Counting the cost: financial scrutiny of the Department for Transport 2011-12 - Transport Committee Contents


2 Department for Transport's expenditure

Presentation and information

4.  Government finances are notoriously complex, with distinctions between different forms of expenditure (for example, resource and capital spending; departmental expenditure limits and more volatile annually managed expenditure) and complicated adjustments to the figures to ensure that cash and resource budgets and outturns can be kept in line. In the past there were different bases for expenditure plans and outturn figures, which made it difficult to compare planned spending in one year with what actually happened. There has been some simplification in recent years, as a result of the Treasury's Alignment project. Last year we welcomed the intention of Rt Hon Philip Hammond MP, the then Secretary of State for Transport, to go beyond the requirements of the project to simplify the DfT's annual budget (its Main Estimate).[3] We saw the first fruits of this work with the publication of the DfT's annual report and accounts for 2010-11, which includes a three-page table showing outturn and estimated expenditure for the period from 2005-06 to 2014-15 itemised by some 20 comprehensible categories.[4] Figure 1 uses this information to show the department's overall spending profile for the decade. We commend the Department for Transport for simplifying the structure of its Main Estimate and publishing detailed information about spending for the 2005-15 period, which enables us to see more clearly where the department spends money and trends over time. Figure 1: DfT expenditure 2005-15


Notes: Annual Report and Accounts 2010-11, pp35-37. Figures are provided in cash terms (ie without accounting for inflation). The 2010-11 figures are estimated outturns. Figures for subsequent years are for planned expenditure.

5.  Each year the DfT provides us with a memorandum to explain its annual Main Estimate—we publish the memorandum for 2011-12 with this report.[5] These have become more useful documents, with clearer explanations of how the figures have changed. However, there remains a problem with inadequate explanation of in-year budget changes. Three recent examples stand out. Firstly, after the 2010 election the new Government reduced the DfT's budget by £683 million, as part of a wider programme of cuts in public expenditure ahead of the Spending Review. Information about where those cuts would be made was released in response to a parliamentary question, rather than proactively by the department.[6]

6.  An even more striking example occurred at the time of the 2011 Budget. £300 million of new DfT spending was announced, comprising £100 million in grants to local authorities for road maintenance and £200 million in rail projects.[7] This was in addition to another £100 million in road maintenance grants announced in February 2011.[8] The DfT attributed the new commitments to "savings" but no further explanation was offered. We wrote to Mr Hammond, the then Secretary of State, on 26 April 2011 to ask where and how these savings had arisen and had to wait until 21 July to receive a reply. This explained that the savings had arisen as follows:[9]

  • £336m from "successful commercial negotiations"
  • £273m from efficiencies, such as reduced dependence on consultants
  • £229m because buoyant rail demand had reduced subsidy payments to train operating companies
  • £94m from other rail budgets
  • £29m from the early sale of HS1

Mr Hammond concluded that:

Overall the Department spent £1,029 million less than originally planned in 2010/11, of which £486 million was recycled into transport initiatives and £543 million surrendered to the Treasury.

We return to the underspend issue below, but it is worth noting that without our intervention the DfT would not have been obliged to explain how it could make new spending commitments in March 2011.

7.  Finally, a number of new transport infrastructure projects were announced by the Chancellor in his 2011 autumn statement, including 35 new road and rail schemes.[10] In addition, it was announced that regulated rail fares would increase by RPI + 1% in January 2012, not RPI + 3% as had been intended at the time of the Spending Review. The Treasury's autumn statement document contained some useful information about the costs associated with these changes,[11] but questions remain about whether the DfT had been given additional funding by the Treasury and about the profile of the spending to 2014-15 and beyond.

8.  In oral evidence the Secretary of State said that the DfT had been awarded £1.5 billion additional funding over the spending review period.[12] In addition, it was suggested that the DfT had again been able to recycle budgetary underspends to fund new initiatives.[13] Numerous parliamentary questions have been tabled to find out more information about the spending profile for individual projects, with limited success.[14] We wrote to the Secretary of State on 16 January to request further details about some of the announcements in the autumn statement and received her reply on 6 February, the day before this Report was agreed.[15]

9.  In our view, the DfT does not provide Parliament and the public with adequate information about in-year changes in its budget. Cuts have been announced without an explanation of where they would fall and new spending commitments have been made without proper explanation of how they have been funded. We recommend that when the DfT makes an announcement to Parliament about a change to its budget it should explain the effects of the change on specific budget lines and, where a new spending commitment is involved, an explanation of how the money has been found. If the details have not been finalised at the time of the headline announcement the department should indicate when it will be in a position to provide those details and make a written statement at a later date.

2010/11 underspend

10.  Returning to the 2010/11 underspend, we were surprised to learn that the Department had ended up in a position where it was required to return over £500 million to the Treasury. This is more than the estimated cost of the entire Northern Hub project and is also likely to have exceeded the total reduction in annual revenue for the English bus industry following the Spending Review.[16] Put another way, the DfT accepted a cut to its in-year budget of £683 million and then underspent on its revised budget by over £1 billion, calling into question whether the in-year cut was necessary.

11.  The Secretary of State said that in the event of an underspend she would "look at the scope for bringing forward projects" but would "not just ... spend money at year-end on projects that I do not think will add value".[17] Her predecessor spoke of "lessons for the Department to learn" following the underspend.[18] We also note that the Department's accounts were qualified by the Comptroller and Auditor General because more income was received from train operating companies than the limit for this set by Parliament.[19] This was a technical error but one which suggests that budgetary control at the Department has been slack. Money voted by Parliament for expenditure on transport should be spent on transport, not handed back to the Treasury. We will be watching the Department's performance in this area carefully to check that the lessons Mr Hammond referred to have been learnt.

Regional spend

12.  The debate about how much DfT expenditure is incurred in London compared to the rest of the UK was further stoked by the publication in December 2011 of a report by IPPR North which claimed that 84% of planned new infrastructure spending was aimed at London and the south east, compared to just 6% in northern England. The average spend per head in London works out at £2,731 compared to a miserly £5 per head in north east England.[20] IPPR North concluded that this analysis "betray[ed] the government's ongoing failure to take seriously the importance of spatial rebalancing".[21] This report chimes with the conclusions of research by pteg which found that a total of £774 is spent on transport for every Londoner, compared to less than £300 spending per head in Yorkshire and Humberside, the West Midlands and north east England.[22]

13.  Responding in the House to the IPPR report Norman Baker MP, Parliamentary Under-Secretary of State at the DfT, said the report's analysis was "not complete; it did not, for example, include the December announcements on local major projects and did not take into account the further £1 billion from the regional growth fund. It is not a complete analysis".[23] He later pointed out that "it can be difficult and misleading to assign spend to a particular region as the benefits of certain projects can be far more widespread" and published a breakdown by region of spending on schemes announced as part of the autumn statement and on local major transport schemes.[24] In a welcome move, the DfT also now publishes a regional breakdown of its overall spending in its annual report. According to this, spending in 2009-10 in London and south east England accounted for 32% of total identifiable UK expenditure. Spending per head in London was £170 compared to £140 in north east England and £120 in south west England.[25]

14.  There remain concerns that DfT spending, particularly on infrastructure projects, is unduly focused on London and south east England. We acknowledge, however, that calculating how spending is distributed between regions is complex and some projects may well benefit the nation as a whole. We consider that the DfT could do more to ensure that its expenditure plans involve a fair allocation of resources across the nation. We recommend that the DfT's next annual report and accounts includes a more comprehensive analysis of regional spend, including a fuller explanation of how its figures (which are drawn from National Statistics) are arrived at. In addition, we recommend that major new spending announcements, such as the Spending Review or recent autumn statement, should be accompanied by a comprehensive analysis of their regional impact.

Regional Growth and Growing Places Funds

15.  The DfT contributes to two inter-departmental funding schemes announced since the Spending Review.

REGIONAL GROWTH FUND

16.  The Regional Growth Fund is a £1.4 billion fund which operates over three years from 2011 to 2014 and aims to "stimulate private sector investment by providing support for projects that offer significant potential for long term economic growth and the creation of additional sustainable private sector jobs".[26] The fund is administered by the Department for Business, Innovation and Skills: the DfT has contributed £500 million.

17.  In November 2010 the then Secretary of State, Mr Hammond, said:[27]

We have made a sizeable contribution from the transport budget to the regional growth fund, and I will be very disappointed if we don't get at least our money back, and preferably a lot more, in terms of transport projects.

In October, Lin Homer, the DfT's then Permanent Secretary struck a different note, arguing that the Fund was "not ring-fenced to absolute proportionality ... the previous Secretary of State did not go into that looking to get his third specifically spent on transport".[28] The DfT subsequently told us that 21 transport schemes and bids had been approved as part of the first and second Regional Growth Fund announcements, and sent us the list.[29] What remains unclear is how much Government money will be spent on these schemes.

18.  In our view, there are important reasons for the amount of money allocated to the Regional Growth Fund by the DfT to be at least broadly equivalent to the value of the transport schemes the Fund promotes. The principle of parliamentary control over Government spending would be undermined if money which Parliament agreed should be spent on transport was in fact spent on something else. We recommend that the DfT provide us with details of how much it has contributed to the Regional Growth Fund and how that money has been, or is planned to be, used on transport schemes.

GROWING PLACES FUND

19.  The Growing Places Fund is a joint initiative of the DfT and the Department for Communities and Local Government. Intended to tackle short term constraints to infrastructure investment, £500 million is available for allocation in 2011-12, from departmental underspends.[30] The DfT told us that its contribution to the fund was £125 million and that it was likely to be disbursed to groups of Local Enterprise Partnerships.[31] This new fund has the potential to ensure that departmental underspends are used creatively rather than handed back to the Treasury but we are concerned about whether a fair proportion of the fund will be allocated to transport projects. We recommend that the DfT explain how the Growing Places Fund is disbursed and what arrangements are in place to ensure that transport projects benefit in proportion to the DfT's contribution to the Fund.


3   Financial scrutiny, paragraph 7. Back

4   Annual report and accounts 2010-11, DfT, HC (2010-12) 972 (hereafter 2010-11 report and accounts) pp35-37.  Back

5   Ev w3-12. Back

6   HC Deb, 13 Jul 10, c625w and see Reducing costs in the Department for Transport, NAO, 14 Dec 11, HC (2010-12) 1700, figure 1. Back

7   See DfT press release, More than £100 million of extra funding to repair winter potholes, 23 Feb 11 and HC Deb, 15 Mar 11, c284-85w (roads); Ev w2 and HC Deb, 30 Mar 11, c22-23 WS (rail); and also see Budget 2011, HM Treasury, HC (2010-12) 836, paragraphs 1.96-1.97. Back

8   See above. Back

9   Ev w2-3 and see 2010-11 report and accounts, pp48-50. Back

10   See annex A of Autumn Statement 2011, HM Treasury, Cm 8231, Nov 11 (hereafter Autumn Statement). Back

11   See in particular Autumn Statement, paragraphs 1.82-1.96 and National Infrastructure Plan 2011, HM Treasury and Infrastructure UK, Nov 11, paragraphs 3.1-3.58. Back

12   Qq 82-84. Back

13   Q81. Back

14   For example see HC Deb, 30 Jan 12, c 410w (rail schemes). Back

15   Ev 35-36. Back

16   For Northern Hub see Network Rail, Initial Industry Plans 2011: Definition of Proposed CP5 Enhancements, p89. For the bus subsidy see Bus Services after the Spending Review, HC (2010-12) HC 750, paragraph 12. Back

17   Q54. Back

18   Ev w3. Back

19   2010-11 report and accounts, pp79-81. Back

20   On the wrong track: an analysis of the autumn statement announcements on transport infrastructure, IPPR North, Dec 11. Back

21   Ibid., p13. Back

22   2011 pteg funding gap report (http://www.pteg.net/NR/rdonlyres/DC78CD78-F557-44F5-8014-FF35C279B17C/0/pteg_2011FundingGapreport_20111102.pdf) p2. Back

23   HC Deb, 12 Jan 12, c318. Back

24   HC Deb, 31 Jan 12, cc568-71w. Back

25   2010-11 Report and Accounts, p44. Also see Ev 33. Back

26   http://www.bis.gov.uk/policies/economic-development/regional-growth-fund/faq#1. Back

27   Financial Scrutiny, Q11. Back

28   Q68. Back

29   Ev 29-32. Back

30   http://www.communities.gov.uk/documents/regeneration/pdf/2024617.pdf. Back

31   Ev 29. Back


 
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Prepared 23 February 2012