the DfE s consolidation group. Although the academies underlying net outturn is not part of the DfE Parliamentary controls, HM Treasury require the department to set a Resource Budget covering the academy sector s net expenditure for the Spending Review period. The Resource Budget is calculated by deducting the grants paid to academies, which are included in the Estimate and adding in forecast expenditure by the academy sector. 5. The detailed control total changes are listed in Annex B. In addition to the high-level summary in Table 1, comparative information on the Departmental Expenditure Limit (DEL) budgets from 2012-13 to 2019-20 is set out in Annex C. 6. The majority of the 5.9 billion Capital DEL (CDEL) budget is managed by the Education Funding Agency (EFA) to provide funding for capital projects in existing schools, and to finance new school buildings. The CDEL budget has also been increased mainly as a result of the MoG change. 7. More information on the changes to capital budgets, and how they are financed, is provided on page11. 8. The Annually Managed Expenditure (AME) budget comprises movements in provisions held by the department and, following the MOG changes, providing for the future cost of student loans. As a result, the 10 million Resource AME (RAME) budget in the Main Estimates has decreased to a negative 1.2 billion non-cash budget after adding the movements in the student loan stock In addition, a net budget for Capital AME (CAME) to finance student loans and loan repayments totalling 14.6 billion has transferred from the former BIS Estimate. 9. The 1.2 billion RAME budget does not include the non-cash AME budgets for academies, which are now reported as part of the non-voted resource budgets. More information on the AME budgets is contained in Table 6. Key Activities Supported by the Above Provision 10. Following the MoG changes, the DfE s strategy is being updated to incorporate its new responsibilities in post-16 education and apprenticeships. 11. A high-quality education system creates benefits for the individual receiving the education, their parents, their communities and for society as a whole, and in particular should support social mobility. In light of the recent MoG changes, the Single Departmental Plan, published on gov.uk, which details how we will achieve our goals and how we will be measured against them, will be updated to reflect the department s new responsibilities. 3
Explanation of Estimate Funding Departmental Expenditure Limit 12. DEL includes expenditure by the department, its agencies, and ALBs on pay, purchase of goods and services, current grants, capital expenditure on grants, loans and assets, and noncash costs including depreciation and impairments. 13. The limits are based on the department s Spending Review 2015 settlement, which has been adjusted for funding announced by HM Treasury at subsequent fiscal events, the MOG change and other transfers to and from other government departments. The agreed changes to our control totals for 2016-17 to 2019-20 since Spending Review 2015 are listed in Table 8. 14. The three separate DEL control totals are: Resource DEL Parliamentary Control administration: 525 million; Resource DEL Parliamentary Control programme: 73,708 million; and Capital DEL Parliamentary Control: 5,976 million. 4
15. The 74.2 billion DfE Resource DEL (RDEL) budget is based on the 54.3 billion Main Estimate budget with the following changes applied: a net increase of 9.4 billion for the transfer of administration and programme budgets for Higher Education, Further Education and Apprenticeships functions from the former BIS announced as a MOG change in July 2016; a net increase of 11.0 billion to the estimated future non-cash costs of student loans as a result of applying the latest economic and interest rate forecasts; a decrease of 170 million following a switch from RDEL non-ringfenced budgets to CDEL to contribute to the expected increase in capital expenditure by the academy sector; a decrease of 70 million which will be used in 2017-18 RDEL following HM Treasury s agreement to Budget Exchange; a decrease of 213 million for forecast underspends in non ring-fenced budgets which the department has returned to the Exchequer; and a net decrease of 10 million for other transfers to/from other government departments. 16. The increase in budgets since the Main Estimates are the result of; 368 million for capital expenditure on higher education and further education programmes transferred from the former BIS; 339 million increase in budgets as a result of a change in the budgeting treatment of PFI contracts managed by Aggregator Vehicle plc; and a transfer from the Department for Business, Energy and Industrial Strategy (BEIS) for energy projects in schools, which has increased the capital budget by 5.6 million. Annually Managed Expenditure 17. AME budgets cover expenditure that is demand led or exceptionally volatile, which makes it difficult for departments to control. Our AME budgets are all classified as programme budgets in the Estimate. AME budgets are not part of the Spending Review settlement: they are agreed annually with HM Treasury. 18. The total 13.4 billion AME budget comprises non-cash costs related to the creation and release of provisions covering the department, its agencies, and ALBs. This year the most significant budgets relate to student loans. The limits are: Resource AME Parliamentary control ( 1,208.5 million); and Capital AME Parliamentary control - 14,630.6 million 5
19. In addition to the RAME voted in the Estimate, the Resource Budget includes an additional 1.8 billion RAME covering impairment costs, movements in the Local Government Pensions Scheme (LGPS) and other non-cash costs for the academy sector. 20. More information on AME budgets is provided in Table 6. Structural Changes to the Estimate 21. The Estimate structure is based on the programme activities of the directorates within the department, with each Executive Agency having its own budget line. During the year the Estimate structure has been updated to reflect: the transfer of activities relating to Higher Education, Further Education and Apprenticeships from the former BIS; and the addition of the new ALB, Located Property Ltd which became operational this year. Located s remit is to act as a property holding company, procuring and developing suitable sites for free schools. 22. As a result we have inserted new sections: Section C Schools Infrastructure and Funding of Education (ALB) (Net) which contains the budget for Located Property Ltd; Section L Higher Education for the DEL non-cash costs relating to student loans and other associated expenditure; Section M Further Education for the DEL programme budgets related to further education, skills and associated expenditure; Section N Skills Funding Agency (SFA) for the administration and programme DEL budgets of the Executive Agency that transferred under the MOG changes; Section O Higher Education (ALB) (Net) which includes the administration and programme DEL budgets for Higher Education Funding Council for England (HEFCE), the Student Loans company (SLC) and the Office for Fair Access (OFFA); Section P Further Education (ALB) (Net) which includes the administration and programme budgets for UK Commission for Employment and Skills (UKCES); Section S Higher Education AME which includes the AME costs of student loans, including the capital budgets for their issue and repayment; Section T Further Education AME which includes the issue and repayment of student loans for students in further education; Section U Skills Funding Agency AME which includes the non-cash budgets for the take-up and release of the SFA s provisions; Section V Higher Education (ALB) AME for the non-cash budgets for the take-up and release of HEFCE s and SLC s provisions; and 6
Section W Further Education (ALB) AME for the administration and programme budgets for the Construction Industry Training Board (CITB) and the Engineering Construction Industry Training Board (ECITB). 23. Table 3 has a full list of the transfers to/from other departments including the impact of the MOG change. 24. Because of these changes, the ambit has been updated to reflect the functions that transferred from BEIS. Significant Changes to Programmes and those with Increased Remit Departmental Expenditure Limit Resource DEL Administration Costs - 524.9 million 25. The administration cost control total includes the department, its agencies, and its other ALBs. The main departmental administration budgets are in Section A, with the administration budgets for the agencies and ALB s shown separately in Sections C,F, G, H, I,N, O and P. 26. Table 2a below compares the 2016-17 administration cost budgets in the Main Estimates to the Supplementary Estimate by section. The original Main Estimate administration budgets totalled 335 million. As result of the MoG changes, administration cost budgets have increased by 194 million, which with other minor changes, makes a total of 525 million. The Main Estimate budgets in Table 2a below have been restated to reflect the transferred MoG budgets to show the like-for-like change. Table 2a Changes to administration budgets Section Description 2016-17 Main Estimate - Restated₁ 2016-17 Supp Estimate Increase / (Decrease) 000 000 000 27. The overall net increase in the administration cost limit is under 1 million, and is the result of the cash management rebate allocated by HM Treasury. Other than the new budgets that transferred under the MOG, the only other significant change is the new budget for the administration costs of the new ALB, Located Property Ltd. % Change A Activities to support all functions 275,608.0 274,245.0 (1,363.0) (0.5) C School Infrastructure and Funding of Education (ALB) (Net) 0.0 2,240.0 2,240.0 100.0 F Children's Services and Departmental Strategy ALBs 16,259.0 16,859.4 600.4 3.7 G Standards and Testing Agency (STA) 3,730.0 3,959.8 229.8 6.2 H National College for Teaching and Leadership (NCTL) 13,569.0 13,004.6 (564.4) (4.2) I Education Funding Agency (EFA) 64,038.0 63,845.9 (192.1) (0.3) N Skills Funding Agency 75,331.0 75,331.0 - - O Higher Education (ALB) (net) 70,978.0 70,976.7 - - P Further Education (ALB) (net) 4,498.0 4,498.0 - - TOTAL Administration cost control total 524,011.0 524,960.5 950.7 0.18 7
28. Further information on administration control totals in past and future years is available in Annex C. Resource DEL Programme Costs 73,707.7 million 29. The DfE s programme DEL allocation in the Main Estimate was 53,981 million to support all the department s priorities. A key factor in the 19.7 billion increase in the RDEL budget is the 9.2 billion which transferred from the former BIS to finance the Higher Education, Further Education and the Apprenticeship programme. These increases have been added to the Main Estimate totals below to show the like-for-like in-year increases to all programme RDEL budgets. The other changes to the RDEL programme budgets totalling a net 10.5 billion are: a non-cash increase of 11,001 million from a Reserve Claim relating to student loans so that budgets reflect the impact of the latest macro-economic forecasts on the student loan book; a reduction of 70 million to Budget Exchange RDEL into 2017-18; a reduction of 170 million to switch RDEL underspends to CDEL to finance academies capital in the HM Treasury Resource Budget limit; a reduction of 213 million for forecast surplus budget which has been returned to the Exchequer; and a reduction of 10 million which has been transferred to other government departments. 30. More information about the MoG changes and other transfers to/from government departments is shown in Table 3. 31. The following paragraphs provide further detailed information on the more significant movements at Section level i.e. those Estimate sections that have changed by more than 10%. The sections with significant changes are shown in Table 2b. Table 2b Significant changes to programme budgets Section B Description School Infrastructure and Funding of Education (Department) 2016-17 Main Estimate 2016-17 Supp Estimate Increase / (Decrease) 000 000 000 % Change 185,520 578,985 393,465 212.1% D Education Standards, Curriculum and Qualifications 333,568 5,232,945 4,899,377 1468.8% G Standards and Testing Agency 57,955 51,147-6,808-11.7% I Education Funding Agency 5,833,760 34,292-5,799,468-99.4% L Higher Education 4,740,201 15,582,666 10,842,465 228.7% 32. The main switches between Sections B, D and I are the result of a change in budget accountability across the department. During the year budget responsibility for some of the EFA s RDEL programmes transferred from the EFA to policy directorates in the department to align financial and policy making responsibilities. The EFA has been authorised by the relevant Directors General in DfE to manage expenditure against certain budgets within agreed 8
parameters on their behalf, e.g. authority to make payments and administer grants. Capital budgets are not affected by this change. This does not affect the amount of funding to schools etc., simply where the budget sits within the department. The following paragraphs provide more detail on the changes in the sections listed in Table 2b. School Infrastructure and Funding of Education 33. The 393 million increase in the Section B budgets is mainly due to the transfer of 348 million from Post 16 High Needs and Free schools post-opening start-up costs from Section I EFA. The remaining 45 million is the result of additional budget allocation to the Regional Growth Fund and for University Technical Colleges (UTCs). Education Standards, curriculum and qualifications 34. The Section D budget for expenditure by the Education Standards Directorate is increasing by 4.9 billion due to the transfer of budget responsibility for apprenticeships and 16-19 education programme budgets from the EFA. Standards and Testing Agency (STA) 35. The 6.8 million reduction in STA s programmes is mainly due to a cost reduction in the contract for external marking of test scripts, and lower than anticipated costs of Year 7 resits and reception baseline assessments. Education Funding Agency (EFA) 36. The 5.8 billion decrease in EFA budgets is mainly the result of the transfer of budget responsibility to other directorates. Listed below are the budgets transferred to other directorates, plus other budget adjustments: 4,906 million decrease as a result of the transfer of apprenticeships and 16-19 education to Education Standards Directorate in Section D 348 million decrease following the transfer of High Needs and Free School postopening costs to Infrastructure and Funding Directorate in Section B 357 million decrease as part of the change in accountabilities which resulted in a budget transfer from EFA to the school grants paid to local authorities in Section J 79 million transfer from the academy sector in Section K as a result of the change in accountabilities and other budget reallocations the remaining 267 million decrease in budgets is the net result of an in-year planning exercise to reallocate budgets according to need across 16-19 budgets. Higher Education 37. Student loan impairments are highly sensitive to changes in macroeconomic determinants. As in previous years, it has been necessary to make a Reserve Claim as part of the Supplementary Estimate to reflect the possible impact of macro-economic factors on the student loan book. The Reserve Claim increased the non-cash Section budget by 11,001 million. In addition to this, we have returned surplus cash of 158 million. This surplus arose primarily as a result of fewer than expected students in receipt of maintenance loans than were forecast at the time of the Spending Review. 9
38. See Annex A for details of all the section budgets, including comparatives to the budgets in the 2016-17 Main Estimate. Transfers of Functions to and from Other Government Departments (OGDs) 39. We frequently transfer budgets to, and receive transfers from, other departments. The transfers can be the result of budgets for functions transferring to the department, such as this year s major MOG change, or to transfer funding for joint programmes. 40. The net impact of the changes is to increase departmental programme budgets by 9,213 million. Table 3 lists the individual changes. Table 3 Transfers (to)/from other departments - RDEL DEL AME Section Other Department Reason for transfer Admin Programme Capital Resource Capital 000 000 000 000 000 Section A: Activities to Support all Functions 38,205.0 17,390.0 2,500.0 - - Section L: Higher Education - 4,740,201.0 13,607.1 - - Section M: Further Education - 241,074.0 115,956.0 - - Section N: Skills Funding Agency 75,331.0 2,642,422.0 63,567.0 - - Section O: Higher Education (ALB) (net) 70,976.7 1,577,789.0 171,533.0 - - Dept for Business, Energy and Section P: Further Education (ALB) (net) Machinery of Government Change 4,498.0 5,669.0 60.0 - - Investment Strategy Section S: Higher Education AME - - - (1,445,311.2) 13,204,000.0 Section T: Further Education AME - - - 260,000.0 Section U: Skills Funding Agency AME - - - 1,500.0 - Section V: Higher Education (ALB) AME (NET) - - - (17,237.1) (2,985.1) Section W: Further Education (ALB) (net) AME - - - 9,071.0 3,600.0 Sub-total: Machinery of Government change 189,010.7 9,224,545.0 367,223.1 (1,451,977.3) 13,464,614.9 Section A: Activities to Support all Functions HM Treasury Cash management rebate 948.0 - - - Dept for Business, Energy and BEIS contribution to the Salix loans Section I: Education Funding Agency 5,593.0 Investment Strategy energy efficiency project in schools - - - Additional funding PF2 priority schools Section J: Grants to local authority schools via EFA HM Treasury 89.0 - - building programme Sub-total: Budget Cover Transfers in from other departments 948.0 89.00 5,593.0 - - Section L: Higher Education HM Treasury Transfer of budget for Master Service function Department for Communities and DfE contribution towards funding to City Section M: Further Education (10,300.0) Local Government Deals - - - - Funding for the Functional Skills Reform Section M: Further Education Ofqual (144.0) Programme - - - - Section N: Skills Funding Agency Home Office Additional ESOL for Syrian Refugees - (1,000.0) - - - Section P: Further Education (ALB) (net) Department for Work and Pensions Sub-total: Budget Cover Transfers out to other departments Refund of unspent funding for Competition 3 of the futures programme - (474.0) (70.0) - - - - (11,988.0) - - - TOTAL BUDGET TRANSFERRED (TO) / FROM OGDs 189,958.7 9,212,646.0 372,816.1 (1,451,977.3) 13,464,614.9 10
Capital DEL 41. The department s 5,975 million CDEL budget is spent predominantly on: ensuring sufficient school places by enabling Local Authorities to discharge their duties; maintaining the school estate; the Priority Schools Building Programmes, which replace and refurbish schools in the worst condition; and the Free Schools programme which facilitates educational reform. The budgets by Estimate section are summarised in Table 4. Table 4 Capital DEL summary Section Title 2016-17 Main Estimate - Restated₁ Supp Estimate 2016-17 Increase / (Decrease) ( 000s) ( 000s) ( 000s) Section A: Activities to support all functions 52,500.0 41,100.0 (11,400.0) (22) Section B: School Infrastructure and Funding of Education 2,000.0 2,000.0 - - Section C: School Infrastructure and Funding of Education (ALB) - 339,000.0 339,000.0 100 Section F: Children's Services, Equality and Communication (ALB) (Net) - 480.0 480.0 100 Section I: Education Funding Agency 1,222,593.3 1,204,405.3 (18,188.0) (1) Section J: Grants to Local Authority Schools via EFA 3,378,796.1 3,444,927.8 66,131.7 2 Section K: Grants to Academies via EFA 610,610.6 610,609.6-1.00 - Section L: Higher Education 13,607.1 13,607.1 - - Section M: Further Education 115,956.0 77,016.0 (38,940.0) (34) Section N: Skills Funding Agency 63,567.0 50,077.0 (13,490.0) (21) Section O: Higher Education (ALB) (net) 171,533.0 192,533.0 21,000.0 12 Section P: Further Education (ALB) (net) 60.0 60.0 - - PARLIAMETARY CONTROL TOTAL 5,631,223.1 5,975,815.8 344,592.7 6 Adjustment to Resource Budget Deduct cash grants to academy sector (610,610.6) (610,609.6) 1.00 - Add forecast expenditure by academy sector 610,610.6 1,040,609.6 429,999.0 70 RESOURCE BUDGET CONTROL TOTAL 5,631,223.1 6,405,815.8 774,592.7 14 % Section A Activities to support all functions 42. The 11.4 million decrease in capital expenditure on departmental assets is due to additional income from the sale of properties ( 1.4m), and a decrease in the costs associated with refurbishing Old Admiralty Building ( 10 million) in the current year. Section C School Infrastructure and Funding of Education (ALB) 43. The capital costs in the Section relate to Aggregator Vehicle Ltd. At the time of the Spending Review the department expected the costs related to Aggregator Vehicle Ltd to be budget neutral. In 2016-17 the expected budgeting treatment changed, and consequently HMT agreed to 339m additional CDEL cover. It has no effect on the cash-flows or the actual cost of the schools projects/contracts, merely a change in the way DfE budgets for these projects. Section F Children's Services, Equality and Communication (ALB) (Net) 44. We have allocated 480,000 to the Equality and Human Rights Commission (EHRC) from corporate capital budgets in Section A to fund EHRC capital projects. 11
Section I Education Funding Agency 45. The 18 million net decrease in EFA s CDEL expenditure is due to a re-prioritisation of budgets resulting in a transfer from Section I to Section J, offset by an increase for the 5.6m budget transfer from BEIS as their contribution towards the Salix energy efficiency projects in schools Section M Further Education 46. The 38.9m decrease in FE capital budgets is due to lower forecasts for Exceptional Financial Support loan uptake and slower than expected expenditure on Institutes of Technology. Savings in FE capital budgets have been reallocated to other capital programmes. Section N Skills Funding Agency (SFA) 47. The 13.5m decease in the SFA capital budget is due to lower uptake of Professional and Career Development Loans and slower than expected expenditure on National Colleges. Savings in SFA capital budgets have been reallocated to other capital programmes. Section O Higher Education ALB 48. Following a mid-year review, an additional 21 million was allocated to Student Loans Company. 49. Annex D contains a detailed breakdown of the Capital budgets by programme, and the changes since last year. 12
Annually Managed Expenditure 50. In the Main Estimate, the 10 million AME budget related to the net movement in departmental provisions, including the creation of new provisions for future costs arising from this year s activities. As a result of the transfer of Higher and Further Education budgets, the Parliamentary control total in the Supplementary Estimate now includes both Resource and Capital AME budgets. In addition to the non-cash movement in provisions for the department and its ALBs, RAME budgets now include the effective interest on student loans. The CAME relates to student loan outlay and repayments to the student loan book. 51. In addition to the budgets in the Estimate, the department s resource budget limit includes the non-cash academy budgets. 52. The key elements of the budgets are set out in Table 6 below: Table 6 AME Budgets Section Reference 2016-17 Main Estimate - Supp Estimate 2016-17 Increase / (Decrease) % Restated₁ Resource Capital Resource Capital Resource Capital Resource Capital ( 000s) ( 000s) ( 000s) ( 000s) ( 000s) ( 000s) Section Q: Activities to support all functions 10,000.0-24,374.0-14,374.0-144 - Section R: Executive Agencies (exc. SFA) - - (1,874.0) - (1,874.0) - - - Section S: Higher Education AME (1,445,311.2) 13,204,000.0 (1,223,505.2) 14,370,000.0 221,806.0 1,166,000.0 (15) 9 Section T: Further Education AME 260,000.0 260,000.0 Section U: Skills Funding Agency AME 1,500.0-689.0 - - 811 - - 54 - Section V: Higher Education (ALB) AME (NET) (17,237.1) (2,985.1) (17,237.1) (2,985.1) - - - - Section W: Further Education (ALB) (net) AME 9,071.0 3,600.0 9,074.0 3,600.0 3-0 - Total AME Parliamentary Control Total (1,441,977.3) 13,464,614.9 (1,208,479.4) 14,630,614.9 233,498.0 1,166,000.0 (16) 9 Academies related budgets: including movement in Local Government Pension Scheme and impairments 1,246,000.0-1,794,000.0-548,000.0-44 - Resource Budget AME Control Total (195,977.3) 13,464,614.9 585,520.6 14,630,614.9 781,498.0 1,166,000.0 (399) 9 ₁ The 2016-17 Main Estimate budgets have been restated to show the budgets that transferred in from former BIS 53. The voted AME budget is used by the department as follows: Section Q is for the movement in departmental provisions including early departure costs, property provisions etc. Section R is for the movement in Executive Agency provisions. This does not include SFA which has its own AME budget line. Section S includes the resource and capital costs related to movements on the student loan books. Student loans are demand-led budgets and are highly sensitive to changes in macroeconomic determinants. As in previous years, these budgets have been updated in the Supplementary Estimate to reflect the latest forecast information. These budgets include: - Negative Resource costs of 1,224 million which includes the movement in effective interest on student loans. The 221 million decrease reflects the possible impact of movements in RPI between the Main Estimate and the end of the year as well as possible movements in impairment before the end of the year; and 13
- Capital costs of 14,370 million which are the budgets for the loans issued to students and the repayments of loans. The 1,166 million increase reflects contingency required in the event of an increase in student loan outlay in the final quarter of the year. Section T includes the costs related to loans issued to Advanced Learner Loans in the Further Education sector; Section U is the budget for the movement in SFA s provisions; Section V is the budget for the movement in HEFCE s and SLC s provisions, and; Section W is the budget for the movement in CITB s and ECITB s resource and capital provisions 54. More information on the included provisions is included at paragraphs 60-67. 55. The Main Estimate non-cash budgets for the academy sector were based on the 2015-16 budgets. The department carries out an annual exercise to collect updated budget forecast data from academies. As a result, we have made the following changes to the academy sector AME budgets which have increased the total by 548 million; 244.1 million increase in the estimated movement in the Local Government Pension Scheme pension liability to 1,174 million; 351.8 million increase in the estimated cost of revaluing assets in line with departmental policies when an academy /free school opens or converts to 581.7 million; 50 million reduction in the depreciation on donated assets to 20 million; and the remaining 2.1m relates to movements in provisions. 14
Net Cash Requirement 56. The Net Cash Requirement sets a limit on the amount of cash needed to fund the department s activities. 57. Table 7 details the reconciliation between the net Resource and Capital total and the Net Cash Requirement. The major difference between Resource and Cash limits is that Net Cash Requirement limit includes grant in aid, cash payments from provisions, but excludes non-cash expenditure (e.g. depreciation, ALBs resource expenditure, notional audit fee, etc). Table 7 Net Resource to Net Cash reconciliation Main Estimate 2016-17 Supp Estimate 2016-17 Increase / (Decrease) 000 000 000 Net Resource 54,292,104 73,024,232 18,732,128 Net Capital 5,264,000 20,606,431 15,342,431 59,556,104 93,630,663 34,074,559 Departmental depreciation and impairments (15,276) (14,357,586) (14,342,310) New provisions and adjustment to existing provision (eg discount rate change) (58,221) (99,728) (41,507) Use of provisions 48,221 67,882 19,661 Other non-cash items (1,425,501) (1,425,501) Remove ALB voted resource and capital budgets (23,739) (2,208,995) (2,185,256) Add cash grant in aid paid to ALBs 23,738 1,913,346 1,889,608 Movement in debtors/creditors - 50,000 50,000 Net resource to cash adjustments (25,277) (16,060,581) (16,035,304) Net Cash Requirement 59,530,827 77,570,081 18,039,254 58. The 18,039 million increase in the net cash requirement is largely the cash consequences of the 21,793 million MOG transfer from the former-bis. The student loan budgets contain large non-cash budgets for impairment and effective interest, which have been deducted from the total budget in the cash requirement calculation. 15
Departmental Control Total 59. Table 8 shows how the department s voted Parliamentary control totals have changed since the Spending Review 2015. A more detailed breakdown of the 2016-17 in-year changes is provided at Annex B. Table 8 Changes to Parliamentary control totals Control Total 2016-17 2017-18 2018-19 2019-20 2020-21 000s 000s 000s 000s 000s DEL Admin Resource SR 2015 323,333 320,783 303,183 293,933 - Main Estimate 2016-17 changes 11,669 9,385 8,482 6,349 - Supp Estimate 16-17 Changes 189,959 187,800 185,300 181,000 Total DEL Admin Resource 524,961 517,968 496,965 481,282 - DEL Programme Resource SR 2015 53,981,125 55,025,640 55,968,425 56,736,350 - Main Estimate 2016-17 changes (34,020) 520,752 570,381 560,008 - Supp Estimate 16-17 Changes 19,760,645 8,807,500 8,914,500 9,315,000 Total DEL Programme Resource 73,707,750 64,353,892 65,453,306 66,611,358 - Total Resource DEL SR 2015 54,304,458 55,346,423 56,271,608 57,030,283 - Main Estimate 2016-17 changes (22,351) 530,137 578,863 566,357 - Supp Estimate 16-17 Changes 19,950,604 8,995,300 9,099,800 9,496,000 - Total DEL Resource 74,232,711 64,871,860 65,950,271 67,092,640 - DEL Capital SR 2015 5,264,000 4,646,000 4,446,000 4,441,000 4,572,000 Main Estimate 2016-17 changes - 100,000 498,000 (598,000) - Supp Estimate 16-17 Changes 711,816 636,500 761,500 321,000 392,000 Total DEL Capital 5,975,816 5,382,500 5,705,500 4,164,000 4,964,000 RAME SR 2015 - - - - - Main Estimate 2016-17 changes 10,000 (60,552) (73,068) (85,528) - Supp Estimate 16-17 Changes (1,218,479) (2,285,000) (3,149,000) (3,502,000) (3,959,000) Total RAME (1,208,479) (2,345,552) (3,222,068) (3,587,528) (3,959,000) CAME SR 2015 - - - - - Main Estimate 2016-17 changes - - - - - Supp Estimate 16-17 Changes 14,630,615 15,876,000 18,705,000 21,538,000 23,619,000 Total CAME 14,630,615 15,876,000 18,705,000 21,538,000 23,619,000 Total Managed Expenditure SR 2015 59,568,458 59,992,423 60,717,608 61,471,283 4,572,000 Main Estimate 2016-17 changes (12,351) 569,585 1,003,795 (117,171) - Supp Estimate 16-17 Changes 34,074,555 Total Managed Expenditure 93,630,662 67,908,808 68,433,703 67,669,112 1,005,000 16
Provisions and Liabilities 60. There are five main categories of provisions for liabilities and charges included in the department s budgets and accounts: early departure cost; retirement compensation; property; Risk Protection Arrangement (RPA); other. 61. Details of the provisions (pre-mog) are provided below. Table 9 Opening balance on provisions at 31 March 2016 Early Dep Costs PRC RPA Other TOTAL m m m m m Balance at 31 March 2016 6.3 141.9 4.8 18.8 171.8 62. The purpose of the Early Departure Cost provision is to recognise the department s financial liability to meet the additional costs of benefits beyond normal Principal Civil Service Pension Scheme (PCSPS) benefits which are paid to DfE employees who retire early, and compensation payments payable to employees who take early severance. 63. The Premature Retirement Compensation (PRC) provision was created to cover the department s liability to pay premature retirement compensation to non-departmental staff. The provision currently covers costs relating to the former teaching staff of ex-grant Maintained Schools and Colleges, and pension payments relating to the staff of former departmental bodies (Schools Council, Training Commission) and other NDPBs. We are expecting the payments to pensioners being released from the provision to exceed new provision being set aside this year. 64. The property provision provides for the future liabilities relating to former property leases which were re-assigned to the Secretary of State on the closure of the relevant programmes. The provision was based on the assumption that the property leases for buildings used by NDPBs would expire in 2015, and the anticipated disposal for the last Training and Enterprise Council property would be in 2016; consequently, the provision would not be required after 2016-17. However, this provision is being extended as we have set aside an additional 8 million provision for dilapidations on our current London HQ site, which we will vacate shortly. At this point in the year we do not need to change this provision. 65. The RPA for academy trusts is a scheme that provides an alternative to insurance where losses that arise are covered by government funds. The provision has been increased this year to meet the future liabilities, in respect of events that will occur in 2016-17, based on an actuarial model of expected claims. The 20 million increase in the provision reflects the 17
increase in the number of academies joining the scheme, which increases the potential claim on the fund. 66. Other provisions include various different categories of provisions held by ALBs and former ALBs. This category of provision includes a provision resulting from the finding of a Judicial Review of decisions on promotion and retirement rights of European School Teachers, disputed utilities costs and equal pay claims. The Judicial Review created an obligation for the group to make these payments to European School Teachers. Details of other provisions held by the executive agencies and NDPBs can be found in their individual annual reports and accounts. 67. The 41.5 million increase in new provisions is primarily due to the MoG change which transferred in provisions for SFA, HEFCE, SLC and CITB totalling 32.8 million. Other changes totalling 8.7 million include the impact of the change in the discount rate. Contingent Liabilities 68. Contingent liabilities are potential liabilities that are uncertain, and the department will only incur future expenditure if certain conditions are met or if certain events happen. At the time of the preparation of the Supplementary Estimate, the department has ten current contingent liabilities. Updates for each contingent liability and details of the two new indemnities for Great Yarmouth High School and Turing House School are listed below. Statutory contingent liabilities 69. Under paragraph 7 of the Schools Standards Framework Act 1998, the Secretary of State has a statutory duty to indemnify any adjudicator against any reasonable cost and expense reasonably incurred by the adjudicator in connection with any decision taken in pursuit of the statutory duties of the Office of the Schools Adjudicator. The adjudicator s decisions can be challenged through judicial review. It is not possible to quantify the potential costs. Non-statutory contingent liabilities 70. The department is providing an indemnity to local authorities for potential costs in respect of buildings financed by existing Private Finance Initiative (PFI) arrangements, and which are used by academy trusts. This type of indemnity is considered low risk. The use of the school by an academy does not create a new liability; it just moves the liability from local to central government. The department currently estimates the potential liability at 7.9 billion, but this is under review as the number of schools that convert increases. To date the department has not received any claims against these PFI indemnities. 71. The department has provided a 12.5 million guarantee to Tottenham Hotspur Property Co. Ltd in relation to a commercial lease arrangement for an academy trust site. This is not expected to change this year. 72. The department has provided a guarantee to cover costs that would arise from the reinstatement of the Norwich Free School s building to its original condition in the event of its closure. The latest available estimate of the likely cost is 110,000, which has not changed since 2014-15. 18
73. It is important that senior staff likely to be running a school when it opens are involved and take forward the development of the school from a very early stage. Consequently, the trust engage Principals Designate, and meet the salary costs prior to a school opening. The department has agreed to underwrite the salaries of Free Schools Principals Designate for up to two terms in the event that the schools do not open as planned. The department estimates that the balance for this guarantee reduced to 168,000 during the last financial year, but is not expected to change this year. 74. For calculating employee contributions, the LGPS Administering Authorities view academy trusts as higher risk employers as they no longer have the financial backing of a local authority. Consequently, academy trusts were being asked to pay significantly higher LGPS employer contribution rates to those set when they were a local authority maintained school. The department has agreed to guarantee that if an academy closes, the group will meet any outstanding pension liabilities owed to the pension scheme. The upper limit of the guarantee has been increased from 8.5 million in 2015-16 to 11 million this year. The purpose of the guarantee is to give LGPS Administering Authorities the confidence they need to treat academies equitably, and ensure that there is no significant increase in employer contribution rates upon conversion to academy status. 75. In 2013 CET Westminster Free School required urgent approval of an indemnity to the Church Commissioners for the costs of potential legal challenge, without which the project could not proceed. The 5 million indemnity expires on 31 December 2017. 76. The department has agreed to act as guarantor for Free Schools in the event they breach their tenant default agreements with their landlords. This guarantee has an upper limit of 2.5 million. 77. In December 2016 the department agreed to provide a 2 million indemnity to protect Inspiration Trust (Re: Great Yarmouth High School) against the potential closure costs of the academy in the event that consent for the academy to operate from the current site is withdrawn. 78. An 470,000 indemnity was provided to Turing House School in relation to a rent deposit in May 2015. Departmental Accounting Officer 79. This Memorandum has been prepared with reference to the guidance in the Supply Estimates Manual provided by HM Treasury and available on the House of Commons and Scrutiny Unit website. 80. The Departmental Accounting Officer has personal responsibility for the content of the memorandum, and his approval of the memorandum has been obtained prior to submission to the Select Committee 19
Annex A Detailed breakdown The Main Estimate budgets in the table below show the actual budgets in the Estimate, ie the numbers do not reflect the machinery of government changes, so it shows the actual differences in the sections. Details of like-for-like changes are available in Table 2a and 2b (RDEL), Table 4 (CDEL) and Table 5 (AME) Section / Expenditure Main Estimate 2016-17 Supp Estimate 2016-17 Increase / (Decrease) ( m) ( m) ( m) Departmental Expenditure Limit A Activities to Support all Functions 312.2 356.4 44.2 Administration 237.4 274.2 36.8 Capital 50.0 41.1 (8.9) Other Resource 24.8 41.1 16.3 B School Infrastructure and Funding of Education (Department) 187.5 576.9 389.4 Resource 185.5 574.9 389.4 Capital 2.0 2.0 0.0 C School Infrastructure and Funding of Education (ALB) (Net) 0.0 341.2 2.2 Administration 2.2 2.2 Programme 0.0 0.0 - Capital - 339.0 339.0 D Education Standards, Curriculum and Qualifications (Department) 333.6 5,228.9 4,895.3 Programme 333.6 5,228.9 4,895.3 E Children's Services and Departmental Strategy (Department) 387.6 356.7 (30.9) Programme 387.6 356.7 (30.9) F Children's Services and Departmental Strategy (ALB) (Net)* 23.7 24.2 0.5 Administration 16.2 16.8 0.6 Programme 7.5 6.9-0.6 Capital - 0.5 0.5 G Standards and Testing Agency 61.6 55.1 (6.5) Administration 3.7 4.0 0.3 Programmes 58.0 51.1 (6.9) H National College for Teaching and Leadership 431.4 416.6 (14.8) Administration 13.6 13.0 (0.6) Programmes 417.7 403.6 (14.1) I Education Funding Agency 8,371.6 1,302.5 (7,069.1) Administration 64.0 63.8 (0.2) Programmes 5,833.8 34.3 (5,799.5) Capital 2,473.8 1,204.4 (1,269.4) J Grants to LA schools via EFA 33,298.7 33,879.6 580.9 Programmes 31,171.1 30,434.7 (736.4) Capital 2,127.6 3,444.9 1,317.3 K Grants to Academies via EFA 16,138.2 17,402.8 1,264.6 Programme 15,527.6 16,792.2 1,264.6 Capital 610.6 610.6 0.0 L Higher Education - 15,596.3 15,596.3 Programme - 15,582.7 15,582.6 Capital - 13.6 13.6 M Further Education - 294.3 294.3 Programme - 217.3 217.2 Capital - 77.0 77.0 N Skills Funding Agency - 2,525.7 2,525.7 Administration - 75.3 75.2 Programme - 2,400.3 2,400.3 Capital - 50.1 50.1 O Higher Education (ALB) (net) - 1,840.9 1,840.9 Administration 71.0 70.9 Programme - 1,577.4 1,577.3 Capital - 192.5 192.5 P Further Education (ALB)(net) - 10.6 10.6 Administration 4.5 4.4 Programme - 6.0 5.9 Capital - 0.1 0.1 Total Departmental Expenditure Limit 59,546.1 80,208.7 20,321.4 20
Annex A Detailed breakdown (continued) Section / Expenditure Main Estimate 2016-17 Supp Estimate 2016-17 Increase / (Decrease) Annually Managed Expenditure ( m) ( m) ( m) Q Activities to Support all Functions 10.0 24.3 14.3 Provisions 10.0 24.3 14.3 R Executive Agencies (exc. SFA) 0.0 (1.9) (1.9) Resource - (1.9) (1.9) S Higher Education AME - 13,146.4 13,146.4 Resource (student loans) - (1,223.6) (1,223.6) Capital (student loans) - 14,370.0 14,370.0 T Further Education AME - 260.0 260.0 Resource - - - Capital - 260.0 260.0 U Skills Funding Agency AME - 1.0 1.0 Resource - 1.0 1.0 V Higher Education (ALB) AME - (20.3) (20.3) Resource - (17.3) (17.3) Capital - (3.0) (3.0) W Further Education (ALB) AME - 12.6 12.6 Resource - 9.0 9.0 Capital - 3.6 3.6 Annually Managed Expenditure 10.0 13,422.1 13,412.1 21
Annex B Control Totals This table shows the changes made to the main control totals for 2016-17, announced in the Spending Review 2015, and subsequent changes (e.g. Budget announcements and transfers between departments) RDEL RDEL RDEL Admin Programme TOTAL Capital RAME CAME 000 000 000 000 000 000 Voted non-ringed fenced 300,333 53,978,125 54,278,458 5,264,000 - - Voted ring-fence (depreciation) 23,000 3,000 26,000 - - - Parliamentary control totals as per Settlement Letter 323,333 53,981,125 54,304,458 5,264,000 - - Changes to voted budgets included in Mains Estimate 16-17 Transfers to Other Government Departments Transfer out to Department of Health - contribution to Schools Fruit and Vegetable Scheme (21,000) (21,000) Transfer out to Home Office - school security grant (3,000) (3,000) Transfer out to Dept for Business Innovation and Science - Business Information Modelling (837) (837) Transfer in from Department for Culture, Media and Sport - GEO and EHRC 18,512 15,795 34,307 a) Total Transfers (to) / from OGDs 18,512 (9,042) 9,470 - - - Budget Day Changes Education: School Reforms Academisation 61,000 61,000 Northern Schools Package 400 9,000 9,400 Mentoring 5,000 5,000 Longer School Day 3,500 3,500 Exchange RDEL to contribute to National Funding Formula activity in 17-18 (100,000) (100,000) b) Total Budget Day Changes 3,900 (25,000) (21,100) - - - Other Changes Updated depreciation budget (10,746) 22 (10,724) Addition of AME budgets - 10,000 c) Total other changes (10,746) 22 (10,724) - 10,000 - Total changes to voted budgets in the Mains Estimate (a+b+c) 11,666 (34,020) (22,354) - 10,000 - Main Estimate 2016-17 Parliamentary control totals 334,999 53,947,105 54,282,104 5,264,000 10,000 - Of which Voted Ring fenced Depreciation 12,254 3,022 15,276 - - - Academies Sector - staff costs 55,700-55,700 - - - Apprenticeship - 803,000 803,000 - - - VAT - capital - - - 44,000 - - Total Voted Ring-fenced control totals 67,954 806,022 873,976 44,000 - - Non ring-fenced control totals 267,045 53,141,083 53,408,128 5,220,000 10,000 - Total 2016-17 Parliamentary control totals 334,999 53,947,105 54,282,104 5,264,000 10,000 - Main Estimate 2016-17 Parliamentary control totals 334,999 53,947,105 54,282,104 5,264,000 10,000 - Changes to voted budgets included in Supplementary Estimate 16-17 Transfers from Other Government Departments Machinery of Government change - HE, FE and Apprenticeships 189,013 9,224,544 9,413,557 367,223 (1,451,977) 13,464,615 Cash Management Rebate from HM Treasury 948-948 - - - Salix energy efficiency funding from BEIS - 5,593 - - PF2 priority schools building programme from HM Treasury - 89 89 - - - Transfers to Other Government Departments Transfer contribution towards for City Deals to DCLG - (10,300) (10,300) - - - Funding for the Functional Skills Reform Programme to Ofqual - (144) (144) - - - Additional ESOLfunding for Syrian Refugees to Home Office - (1,000) (1,000) - - - Refund of unspent futures programme funding to DWP - (70) (70) - - - Transfer of budget for Master Service function to HM Treasury - (474) (474) a) Total Net Transfers (to) / from OGDs 189,961 9,212,645 9,402,606 372,816 (1,451,977) 13,464,615 22
Annex B continued RDEL RDEL RDEL Admin Programme TOTAL Capital RAME CAME 000 000 000 000 000 000 Reserve Claim Student Loans - 11,001,000 11,001,000-221,000 1,166,000 Aggregator Vehicle Ltd - - - 339,000 - - Budget Exchange Transfer RDEL programme budget to 2017-18 - (70,000) (70,000) - - - Other changes Increase in departmental provisions 12,500 Switch from general RDEL underspends to fund Academies CDEL - (170,000) (170,000) - - - Return of general un-ringfenced underspends to Exchequer (213,000) (213,000) - - - - 0 - - - b) Total other changes - 10,548,000 10,548,000 339,000 233,500 1,166,000 Total changes to the voted budgets inc the Supp Estimate (a+b) 189,961 19,760,645 19,950,606 711,816 (1,218,477) 14,630,615 Supplementary Estimate 2016-17 Parliamentary control totals 524,960 73,707,750 74,232,710 5,975,816 (1,208,477) 14,630,615 Of which Voted Ring fenced Depreciation 39,454 9,000 48,454 - - - Apprenticeship - 803,000 803,000 - - - Adult Education - 100,000 100,000 - - - Student Loan RAB charge - 2,976,000 2,976,000 - - - VAT - capital - - - 44,000 - - Total Voted Ring-fenced control totals 39,454 3,888,000 3,927,454 44,000 - - Non ring-fenced control totals 485,506 69,819,750 70,305,256 5,931,816 (1,208,477) 14,630,615 Total 2016-17 Supplementary Estimate Parliamentary control totals 524,960 73,707,750 74,232,710 5,975,816 (1,208,477) 14,630,615 Non-voted budget for academy sector included in Resource Budget Non-voted RDEL control total in Settlement Letter - 1,199,000 1,199,000 - - - Increase in Academies depreciation in the Main Estimate - 301,000 301,000 Reduction in Academies depreciation in the Supplementary Estimate (199,000) (199,000) Estimated academies net resource budgets - 16,792,159 16,792,159 610,611 1,246,000 - Transfer from voted RDEL to academies capital - - 170,000 Budget switch from RDEL to CDEL - (260,000) (260,000) 260,000 Changes to AME budget (LGPS pensions, impairments etc) - - - 548,000 - Non-Voted Budgets as at 2016-17 Main Estimate - 17,833,159 17,833,159 1,040,611 1,794,000 - Of which ring-fenced - depreciation - 1,301,000 1,301,000 - - - non ring-fenced - 16,532,159 16,532,159 1,040,611 1,794,000 - Total 2016-17 non-voted control totals - 17,833,159 17,833,159 1,040,611 1,794,000 - Reconciliation of Supplementary Estimate to Net Resource Budget Supplementary Estimate 2016-17 Parliamentary control totals 524,960 73,707,750 74,232,710 5,975,816 (1,208,477) 14,630,615 less grants paid to academy sector (estimate line K) - (16,792,161) (16,792,161) (610,610) - - add non-voted net academies budgets - 17,833,159 17,833,159 1,040,611 1,794,000 - Net Resource Budget at Supplementary Estimate 2016-17 524,960 74,748,748 75,273,708 6,405,817 585,523 14,630,615 23