Annual Report and Accounts 2012-13 HC 34 July 2013 Annual Report and Accounts 2012-13 Accounts presented to the House of Commons pursuant to Section 6(4) of the Government Resources and Accounts Act 2000 Annual Report presented to the House of Commons by Command of Her Majesty Annual Report and Accounts presented to the House of Lords by Command of Her Majesty Ordered by the House of Commons to be printed on 16 July 2013 HC 34 London: The Stationery Office £27.00 This is part of a series of Annual Reports and Accounts which, along with the Main Estimates 2012-13 and the document Public Expenditure Statistical Analyses 2012, present the Government’s outturn and planned expenditure for 2012-13. © Crown copyright 2013 You may re-use this information (excluding logos) free of charge in any format or medium, under the terms of the Open Government Licence. To view this licence, visit www.nationalarchives.gov.uk/doc/open-government-licence/ or email [email protected]. 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You can download this publication from www.gov.uk ISBN 9780102985283 PU1497 Printed in the UK by the Stationery Office Limited on behalf of the Controller of Her Majesty’s Stationery Office Printed on paper containing 75% recycled fibre content minimum ID 2569537 07/13 Contents Page Foreword 3 Chapter 1 Introduction 9 Chapter 2 Governing the Treasury 25 Chapter 3 Managing the Treasury 39 Chapter 4 Overview of Treasury’s finances 53 Chapter 5 Statement of Accounting Officer responsibilities 69 Chapter 6 Ministers and senior managers’ remuneration report 71 Chapter 7 Certificate and Report of the Comptroller and Auditor 81 General Chapter 8 Resource Accounts 103 1 Foreword By the Chancellor of the Exchequer, the Rt Hon George Osborne MP This is an important time for the UK economy. There remain significant challenges: the situation in the Eurozone remains fragile and Britain’s deficit remains too high. While there are signs that the British economy is healing, the Government continues to take decisive action to secure the recovery. Over the last year, the Government has taken action to maintain fiscal credibility. Cyclically adjusted general government net borrowing – an internationally comparable measure of the structural deficit – is now forecast by the IMF to have been reduced by 4.3 per cent since 2009, a larger reduction than any other country in the G7. Government departments have over- delivered in making savings in 2012-13, and the Government took action at the Autumn Statement 2012 and the Budget 2013 to reduce resource spending in order to increase growth- enhancing capital investment. Tight fiscal policy has allowed for active monetary policy, helping keeping interest rates low and provide support to the economy. The Funding for Lending scheme launched jointly with the Bank of England last year has reduced bank funding costs, and mortgage rates have fallen significantly. To ensure the Bank of England have all the tools they need to maintain price stability and secure economic recovery, the Government has provided the Bank of England with a new remit that takes account of innovations in monetary policy. The Monetary Policy Committee will report back in August on the use of forward guidance and intermediate thresholds, under the new Governor of the Bank of England, Mark Carney. The Government has continued to undertake structural reform, implementing its Plan for Growth, and Lord Heseltine’s No Stone Unturned recommendations. Investment in infrastructure is a key part of the Government’s economic plan, and we have supported private sector investment through the launch of the UK Guarantee scheme. The first guarantee, underpinning a £75 million loan for the biomass conversion of the Drax power station in North Yorkshire, was signed in April, and we have since confirmed support for the Mersey Gateway as well as announcing that Hinkley Point is eligible for a Guarantee. The Spending Round published in June set out public spending plans for 2015-16. To ensure we continue to reduce the deficit, spending will continue to fall in real terms at the same average rate as it is falling today. But within this, the Government has chosen to prioritise spending on health, schools and our armed forces, and will make £5 billion pounds of savings by reducing the cost of Government. And we set out our commitment to invest even more in our country, with £50 billion pounds of capital investment in 2015-16 and over £300 billion of capital spending guaranteed to the end of the decade. This includes the biggest investment in our roads since the 1970s and £9 billion investment in our railways. Reforming the UK tax system to make it more efficient fair and competitive has continued at pace. In the Budget, we made a historic commitment to raise the personal allowance to £10,000 by 2014 – taking three million of the lowest paid out of income tax altogether. Our reforms to corporation tax mean that by April 2015, Britain will have a 20 per cent rate of corporation tax – the lowest business tax of any major economy in the world. Alongside this, we 3 introduced a new Employment Allowance, taking the first two thousand pounds off the employer National Insurance bill of every company. Through its Presidency of the G7 and G8, the UK has worked to secure international agreement to a fairer and more effective global tax system, to tackle tax avoidance and to new free trade rules to support global growth. A stable financial system is vital for a healthy economy. The Financial Services Act 2012 came into force on 1 April, introducing a new coherent and comprehensive regulatory framework, which replaced the failed tripartite system in place during the financial crisis. The Banking Reform Bill was introduced to Parliament in February and implements many of the recommendations of the Independent Commission on Banking, including ring-fencing everyday banking activities from investment banking activities so taxpayers are better protected when things go wrong. And the Government has confirmed that we will start to plan for our exit from government share ownership of our biggest banks, the Royal Bank of Scotland, and Lloyds Banking Group. We continue to work closely with our international partners in response to global economic risks while ensuring the UK’s interests are protected. The Treasury’s response to the recent financial crisis in Cyprus tested and validated the progress we have made on contingency planning since 2011, providing effective support to the Cypriot authorities. The Ministerial team continue to receive support and advice of the highest standard. I would like to thank them for their continued dedication and hard work. I would also like to thank the Non Executive Board Members – Baroness Sarah Hogg, Dame Amelia Fawcett, Dame Deirdre Hutton and Michael O’Higgins – for the challenge and support they provide to the department. The Rt Hon George Osborne MP 4 Lead Non Executive Board Member’s Report By Baroness Sarah Hogg 2012-13 has seen the Treasury deliver a significant amount on both the economics and finance ministry sides of the Department: from supply side interventions to increase the flow of credit to the real economy; more robust frameworks for spending control; and on the ground assistance to the Cypriot authorities in the first days of their banking crisis. The Treasury has been working hard to ensure Ministers receive a quality service while, as a central government department, continuing to implement increasing cost savings. I have been delighted to lead my fellow Non Executives in another year of work with the Department on this demanding agenda. While the full formal Board has met infrequently, it has provided useful strategic direction to our monitoring of Treasury effectiveness, with periodic assessment of the department’s strengths and weaknesses from Ministers’ perspective. Meanwhile, the Board Sub-Committee of Non Executives and the Executive Management Board has proved an effective forum for regular engagement with, and challenge of, the leadership team responsible for implementing policy and managing the Treasury. My Non Executive colleagues and I have also, this year, taken greater opportunity to extend our challenge function by contributing to work such as micro and macro horizon scanning sessions, the LIBOR retendering process, internal senior pay committees and the provision of advice on individual policy areas, such as growth. Senior management has encouraged and welcomed this and we look forward to maintaining this additional oversight in the coming year. Our Board effectiveness evaluation this year recognised good progress across five review headings, while highlighting a number of areas to be brought under greater focus in 2013-14. Strategic clarity The Treasury continues to demonstrate best practice on the theme of strategic clarity, with a third year of comprehensive, bottom up, business planning. This work examines and challenges all areas of spend in the Department, and the Board has assisted officials and Ministers in rigorously examining options for prioritising or discontinuing work in order to match reducing resources to priorities. At our March Board meeting Ministers, officials and Non Executives met to consider the 2013- 14 business plan, with discussion of the tradeoffs on prioritisation and scaling back of work required if the Treasury is to reach a headcount of 1000FTE while still producing quality support to Ministers on key areas. Ministers have welcomed this approach to business planning, and have tasked Non Executives with continuing to challenge and support the Executive Management Board on resource allocation, delivery capacity and capability, and ideas generation.