Official Report: Minutes of Evidence

The Chairperson (Mr McKay): Good morning. I welcome Joanne McBurney, head of the central expenditure division; Stephen Barrett from the central expenditure division; Brigitte Worth from the finance directorate in the corporate services group (CSG); and Preeta Miller from the finance division. I ask you to give brief opening statements, and then we will go straight to questions.

Ms Joanne McBurney (Department of Finance and Personnel): Thank you for the opportunity to update the Committee on the 2015-16 November monitoring round. As you will be aware, this is the first full Executive monitoring round in this year, with the June round not being concluded and the October round postponed as political discussions proceeded. A technical exercise was undertaken in June, which was followed by an allocation to DCAL under the urgent procedures mechanism of £13·3 million capital departmental expenditure limit (DEL) for the stadiums programme.

Following that and entering the November monitoring round, the Executive had overcommitments of £1·7 million on resource DEL and £3 million on capital DEL. As detailed in the Minister's statement, a number of centrally held items impacted on the resources available to the Executive in this round. In total, those amounted to £46·3 million resource DEL and minus-£19·7 million capital DEL. Departments declared reduced requirements of £33 million resource DEL and £20·4 million capital DEL. Taking account of the centrally held items, reduced requirements and a small number of reclassifications left the Executive with £77·4 million resource DEL available for reallocation and a small overcommitment of £2·1 million on capital DEL. The Executive have agreed November monitoring allocations amounting to £87·4 million resource DEL and £13·7 million capital DEL. Full details are set out in the tables accompanying the Minister's statement. In addition, the Executive have agreed allocations of ring-fenced financial transactions capital (FTC) amounting to £73·4 million, including £63·4 million for co-ownership housing and £10 million for Queen's University. As a result, all the ring-fenced financial transactions capital available to the Executive in 2015-16 has now been allocated to projects.

The Executive have concluded the November monitoring round with overcommitments of £10 million of resource DEL and £15·8 million of capital DEL. On the basis of historical patterns of spend, the Executive believe that that level of overcommitment is manageable over the remainder of the year. Following the November monitoring round, £24·4 million of resource expenditure ring-fenced for depreciation and impairments remains unallocated.

The Executive have also agreed that, unless circumstances change, this will be the final in-year monitoring round this year. However, a technical exercise will be undertaken in January, ahead of the spring Supplementary Estimates (SSE) process. DFP will closely monitor the financial position of Departments over the remainder of this year to ensure that the funding carried forward under the Budget exchange scheme is maximised and no funding is lost to Northern Ireland.

I am happy to take any questions that members may have.

The Chairperson (Mr McKay): OK. Are there any other comments?

Ms Brigitte Worth (Department of Finance and Personnel): I know that the Committee only recently got our paper, and we apologise for that. Obviously, with the time frames that we were working to this time, it has been difficult to get you a paper in good time. The DFP position is that we made a bid for £2 million of capital for the rate rebate programme that has been successful and will enable that to proceed. We have also identified some reduced requirements. I can go into further details on questioning, if you wish.

The Chairperson (Mr McKay): The Committee previously requested a briefing on the process for agreeing the up-and-coming draft Budget 2016-17 to include how the planned changes to departmental structures will be factored in and how the change will impact on other aspects of the Department's work. Officials indicated that they were not yet in a position to do that. The Committee has since requested a briefing on what DFP will propose to the Executive on the process for agreeing the Budget and the strategic issues to be addressed. Pending an official response on that, what further detail can you give on a likely process and timetable for the 2015-16 Budget, which may be subject to Executive agreement?

Ms McBurney: A draft Executive paper was issued towards the end of last week. We hope that the Executive will consider it shortly. The key issue, as I am sure you will be aware, is now the timescale for the Budget process. The Fresh Start Agreement committed us to a Budget in December/January, so we have a very short time, after today's spending review announcement, to turn that around.

The decisions that the Executive need to take are whether it will be a one-year Budget for 2016-17 only or a multi-year Budget mirroring the period of the spending review and whether they need a draft and revised Budget process or, given the time constraints, we go just for a single Budget. Obviously, we then need to consider consultation with Committees and other key stakeholders in that time frame, but, until the Executive reach agreement on that, we cannot go into much further detail.

The Chairperson (Mr McKay): What does the Department propose in its paper to the Executive?

Ms McBurney: Our recommendation is that it would be a one-year Budget, which would allow the new Executive coming in time to set their own Programme for Government and a Budget according to that. It is also that, given the time constraints, there is not really sufficient time to do a draft and a revised Budget document in the way that we would normally do them, so there should be a single-stage Budget, with consultation with key stakeholders and the Committees commencing as soon as possible after the spending review announcement this afternoon.

The Chairperson (Mr McKay): When will the consultation have to be completed by?

Ms McBurney: That will depend on when we get Executive agreement to start the process, but we imagine that it will be very tight. We might need initial responses before Christmas, but, again, that will depend on the timescale that the Executive agree.

The Chairperson (Mr McKay): On safeguards to minimise year-end underspend, you indicated that there will be no further in-year monitoring for 2015-16. Can the headroom facility in the SSE be enhanced as a safeguard, given that there will be no more opportunities?

Ms McBurney: We will work closely with Departments over the incoming period, and we have written to them and asked them to make us aware of any reduced requirements that are emerging. Should there be significant reduced requirements, we will consider whether we need to make further allocations. Again, headroom is something that can be considered, though, as I am sure you will appreciate, it is not ideal to build that in. Although there may not be a further monitoring round as such, we will keep the situation under review.

The Chairperson (Mr McKay): Where the reduced requirement on the investment fund is concerned, the Minister said during her statement that the outstanding:

What does "technically complex" mean?

Ms McBurney: Work has been progressing on this. The Deloitte feasibility study has been completed, and further market testing has been carried out. DFP officials are now working with the European Investment Bank. The process is slower than we had hoped, but the technically complex work is that they have to develop an investment strategy for the fund, determine an appropriate governance structure and look at the fund management procurement strategy and the fund management procurement process. It is important that we get all those right. Obviously, we want to have a suitable level of control over the governance structure in particular, but, if we do not get it right, we could end up with the body being classified as a government body as opposed to a private sector body, which would impact on its ability to use financial transactions capital. So, although we had hoped to progress it quickly, it is more important that we get it right. As I said, we are working closely with the European Investment bank, and it is important that we continue to engage with it, as it is the expert in the field.

The Chairperson (Mr McKay): What is the revised timetable for the fund?

Ms McBurney: I am not taking the lead on it, so I am afraid that all I can tell you is that it will be up and running in between nine and 12 months. We hope that it will be some time in 2016-17.

The Chairperson (Mr McKay): On the reduced requirement of the EU match funding, resulting in £8 million resource DEL and £1·1 million capital DEL being surrendered from the centrally held Budget, how did that arise and what impact, if any, will it have on any projects that are ongoing?

Ms McBurney: At the time of the Budget, we set aside a centrally held fund through EU match funding to meet the Executive's commitment to provide their share of the national co-financing. The 2007-2013 EU programmes are in the final closing stages, so all the allocations for that will be expected to be fully utilised. However, there have been delays in the approval and launch of the 2014 to 2020 Peace IV and INTERREG Va cross-border programmes. That has given rise to the reduced requirement. Because those programmes are slower in starting, there is less need for the match funding. However, it is expected that those will now progress well and will gain momentum in 2016-17. The reduced requirement has simply been because of a delay in those programmes kicking off, but there will be no adverse impact going forward.

The Chairperson (Mr McKay): There is also a £1 million reduced requirement from the voluntary exit scheme (VES).

Ms Worth: That is the departmental one, is it?

The Chairperson (Mr McKay): Yes.

Ms Worth: When we set our 2015-16 Budget, we obviously had to make certain assumptions about what we would save from people leaving under the voluntary exit scheme in the 2015-16 financial year. We factored in £2·5 million pounds of savings from voluntary exit on the basis that people would leave in four even tranches across September, November, January and March. What has actually happened is that those tranches have been front-loaded, mainly because of a lack of knowledge. Obviously, we did not know how many people were going to accept offers and how many were going to decline them. We have seen more people go in the earlier tranches, and that has increased the savings that we will see in the current financial year. However, it is still important that we lose the full number of staff that we have projected to lose this year, because there will be a knock-on impact on the savings that we can make next year. The phasing of the savings has been earlier, but the overall quantum of what we expect to save next year will probably remain broadly in the range that we had expected.

The Chairperson (Mr McKay): Are there any other lessons to be learned from VES at this stage? How do you see it?

Ms Worth: I am not in a position to comment on what lessons can be learned from the running of the scheme, except to say that I think it was widely expected to be a very challenging thing to do. It seems to have been going much better than could perhaps have been expected, but I will leave my colleagues in corporate HR to comment more fully on that.

The Chairperson (Mr McKay): Are there any questions, members?

Mr Lyons: Thanks for coming before the Committee today. I have just one question, which is in relation to the PSNI. There was almost £20 million surrendered back to the centre. I know that you cannot comment on any operational issues concerning the police, but it is my understanding that that is the second time a large sum of money has been returned. Has the Department given any reason why that has happened? I certainly know that the police could do with having more resources, and, if it was available to them, they would spend it. Why was such a large sum returned?

Ms McBurney: The £19·9 million of resource to the Police Service of Northern Ireland was not actually surrendered to the centre; it was kept in DOJ and reallocated to other areas. The Department has informed us that the PSNI has delivered savings reallocation through the proactive management of capital investment to drive out efficiency savings in police transport and accommodation, and it has profiled recruitment into the latter end of the financial year to release staff savings. It has also reprioritised working expenditure and re-profiled projects. Basically, the DOJ, working with the PSNI, has taken proactive decisions to reduce spending in the PSNI to allow it to compensate for other pressures in the Department.

Mr Lyons: Has that gone from the PSNI to other areas of DOJ to be redistributed?

Ms McBurney: It has.

Mr Lyons: Thanks for that clarification.

Mr Cree: Thanks very much. Good morning, ladies and gentlemen. I have three or four hopefully fairly simple and quick points. First of all, on the voluntary exit scheme, do you know which grades proliferated?

Ms McBurney: I am afraid I do not, because corporate HR is leading on that. Brigitte, do you know the figures for the Department itself?

Mr Cree: That is what I mean — for the Department itself.

Ms Worth: The only thing I know is that, as I understand it, the people who applied were broadly in proportion to the profile that we had expected to lose, so —

Mr Cree: What does that mean?

Ms Worth: Effectively, as a Department, obviously, we have more staff at lower grades, so we were expecting to lose more staff at lower grades in absolute terms, although a similar proportion at all the grades across the whole Department was expected to be lost. The information that I have is that there was roughly an equivalent number of applications to the number of people that we needed to lose at each grade. Does that make sense? I am probably not explaining that very well.

Mr Cree: No, it is OK. I really wanted to identify whether more were coming from the top grades than you expected.

Ms Worth: As I say, no. Certainly, where DFP is concerned, my understanding is that, obviously, we were looking to lose a lower number of people at the higher grades, but we then received a similarly lower number of applications, so the number of applications was in proportion to where we needed to lose people. That is my understanding, although I do not have the data to support that. That is something that I have been told anecdotally.

Mr Cree: On the financial transactions capital, as you know, we have that investment fund that we keep hearing about, but it has not actually materialised. The Minister commented that:

That goes back to the previous financial year as well. How much money is in the fund, set aside or ring-fenced for the fund?

Ms McBurney: Nothing at the moment. In the June monitoring technical exercise, we made an allocation of some of the money in the fund, because we had received bids. That left £11·7 million in the investment fund as we went into this process. We have now allocated that in recognition of the fact that it will not, indeed, be spent this year on the fund.

Mr Cree: What about the moneys from last year?

Ms McBurney: The moneys from last year were allocated to projects as well.

Mr Cree: No; there was FTC money set aside for the investment fund.

Ms McBurney: In the Budget?

Mr Cree: Yes.

Ms McBurney: Yes, we set that aside in the Budget. In June monitoring, we made allocations of some of that funding — I think it went out to co-ownership housing — and we have made further allocations in this round to ensure that no money is set aside for the fund in 2015-16.

Mr Cree: So none was lost last year, and none will be lost this year.

Ms McBurney: No.

Mr Cree: My final question is to do with depreciation. I have to say that I was intrigued by this. I do not quite have a handle on it. There is a sum in the papers on reduced requirements. It is hard to see the reason. The type is very small, and the sentence is very short. Can you explain what that means?

Ms Worth: We were given an opportunity as part of the 2015-16 Budget process to ask for increased depreciation requirements. That was in advance of us having knowledge of what bids we might successfully receive from the change fund. Effectively, we asked for all the depreciation requirements that we might need if all our bids to the change fund for capital funding were successful. In the event, all our bids to the change fund for capital were not successful, which left us with additional depreciation that we no longer needed.

Mr Cree: So, you over-allowed for depreciation.

Ms Worth: That is correct.

Mr Cree: Do you not follow a guide for depreciation?

Ms Worth: As I say, we put in a bid for £4·8 million, I think it was, for an IT project for the change fund, which would have seen us needing a quarter of that each year for depreciation. That did not go ahead, so it left us with a significant amount of depreciation that we did not need. What we did not want to do was make a bid to the change fund and then say, "Actually, we cannot go ahead and do that, because we did not ask for the depreciation to go with it".

Mr Cree: Finally, the Minister referred to a sum of £24·4 million ring-fenced resource DEL for capital and impairments that could not be allocated. What will happen to that?

Ms McBurney: It is for depreciation and impairments. The way the Budget is controlled by Treasury means that there is non-ring-fenced resource DEL, which is the normal spending on departmental pay etc, and we have our ring-fenced resource DEL, which can be spent only on depreciation and impairments. It cannot be spent on anything else; we cannot transfer it to any other budget. It is that element that is sitting with £24·4 million unallocated. That will be returned to the Treasury. Unfortunately, that happens every year, but because that funding —

Mr Cree: Really?

Ms McBurney: That funding cannot be used for anything else. It is not lost spending power, because we could never spend it. Our budget for ring-fenced depreciation is quite high and historically more than we have needed in any year. We get Barnett consequentials on GB Departments' depreciation, and that means that our budget for depreciation and impairments is quite generous. To date, we have not needed that in any year, so we always tend to hand that bit back. It cannot be spent on anything else, so it is —

Mr Cree: That flies in the face of assurances that I have got from successive Ministers about what happens at the year end.

Ms McBurney: It is not money that could be spent on anything else. It could not be used for schools or hospitals.

Mr Cree: The statement that was given to me on several occasions was that no money was returned to Treasury.

Ms McBurney: This money is not money that can be spent on anything else; it is purely for depreciation and impairments. It is an accounting —

Mr Cree: That is a different point.

Can I make another point to you? I have the fortune — or misfortune — of sitting on the CAL Committee. That Department had to bid for £610,000 for depreciation, which was somehow carried forward from the previous year. Why could that £610,000 not be set against the £24·4 million?

Ms McBurney: We always meet departmental bids for depreciation. I would need more detail on what the issue is with the Department.

Mr Cree: It was £610,000.

Ms McBurney: If it bid for that, it would have received it. We met all bids in this monitoring round, and we have done so in previous monitoring rounds.

Mr Cree: Do you not know whether that bid was granted?

Ms McBurney: I am looking for confirmation, but I can tell you that any bids that we received in November monitoring for depreciation or impairments were granted. We would need more information from that Department on whether it bid. If it bid for the money, we gave it. There must be another issue. We routinely meet bids for depreciation.

Mr Cree: I asked the Minister that very question yesterday. I did not get an answer. Thank you very much. I shall follow it up.

The Chairperson (Mr McKay): To enable the Committee to get a response together for the draft Budget, if the Executive agreed that today, would officials be in a position to come to the Committee next week?

Ms McBurney: Yes, definitely. Once that is agreed, we will be happy to come and talk to you about it.

The Chairperson (Mr McKay): Thank you all very much.