From: Mike Chilton Date: 17 November 2010 National Savings and Investments: Winter Supplementary 2010-11 INTRODUCTION The purpose of NS&I s Supplementary Estimate is to give effect to the take up of departmental unallocated provision, end year flexibility (EYF), DEL Reserve claim and other DEL changes and to make a change in AME to include an amount to increase a provision. An additional purpose is to increase the net cash requirement through reducing the level of expected creditors. Summary of changes sought in the Supplementary Estimate Summary of the main changes sought in the Estimate The Supplementary Estimate provides for a 10.49 percentage increase in voted resource DEL, a 6 percent increase in AME and no increase in capital. The key changes underlying this increase are as follows: RESOURCE DEL Changes to Voted DEL (RDEL) arise from: An increase of 11,000,000 RDEL, all of which is administration, financed by a drawdown of 6,000,000 of end year flexibility (EYF) and 5,000,000 of DEL Reserve claims. This resource will be used to continue the delivery of the adding value strategy and the modernisation and simplification of infrastructure and products. A shift of 4,994,000 from non-voted to voted, all of which is administration, financed by a draw down of 4,994,000 departmental unallocated provision (DUP). This resource is also to be used to fund the simplification and modernisation programme An increase in spending of 900,000 fully offset by corresponding operating appropriations in aid resulting in a neutral DEL change for leveraging activity. The total increases to voted DEL are 15,994,000. ANNUALLY MANAGED EXPEDITURE Changes to Voted AME arise from: An increase of 300,000 to cover the requirement for an increase in provision. Increases to provision now form part of AME expenditure. The total changes to AME are 300,000
NET CASH REQUIREMENT Changes to Net cash requirement arise from: Increases in voted DEL provision of 15,994,000 and a fall in anticipated creditor balances of 8,000,000 The total changes to Net Cash requirement are 23,994,0000 End Year Flexibility The 6,000,000 increase in DEL relates to the continuation of the modernisation programmes that NS&I commenced during 2008-09. The expenditure includes: IS Infrastructure Programme: The upgrade of NS&I s information systems infrastructure-data centres, servers, data networks and desktops to current industry standards, which in turn will mitigate a number of security risks and external audit recommendations. A commercial agreement is already in place with Siemens our operational partner. Strategic Platform Development Programme: Building on the IS Infrastructure programme, this will enable NS&I to move away from a complex configuration of diverse legacy systems, which are expensive to maintain and change, by delivering an integrated modern banking engine and multi-channel distribution functionality. The programme consists of several projects with the first product migrated from the old banking engine to the new one in November 2009. Dematerialisation: This programme will enable customers to correspond with NS&I electronically, removing the need to produce paper certificates/ statements and provide NS&I with a comprehensive contact management system. The modernisation programme is being driven in part by the need to develop a low cost business solution prior to the retendering of the current outsourcing contract with Siemens which expires in March 2014. The timing is particularly important as the contract approaches 2014. As 2014 draws nearer Siemens appetite for change will diminish as they are less likely to meet payback targets. Departmental Unallocated Provision (DUP) Departmental Unallocated Provision ( 4,994,000) to help fund the simplification and modernisation programme. DEL Reserve claim The 5,000,000 DEL Reserve claim helps fund the simplification and modernisation programme.
Annually Managed Expenditure An increase of 300,000 required to cover increase in provision which is now carried out under AME. Impact on NS&I s Service Delivery Measures SDM s (Targets agreed with Her Majesty s Treasury (HMT)). There are no changes to NS&I s SDM s. Departmental Expenditure Limit (DEL) This Supplementary Estimate will result in an overall increase in resource DEL. The increase in resource DEL is covered by draw down from end year flexibility ( 6,000,000), DEL Reserve claim ( 5,000,000) departmental unallocated provision of ( 4,994,000) and also a neutral change (increase in spending of 900,000 balanced by a corresponding increase in Appropriations in Aid) to cover leveraging activity as NS&I commence work on using enhanced infrastructure and capability to deliver services to other Government departments (such as the Ministry of Justice s Court Funds). The table below compares outturn from 2009-10 with planned DELs for 2010-11. Previous years expenditure against Departmental Expenditure Limits (DEL) Year Voted Non-voted TOTAL Outturn Variance 2004-05 177,526 0 177,526 165,853 11,673 2005-06 182,294 0 182,294 175,215 7,079 2006-07 179,924 0 179,294 167,766 11,528 2007-08 170,924 0 170,924 153,533 17,391 2008-09 185,199 0 185,199 183,767 1,432 2009-10 183,749 0 183,749 179,354 4,395 2010-11 168,402 0 168,402 N/A N/A Capital 2004-05 500 0 500 137 363 2005-06 500 0 500 235 265 2006-07 500 0 500 68 432 2007-08 500 0 500 45 455 2008-09 1,438 0 1,438 926 512 2009-10 3,176 0 3,176 4,991 (1,815) 2010-11 464 0 464 N/A N/A The DEL (RDEL) Outturn for 2009-10 of 179,354,000 compares against a final provision of 183,749.000 this means an under spend of 4,395,000 equivalent to 2.39 per cent of the RDEL. The following table shows the key differences between resource DEL and outturn.
Overspend / (under spend) 2009-10 m Transfer to capital DEL to cover capital expenditure 1.82 Lower depreciation and capital charges 2.22 Other near cash underspend 0.40 Total under spend 4.44 The changes to DEL this year are as follows: 000s Changes to DEL in 2010-11 Voted Non-voted Total DEL 1 April 2010 as in Main Estimate 152,408 4,994 157,402 4,994-4,994 - supplementary 6,000 6,000 supplementary regarding end year flexibility 5,000 5,000 supplementary regarding DEL Reserve Claim 900 900 supplementary regarding R DEL (leveraging) -900-900 supplementary regarding R DEL (leveraging) Revised RDEL 168,402-168,402 Capital 1 April 2010 as in Main Estimate 464-464 Revised CDEL 464-464 Less depreciation at start of year* -2,983 - -2,983 Less change in WSE* - - - TOTAL DEL 165,883-165,883 * Depreciation, which forms part of RDEL, is excluded from total DEL since CDEL include capital spending and to include depreciation of those assets would lead to double counting. The changes to AME this year are as follows: Changes to AME in 2010-11 Voted Non-voted Total AME 1 April 2010 as in Main Estimate 5,000 5,000 300 300 supplementary regarding changes in AME Revised AME 5,300-5,300
End Year Flexibility (EYF) The 2008-09 EYF for HM Treasury was reported in the Public Expenditure Outturn White Paper 2008-09 (PEOWP) (Cm 7156). The changes since then can be seen as follows: NS & I EYF Published in previous PEOWP Winter Supplementary draw down (2010-11) Admin Other resource TOTAL of which: near cash Capital 15,150-15,150 8,476 2,466 (6,000) - (6,000) (6,000) - Balance of EYF 9,150-9,150 2,476 2,466 The table above represents the position of EYF stocks following the adjustments and drawdown since the publication of PEOWP 2009-10 (Cm 7156) in July 2010. The EYF stock has been built up over the last few years due to; - Reduced marketing activity due to the success of Premium Bond 50 th anniversary campaign in 06/07 and continued brand strength, - Slower or deferred project implementation due to reprioritisation in light of NS&I s new IT strategy and new 5 year strategy (ie monies saved for current implementation of these strategies). - Pre flight to safety, the impact of channel shift to direct channels ahead of plan, reducing commission payable by NS&I to the Post Office. The Winter Supplementary Estimate requires 6,000,000 draw down from NS&I s stock of resource end year flexibility which, after draw down stands at (near cash) 2,476,000. Capital end year flexibility stock is 2,466,000. The end year flexibility stocks will be a key factor in delivering NS&I s strategy to modernise and simplify the business. A complete IT Strategy overhaul has been approved by the NS&I Board and HMT to help implement this. It includes the need to upgrade many of our systems and processes to support NS&I s efficient operation within its budget.
Administration Budget The Supplementary Estimate will increase the administration budget by 15,994,000 to 168,402,000. A comparison with earlier years and plans is set out below. Administration budget (previous years) Year Plans Outturn (Limit) 2004-05 177,526 165,853 2005-06 182,294 175,215 2006-07 179,294 167,766 2007-08 170,294 153,533 2008-09 185,199 183,767 2009-10 183,599 179,354 2010-11 168,402 N/A Changes to administration budget in 2009-10 Limit 1 April 2010 at Main Estimate 152,405 supplementary 15,994 REVISED ADMINISTRATION BUDGET LIMIT 168,402 The reason for the historical under spends for 2005-06, 2006-07 and 2007-08 have mainly been due to lower spend on projects and lower marketing costs as net financing targets have been achieved earlier then planned. Explanation for 2009-10 under spend were detailed earlier in this document. Approval of Memorandum This Memorandum has been prepared by reference to guidance in the Estimates Manual [insert hyperlink] and that found on the House Of Commons, Scrutiny Unit website [insert hyperlink].
Glossary of Key Terms Departmental Expenditure Limit (DEL) This is 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. Departmental Unallocated Provision (DUP) DUP is a Departmental contingency reserve, which can be accessed, where necessary, by means of a Supplementary Estimate. End of Year Flexibility (EYF) A mechanism that enables the Department to plan the use of resources over Spending Review years and therefore carry forward unspent provision in the Departmental Expenditure Limit in one year to subsequent years. Voted and Non-Voted Voted expenditure is that which has gone through the Supply Estimates process. Non-voted, as its description suggests, has not been through this process. It usually refers to expenditure that comes from another source e.g. consolidated fund, standing services.