Annual Report and Accounts

2020-21

July 2021
HC 436
Annual Report and Accounts
2020-21

Presented to the house of Commons pursuant to Section 6(4) of the Government

Resources and Accounts Act 2000.

Ordered by the House of Commons to be printed on 20 July 2021

HC 436 July 2021

This is part of a series of departmental publications which, along with the Main
Estimates 2020-21 and the document Public Expenditure: Statistical Analysis 2020,
present the government’s outturn for 2020-21 and planned expenditure for 2021-
22.

© Crown copyright 2021

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where otherwise stated. To view this licence, visit nationalarchives.gov.uk/doc/open-
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This publication is available at: www.gov.uk/official-documents.

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ISBN: 978-1-5286-2754-2 PU: 3131

Preface

About this Annual Report and Accounts

This document integrates performance and financial data with analysis to help
readers gain a better understanding of the work of the Treasury and how it spends
taxpayers’ money to deliver the government’s economic and fiscal policies. It covers
the activities of the Treasury from April 2020 to March 2021 (inclusive), and is split
into 4 main sections:

• the Performance report includes a summary of progress and key

milestones achieved during 2020-2021 (the Performance overview),
followed by a deeper dive into the department’s achievements over the
year against each of the 3 policy objectives and the Treasury’s own
corporate objective (the Performance analysis)

• the Accountability report is further split into 3 sub sections and includes: a
Corporate governance report where the Treasury reports on the operating
structure of the department and important transparency matters such as
conflicts of interest and whistle blowing. It also includes a statement of
the Accounting Officer’s responsibilities, and a Governance Statement on
how the Treasury manages risk; a Remuneration and staff report setting
out an open account of the pay and benefits received by ministers,
executive and non-executive members of the Board, disclosures on
Treasury’s pay and pensions policies, and details of staff numbers and
costs; and a Parliamentary accountability and audit report allowing
readers to understand the department’s expenditure against the money
provided to it by Parliament by examining the Statement of Outturn
against Parliamentary Supply. A copy of the audit certificate and report
made to Parliament by the head of the National Audit Office setting out
his opinion on the financial statements is also included in this section

• the Financial statements show the Treasury Group’s income and

expenditure for the financial year, the financial position of the department
as at 31 March 2021, and additional information designed to enable
readers to understand these results

• the Trust Statement provides a record of fine and levy income collected by
Treasury on behalf of government during the financial year
Contents

Foreword by the Exchequer Secretary to the Treasury 2

Chapter 1 Performance report 3

Chapter 2 Accountability report 52

Chapter 3 Financial statements 148

Chapter 4 Trust Statement 223

Chapter 5 Better regulation 234

Chapter 6 Sustainability report 236

Chapter 7 The Treasury Group 247

1
Foreword by the Exchequer
Secretary to the Treasury
Over the past few months, the easing of COVID-19 restrictions, facilitated by the UK’s
world-leading vaccination programme, has brought about the initial phase of our
nation’s recovery from the devasting hold of the pandemic.

While the lifting of restrictions is encouraging, we must not forget the significant
impact that the pandemic has wrought on lives and livelihoods across our country. I
am proud of the central role that HM Treasury took – and continues to take – in the
government’s COVID-19 response.

Over the course of the pandemic, HM Treasury has provided one of the world’s most
comprehensive economic support packages to people and businesses. From the Plan
for Jobs, including our flagship Coronavirus Job Retention Scheme and Self
Employment Income Support Scheme; to ensuring access to finance for businesses of
all sizes; to providing extra financial support for our vital public services, the package
of support announced by the government since the start of the pandemic totals £352
billion.

The past year has also forged the path to building back better from COVID-19. At the
2020 Spending Review, the Chancellor confirmed £100 billion of capital expenditure,
a £27 billion real terms increase on 2019-20. At Budget 2021, together with the
Prime Minister, he cemented his plan to invest in the economy of the future via the
plan for growth, with significant investment in infrastructure, skills and innovation.
Through this plan, the government will pursue growth that benefits the whole of the
United Kingdom, creates quality jobs, enables the transition to net zero, and supports
our vision for Global Britain. At the same time, the government took steps at the
Budget to return the public finances to a more sustainable path over the medium-
term.

HM Treasury has also achieved a number of important milestones outside of the

response to the pandemic. In October 2020, HM Treasury introduced the Financial
Services Act 2021, which will ensure the UK’s world-leading financial services sector
continues to thrive. In December 2020, HM Treasury was closely involved in the
delivery of the UK-EU Trade and Co-operation Agreement. In February 2021, the
Review into the Economics of Biodiversity, led by Professor Sir Partha Dasgupta, was
published.

I am proud of what HM Treasury has achieved over the past year. HM Treasury has
proven itself once more to be a professional, dynamic department. I have confidence
that it will continue to rise creatively and rigorously to the challenges ahead.
Kemi Badenoch MP
Exchequer Secretary to the Treasury
16 July 2021

2
Chapter 1
Performance report

Performance overview
This performance overview sets out how HM Treasury has worked to deliver its
policy and corporate objectives, highlighting its key achievements.

HM Treasury is the government’s economics and finance ministry, maintaining

control over public spending, setting the direction of the UK’s economic policy, and
working to achieve strong and sustainable economic growth.

HM treasury has a very broad remit, and its work touches every UK citizen, as it
covers public spending policy (including departmental spending, public sector pay
and pensions, annually managed expenditure and welfare policy, and capital
investment); financial services policy (including banking and financial services
regulation, financial stability, and ensuring competitiveness); strategic oversight of
the UK tax system (including direct, indirect, business, property, personal tax and
Corporation Tax); and ensuring the economy is growing sustainably, including
through decarbonisation of the economy. And over the last year, in response to the
COVID-19 pandemic, the Treasury has been at the heart of the government’s
economic response to the crisis, developing and implementing unprecedented
packages of support to help millions of people, families and businesses.

Led by The Rt Hon Rishi Sunak MP, Chancellor of the Exchequer, HM Treasury is
committed to: taking a balanced approach to supporting the economy, maintaining
financial and macroeconomic stability while investing in Britain’s future; spending
taxpayers’ money responsibly while maintaining long-term fiscal sustainability; and,
creating stronger and safer banks while improving regulation of the financial sector
and making it easier for people to access and use financial services.

The Chancellor of the Exchequer is supported by his ministerial team: The Rt Hon
Stephen Barclay MP (Chief Secretary), The Rt Hon Jesse Norman MP (Financial
Secretary to the Treasury), Kemi Badenoch MP (Exchequer Secretary to the Treasury),
John Glen MP (Economic Secretary to the Treasury), and The Rt Hon The Lord
Agnew of Oulton (Minister of State, jointly with the Cabinet Office).

HM Treasury had three policy objectives for 2020-21:

1 placing the public finances on a sustainable footing, ensuring value for

money and improved outcomes in public services;

2 ensuring the stability of the macro economic environment and financial

system, enabling strong, sustainable and balanced growth as we leave the
EU; and

3
 3 increasing employment and productivity and ensuring strong growth and
competitiveness across all regions of the UK through a comprehensive
package of structural reforms, taking advantage of the opportunities
provided by leaving the EU.

At Spending Review 2020, HM Treasury set out its three priority outcomes for 2021-
22, published in its 2021-22 Outcome Delivery Plan:

1 place the public finances on a sustainable footing by controlling public

spending and designing sustainable taxes;

2 level up the economy, by ensuring strong employment and increasing

productivity across the regions and nations of the UK; and

3 ensure the stability of the macro economic environment and financial

system.

A highly engaged workforce enables the Treasury to operate as a high-performing

organisation. As part of their commitment to continued corporate progress, the
Executive Management Board sustained the ‘Building a Great Treasury’ change
management programme for delivering our corporate objective: creating a more
open, inclusive and diverse department, underpinned by professionalism, skills and
management excellence. The department has subsequently updated its change
programme, in line with the Government’s ambitions for a Modern Civil Service that
is skilled, innovative and ambitious.

Key issues and risks

The Treasury faces a range of issues and risks in its dual role as the UK’s economics
and finance ministry and a central government department and employer. The issues
and risks faced are diverse in nature and severity and will sometimes be determined
by external forces over which the department may have influence but no control.
Over the course of the year, the Executive Management Board and directors have
actively considered such issues and risks as part of the Treasury’s Risk Management
Framework. The Governance Statement provides further detail.

Mitigating COVID-19 impacts on the economy

The impact of COVID-19 meant the UK economy saw its largest fall in annual output
in over 300 years, with GDP falling by 9.9% in 2020. Activity slowed again at the
start of 2021, as restrictions were tightened to protect public health. This saw GDP
fall by 1.6% through Q1 2021.

HM Treasury officials supported the government to safeguard the economy on a

scale unmatched in recent history, implementing a range of support for workers,
businesses and public services, to protect against the current economic emergency,
and mitigate the threat to macroeconomic stability. The department has worked
closely with the government’s counter fraud function and delivery partners to
mitigate fraud risks where possible against COVID-19 schemes.

As of its March 2021 forecast, the OBR now expects the economy to reach its pre-
COVID-19 size six months earlier (2022 Q2), and for unemployment to peak at 1ppt
lower (6.5%), than in its November 2020 forecast.

4
Managing the transition for HM Treasury staff to work from home, in
accordance with government COVID-19 restrictions
When the pandemic emerged, HM Treasury’s business continuity plans were
implemented, and the majority of staff transitioned to working from home.

To respond effectively, the department provided staff with clear guidance to support
new ways of working, reflecting official guidance; encouraged management
excellence and staff wellbeing; and the roll-out of new technology. Further, the
department completed work to ensure staff could access HM Treasury buildings
safely, in accordance with national restrictions.

The effectiveness of this response enabled the department to increase its outputs to
address the policy challenges of the pandemic, with the delivery of 12 additional
fiscal policy announcements since March 2020, as well as the 2020 Spending
Review and the 2021 Spring Budget.

Preparing for the end of the Transition Period

HM Treasury worked closely with other government departments, the Bank of
England, and the FCA, to feed into UK negotiations with the EU, supporting the
government in negotiations over the UK-EU Trade and Co-operation Agreement.

As part of this, in the period to December 2020 HM Treasury developed plans

ensuring it would be ready for the end of the Transition Period, including
appropriate and proportionate planning for a non-negotiated outcome. This
included working with a variety of stakeholders across government and industry.

Ensuring Ministerial priorities on public expenditure were met in light of

the economic and fiscal context
HM Treasury continued to manage public expenditure and drive value for money
through the 2020 Spending Review and in-year spending controls. Officials
supported ministers in developing policy for funding government priorities,
including capital expenditure and supporting our public services to combat COVID-
19.

5
The Treasury’s finances

Figure 1A: Treasury Group Financial Position as at 31 March 2021

(restated 31 March 2020)1

Derivative financial assets

£15.2bn (£73.6bn)

Investments
£21.3bn (£15.1bn) Liabilities held for sale
£0.1 bn (£nil bn)

Loans to banking customers

£nil bn (£4.7bn)
Provisions
Assets held for sale
£38.6bn (£41.0bn) Treasury
£1.6 bn (£nil bn) Group
Net Assets
Other loans and advances Other payables and
£0.4bn (£2.0bn) financial liabilities £8.1bn
£1.6bn (£1.3bn) (£58.0bn)

Inventories, cash and other

current assets Financial guarantee
£5.3bn (£2.1bn) liabilities
£0.1bn (£0.1bn)

PPE, intangibles and other

non-current assets
£4.7bn (£2.9bn)

Total assets £48.5bn (£100.4bn) Total liabilities £40.4bn (£42.4bn)

Figure 1A shows the total assets, liabilities and net asset position for 31 March 2021 and the prior year.

Detail of the entities which are consolidated into the Treasury Group can be found
in Chapter 7.

HM Treasury has policy responsibility for several public corporations and non-
ministerial departments, which are not consolidated in the Group accounts.

Public corporations include: Bank of England (and its subsidiaries); Financial Conduct
Authority; NatWest Group plc (and its subsidiaries); the Crown Estate; Royal Mint
Trading Fund (and its subsidiary) and Local partnerships LLP.

Non-ministerial departments include: Government Actuary’s Department; National

Savings and Investments and Her Majesty’s Revenue and Customs (and its ALBs).

1 Further information on the Treasury Group’s Consolidated Statement of Financial Position can be found in the Financial Statements

in Chapter 3. Prior year (2019-20) comparatives are shown in brackets.

6
Where we spent money in 2020-21
The Treasury Group’s income and expenditure is reported in the Statement of
Comprehensive Income net Expenditure (SoCNE) (page 148), and the Statement of
Outturn against Parliamentary Supply (SOPS) (page 106).

For the year ended 31 March 2021, the Treasury Group incurred the total net
expenditure after tax of £37.8bn. Of this £37.2bn related to the Treasury Core and
Agencies, and £0.6bn related to our arm’s length bodies (ALBs).

The overview of expenditure by DEL and AME is set out below. Detail on how each
estimate line is linked to HM Treasury’s objectives can be found on page 107-108
and explanations of the variance of outturn against estimate can be found on page
110.

2020-21 2020-21
In £m Estimate Outturn

Resource DEL 347 320

Resource AME 60,272 42,513

Capital DEL 18 8

Capital AME (1,635) (7,470)

The most significant expenditure for the Treasury Group during 2020-21 is the fair
value movement of the Bank of England Asset Purchasing Facility Fund (BEAPPF)
derivative financial asset of £44.8bn (RAME). The Treasury provided the indemnity
for BEAPPF, which was created to implement the quantitative easing programme, as
a part of our objective to ensure the stability of the macroeconomic environment
and financial system, enabling strong, sustainable growth. Other main spend areas
include £430m of provision charge for the Help to Buy ISA scheme (RAME), and
£251m staff costs (RDEL).

The main areas of income and gains for the Treasury Group are:

• £7.7bn of capital income (CDEL) from asset sales and loan repayment (UK
Asset Resolution’s loan sales and repayments of £5.0bn; final repayment
of Ireland loan of £1.6bn; sale of NatWest shares of £1.1bn)

• £2.4bn of resource income (RAME) related EU Financial Settlement:

- EU Financial Settlement provision release of £3.1bn due to changes in

estimates, offset by £0.7bn from the effect of discounting;

- Receivables and payables movements of £0.3bn, due to changes in

estimates and recognition of EU Financial Settlement contingent assets
and liabilities from the prior year.

• £1.5bn of gifts to the Nation relating to the repayment of retail business

rates relief by businesses, which did not have budget impacts as it was
transferred to Consolidated Fund upon receipt.

7
 The total capital grant in kind income of £3.6bn is offset by the capital expenditure
from the asset additions resulting in net nil budget impacts. They include:

• £2.3bn for the transfer of the shareholding in European Investment Bank

from Consolidated Fund; and

• £1.3bn for the transfer of the shareholding in European Bank for

Reconstruction and Development from Foreign, Commonwealth and
Development Office.

Figure 1B: Treasury Group average number of Figure 1C: Core Treasury grade split at 31 March
persons employed (FTE) 2020-21 2021

1.3% 0.4% 0.8%

98 33 11 2.4%
5.7% Student
HM Treasury
13.4% 10.4% Range B
GIAA
527 Range C
DMO
123 NIC Range D
FSCS Range E
288 1865 UKGI Range E2
RH 28.6% SCS 1
37.0%
40 UKAR SCS 2
129 446 OBR SCS 3
RFL

Figure 1B shows the average number of employees across the Figure 1C shows the grade split from student to SCS 3 across the
numerous Treasury Group entities Treasury Group

8
Five-year net expenditure analysis
The below figures show the net expenditure for the Treasury Group across the last
five years.

Figure 1D: Five-year trend analysis – DEL net expenditure (£000)

400
350
300
250
200
150
100
50
0
(50)
(100)
2016-17 2017-18 2018-19 2019-20 2020-21 2021-22
(Actual) (Actual) (Actual) (Actual) (Actual) (Budget)

Resource DEL Capital DEL

Figure 1D shows the five-year trend analysis of DEL expenditure with negative figures
being net income

Figure 1E: Five-year trend analysis – AME net expenditure (£000)

50,000
40,000
30,000
20,000
10,000
0
(10,000)
(20,000)
(30,000)
2016-17 2017-18 2018-19 2019-20 2020-21 2021-22
(Actual) (Actual) (Actual) (Actual) (Actual) (Budget)

Resource AME Capital AME

Figure 1E shows the five-year trend analysis of AME expenditure with negative figures
being net income

RDEL is more consistent, showing less significant volatility year on year compared
with other expenditure. The peak in 2019-20 was predominately due to an extra-
contractual legal settlement. CDEL expenditure peaked at 2018-19 due to the
capital subscription to the Asian Infrastructure Investment Bank and the acceleration
of loans provision as part of the Digital Infrastructure Investment Fund.

RAME expenditure fluctuations were primarily driven by the movement in the

BEAPFF derivative asset. In 2019-20, the movement in the BEAPFF derivative asset
was offset by the recognition of the EU Financial Settlement liability. CAME
fluctuations were mainly driven by NatWest share sales and UK Asset Resolution’s
loan sales. See Treasury Core tables on page 126-128 for more information.

9
Analysis of departmental group’s COVID-19 expenditure
The table below sets out how the departmental group’s funds were spent on
COVID-19. Detail on the Treasury Group’s performance against each objective can
be found from page 107-108 and information on COVID-19 can be found on page
26. None of entities within the Treasury Group has made use of the COVID-19
support schemes.

Analysis of departmental group’s COVID-19 - DEL expenditure

How funds were spent Budget Objective 2020-21 2019-20

Category £000 £000

Additional pay costs of staff recruited throughout Staff Costs 2 25,943 -

the year to bolster the policy response to the
pandemic.
Additional costs for public financing-related Staff Costs 2 2,558 -
activities.
Use of external consultants to provide economic Consultancy 2 6,348 -
modelling of strategically important sectors which
were potentially at risk during the pandemic.
Support also provided for assessments of
companies requiring bespoke or complex
financial assistance.
Use of financial services firms to provide due Professional 2 8,121 -
diligence accountancy analysis and advice on Services
companies requesting bespoke financial
assistance where support through already
established policies were unavailable. Other
services provided include polling and focus
groups in order to gauge the public response to
policies implemented through the pandemic and
external support in order to embed hybrid
working policies.
Additional hardware such as laptops and ICT 4 1,597 246
equipment to enable staff to work from home. Outsourcing
Specialist security equipment to enable data &
security for staff required to work from home on Maintenance
classified material. / Support
Provision of legal advice on the implementation Legal 2 1,058 -
of a number of policy interventions designed in Expenses
response to the pandemic.
Adjustments to office buildings and increased Other 4 481 -
cleaning costs as well as a number of other Accommoda
contract variations in relation to maintaining tion Costs
standards in response of the pandemic.
Total 46,106 246
Unused funding - All funding received by the department in relation to COVID-19 was used.
Use of estimates - The figures in the table above are actuals. As a policy department, a proportion of
standing teams were reprioritised from their usual policy remit for periods of time to support the
response to the pandemic. An estimation of the reprioritised resources to support the pandemic has
not been made.

10
Analysis of departmental group’s COVID-19 – AME expenditure/(income)

How funds were spent Budget Objective 2020-21 2019-20

Category £000 £000

In-year movement of the Covid Corporate Financing Assistance 2 (20,996) (4)

Facility (CCFF) derivative asset, which is an indemnity to financial
between HM Treasury and CCFF, an entity set up by institutions,
the Bank of England, for any losses arising out of or businesses
in connection with the funding facility created to and
purchase high quality Commercial Paper from non- individuals
financial institutions that made a material
contribution to the UK economy. More information
can be found under the “Contingent liabilities not
required to be disclosed under IAS 37” section on
page 116 and note 7 Revaluation of financial assets
and liabilities in the SoCNE.
Additional legal and actuarial advice, and travel and Arm’s 2 75 -
subsistence costs. length
bodies with
AME budget
Use of external consultants and contractors to Arm’s 2 2,603 -
update processes to handle increased claims volumes length
due to COVID-19 and enhancements to make our bodies with
internal processes/system infrastructure capable of AME budget
being fully digital.
Additional hardware such as laptops and equipment Arm’s 4 371 19
to enable staff to work from home. Specialist security length
equipment to enable data security for staff required bodies with
to work from home on classified material. AME budget
Adjustments to buildings and increased cleaning Arm’s 4 1,132 -
costs as well as a number of other contract variations length
in relation to maintaining standards in response of bodies with
the pandemic. Also includes costs incurred to AME budget
prepare Buckingham Palace Road (BPR) site for safe
working conditions and extended material hire.
Increased costs relating to the resurfacing work on Arm’s 2 755 -
BPR, including COVID-19 related inefficiencies length
(changes in working methodology due to social bodies with
distancing) and supporting at risk suppliers. AME budget
Implementation of additional measures to support Arm’s 2 563 -
B&B and NRAM mortgage customers impacted by length
the pandemic, including offering payment deferrals bodies with
of up to six months in line with FCA direction. AME budget
Total (15,497) 15

Unused funding – Budget cover for £574m was sought for CCFF during the supplementary estimate
2020-21, to support the operation of the scheme and cover any potential demands that might
materialise, less expected income. No demands arose in the year, and CCFF generated a gain of £21m.
All other funding received by the department in relation to COVID-19 was used.
Use of estimates – The fair value of the derivative was measured by the net asset of the CCFF. More
detail on CCFF can be found on note 24. Financial risk: management objectives and policies and
sensitivity analysis. The other figures in the table above are actuals. As a policy department, a
proportion of standing teams were reprioritised from their usual policy remit for periods of time to
support the response to the pandemic. An estimation of the reprioritised resources to support the
pandemic has not been made.
Note – AME expenditure is not shown by Budget Category for HM Treasury’s internal reporting.
Estimate lines are used where applicable.

11
Analysis of departmental group’s EU Exit expenditure
The table below sets out how the departmental group’s funds were spent on EU
Exit. Detail on the Treasury Group’s performance against each objective can be
found from page 107-108.

Analysis of EU Exit - DEL expenditure

How funds were spent Budget Category Objective 2020-21 2019-20

£000 £000
Funding provided at the 2019 Spending Review Staff cost 2 35,164 32,529
to support core functions across the
department for use in any EU Exit scenario, in
order to manage the outcomes of the United
Kingdom leaving the European Union at the
end of January 2020.
Accounting and actuarial services relating to Professional 2 1,156 631
the Financial Settlement for EU Exit. Services
Use of legal advisory services relating to Consultancy 2 586 2
Equivalence and related issues. The Equivalence
project relates to the EU’s assessment of
whether the UK legislative regime is equivalent
to the EU’s regime in certain key areas of
financial services.
Consultancy spend relating to the fiscal impact Consultancy 2 306 -
analysis of various EU Exit scenarios.

Total 37,212 33,162

Unused funding – In 2020-21, HM Treasury did not spend £1.60m of ring-fenced reserve funding
received for EU Exit Audit work.
Use of estimates – The figures in the table above are actuals.

Analysis of EU Exit - AME expenditure/(income)

How funds were spent Budget Objective 2020-21 2019-20

Category £000 £000
Net movements of liabilities and assets EU Withdrawal 2 (2,384,750) 37,190,954
arising from the EU Withdrawal Agreement. Agreement
More detail can be found on page 35 of the Financial
Performance Report. Settlement
Total (2,384,750) 37,190,954
Unused funding – Due to unpredictable exchange rate movements and uncertainty over movements in
the underlying assets and liabilities at the time that budgetary cover was sought, a decision was made
to cover a £4.2bn net increase in the liability, thereby generating the variance of £8bn for 2020-21. By
electing to budget for the potential downside, this ensured that a breach in control totals was less
likely to occur. The variance of £9.8bn for 2019-20 was due to the same reason.
Use of estimates - Detail of the estimates is set out in note 1.4 Significant judgments and estimates.

12
Financial risks
In carrying out its activities, the Treasury is exposed to a number of risks, including
financial risks that have arisen due to the UK’s exit from the European Union and
the department’s response to the COVID-19 disruption and the 2008 banking crisis.

The department has a Risk Management Framework in place to consider, manage

and, where possible, mitigate these risks.

The table below outlines a summary of the key financial risks for the Treasury for the
reporting year. Further details on the Treasury’s risk management is in the
Governance Statement in Chapter 2 and Note 24 to the financial statements.

Summary of key financial risks

Type of risk Relates to Carrying amount Note to the
(£ billion) Accounts

Credit risk Loans and investment securities 0.4 12

Credit risk Financial guarantees 0.1 18

Price risk NatWest shareholding 13.6 11

Market risk BEAPFF 15.2 14

Market and currency risk EU financial settlement assets 4.1 9

In addition, the department holds a provision of £36.3bn for the amount payable to
the EU under the financial settlement following the UK’s withdrawal. The amount
that will ultimately be paid is sensitive to a number of factors which are discussed in
Note 17.

Going concern
In common with other government departments, the financing of the department’s
future service provision and liabilities are to be met by future grants of Supply and
the application of future income, approved annually by Parliament. Parliament has
authorised spending for 2020-21 in the Central Government Main Supply Estimates
and there is no reason to believe that future approvals will not be made. It has been
considered appropriate to adopt a going concern basis for the preparation of these
financial statements.

13
Treasury key performance indicators April 2020 – March 2021

Objective 1: Place the public finances on a sustainable footing, ensuring

value for money and improved outcomes in public services
At Spring Budget 2020, the Chancellor announced a review of the fiscal framework,
and the government intends to set out new fiscal rules later in the year, provided
economic uncertainty recedes further. Therefore, the key performance indicators
provided under Objective 1 reflect fiscal metrics that have been commonly included
in previous UK fiscal frameworks, including the 2016 Charter for Budget
Responsibility. This differs from the key performance indicators used in 2019-20,
which included additional metrics specific to the rules that Spring Budget 2020 was
delivered to meet.

Public sector net debt (PSND) as a percentage of GDP

This is a stock measure PSND rose from 84.4% of GDP in 2019-20 to

of the public sector’s 97.4% of GDP in 2020-21. The economic impact
net liability position, i.e. of COVID-19 and the policy support announced
its liabilities minus its by the government have led to a significant
liquid assets. PSND is increase in borrowing and debt. While necessary
broadly the stock and affordable in the short term, this would be
equivalent of public unsustainable over the longer term.
sector net borrowing
but is measured on a Budget 2021 set out measures to return the
cash rather than an public finances to a more sustainable path over
accrued basis. the medium term. In the accompanying Office for
Budget Responsibility (OBR) Economic and Fiscal
Outlook (EFO), PSND was forecast to peak at
109.7% in 2023-24 before falling to 106.2% of
GDP in 2024-25 and to 103.8% of GDP in 2025-
26.

Source: Office for National Statistics and Office

for Budget Responsibility

Public sector net borrowing (PSNB) as a percentage of GDP

The difference between PSNB reached 14.3% of GDP in 2020-21, the

total public sector highest peacetime level of borrowing on record,
receipts and as a result of the economic impacts of COVID-
expenditure on an 19 and the government support measures.
accrued basis each year.
As the widest measure Supported by the measures set out in Budget
of borrowing it is a key 2021, the OBR forecast that PSNB would fall to
indicator of the fiscal 2.8% of GDP by 2025-26.
position. PSNB is the

14
 headline measure of Source: Office for National Statistics and Office
'the deficit'. for Budget Responsibility

Current budget deficit as a percentage of GDP

The current budget The current budget deficit increased from 0.6%
deficit is the difference in 2019-20 to 11.7% of GDP in 2020-21.
between government’s
day-to-day spending The OBR’s March EFO forecast that the current
and its revenue. It is budget deficit would fall in each year of the
measured on an forecast. The current budget almost reaches
accrued basis. balance by 2025-26, at £0.9 billion or 0.0% of
GDP, supported by policy decisions taken at
Budget 2021.

Source: Office for National Statistics and Office

for Budget Responsibility

Objective 2: Ensure the stability of the macroeconomic environment and

financial system, enabling strong, sustainable growth as we leave the EU

Gross Domestic Product (GDP)

GDP shows the total GDP fell by 9.8% in 2020 as a result of the
value of all goods and COVID-19 pandemic and the measures taken to
services an economy contain it. At the 2021 Budget, the OBR
produces. GDP growth forecast the UK’s economy to grow by 4.0% in
is the main indicator of 2021 and 7.3% in 2022, with GDP reaching its
economic activity. pre-COVID-19 level two quarters earlier than
initially expected, by the middle of 2022.

Source: Office for National Statistics and Office

for Budget Responsibility.

CPI inflation

The rate of inflation CPI inflation was 0.9% in 2020, down from
shows the average 1.8% in 2019. At Budget 2021, the OBR
change in the prices of forecast that CPI inflation would climb to target
goods and services over the forecast period, hitting 1.5% in 2021,
bought by households. 1.8% in 2022 and then gradually moving to the
2% target by 2025.

15
 Source: Office for National Statistics and Office
for Budget Responsibility

Objective 3: Increase employment and productivity, and ensure strong

growth and competitiveness across all regions of the UK through a
comprehensive package of structural reforms, taking advantage of the
opportunities provided by leaving the EU

UK employment rate

This shows the headline Before the COVID-19 pandemic, the

measure of progress on employment rate was at a record high of 76.6%
employment. in the 3 months to February 2020. In common
with many countries around the world, COVID-
19 has created a challenging situation for the
labour market. HMRC PAYE data shows the
number of employees on payroll fell by 772,000
between February 2020 and March 2021.

In their March forecast, the OBR expected the

unemployment rate to rise to 5.6% in 2021, up
from 4.5% in 2020, with unemployment
peaking at 5.9% in 2022 before declining
thereafter.

Source: Office for National Statistics, HMRC

PAYE Real Time Information Data, and Office for
Budget Responsibility

Business investment as a share of GDP

Business investment as Business investment totalled 9.2% of GDP (or

a share of GDP affects £195 billion) in 2020. In 2020, business
the UK’s productivity investment fell by 10% in real terms.
and the long-term
sustainable growth In their March 2021 forecast, the OBR assumed
rate. business investment will fall by 2.2% in 2021,
before recovering to its pre-COVID-19 level by
Q2 2022.

Source: Office for National Statistics and Office

for Budget Responsibility

16
Growth in output per hour

Growth in output per Output per hour grew by 0.4% in 2020,

hour is the main however productivity has been particularly
indicator of productivity volatile over the year.
growth.
The OBR assumes that the COVID-19 crisis will
have a negative effect on productivity in the
medium and long run, with output per hour in
2025 around 2% below the level projected in
their March 2020 forecast.

Source: Office for National Statistics and Office

for Budget Responsibility

17
Snapshot of Treasury activity in 2020-21

Month Milestones

April 1 April High street benefits package worth £22 billion came into
effect.
3 April Coronavirus Business Interruption Loan Scheme extended to
all viable small businesses affected by COVID-19; Coronavirus Large
Business Interruption Loan Scheme introduced.
8 April £750 million package of support for charities announced.
13 April £14 billion from the Coronavirus emergency response fund
announced for the NHS and local authorities.
15 April HM Treasury agreed economic action plan with global
counterparts to tackle the world-wide outbreak of COVID-19.
20 April Coronavirus Job Retention Scheme (furlough scheme)
launched.

May 4 May Bounce Bank Loans scheme launched.

12 May Furlough scheme extended until October.
13 May Opening of Self-Employment Income Support Scheme.
20 May £500 million Future Fund opened.

June 22 June Nikhil Rathi announced as the new Chief Executive of the
Financial Conduct Authority.

July 1 July Flexible furlough scheme launched.

8 July The Chancellor announced the Plan for Jobs, introducing the
Kickstart Scheme, the Eat Out to Help Out discount scheme, the VAT
cut on tourism and hospitality-related activities, and more.

August 3 August Eat Out to Help Out scheme launched.

September 2 September Kickstart scheme opened.

24 September The Chancellor unveiled the Winter Economy Plan,
which included a new Job Support Scheme, extension of the Self-
Employment Income Support Scheme, and extension of the VAT cut.

October 4 October Richard Hughes commenced role as Chair of the Office

for Budget Responsibility.
7 October New plans for Freeports outlined.
16 October Film and TV production Restart Scheme opened.
21 October One-year Spending Review announced for 25
November.
21 October Financial Services Bill introduced.

18
 22 October Plan for Jobs financial support schemes increased.

November 5 November Furlough scheme extended to March 2021.

16 November Freeports bidding process opened.
19 November Sport Winter Survival Package announced.
25 November Spending Review 2020 concluded.
26 November Increase in the National Minimum Wage and National
Living Wage.

December 8 December Taxation (Post-Transition Period) Bill introduced.

17 December Independent investigation into the FCA’s regulation
and supervision of London Capital & Finance published.
17 December Furlough scheme extended until April 2021.
17 December Net Zero Review published initial analysis of the green
transition.
31 December End of the EU transition period.

January 1 January Zero rate of VAT applying to women’s sanitary products

comes into effect.

February 2 February Professor Sir Partha Dasgupta’s Review into the

economics of biodiversity published.
16 February John Penrose MP published proposals to strengthen the
UK’s competition regime.
26 February Government completed final sale of Bradford & Bingley
plc and NRAM Limited.
26 February Independent review on the UK’s Fintech strategy, led by
Ron Kalifa OBE, published.

March 3 March Budget 2021.

3 March Publication of the UK Listing Review.
11 March Finance Bill 2021 published.
17 March Amanda Blanc appointed Women in Finance Champion.
19 March Government completed a £1.1 billion sale of part of its
holding in NatWest Group plc.
24 March All principal financial regulators now required to consider
climate change in their remits from HM Treasury.
26 March Final repayment of the bilateral loan to Ireland.

19
Performance analysis
Objective 1: Place the public finances on a sustainable footing, ensuring
value for money and improved outcomes in public services

Lead minister: The Rt Hon Rishi Sunak MP,

Chancellor of the Exchequer

Lead officials: Cat Little, Director General, Public

Spending
Clare Lombardelli, Director General,
Chief Economic Adviser
Beth Russell, Director General, Tax
and Welfare

KPIs: PSND as a percentage of GDP

PSNB as a percentage of GDP
Current budget deficit as a
percentage of GDP

Arm’s length bodies that support Objective 1:

UK Government Investments (UKGI) Government Internal Audit

Agency (GIAA)
UKGI began operating on 1 April
2016 as a government company GIAA was officially launched on 1
and is wholly owned by HM April 2015 and provides assurance
Treasury. UKGI is responsible for to Accounting Officers that financial
managing the government's management practices meet
financial interest in a range of state- required standards.
owned businesses. This includes the
government’s shareholding in
NatWest Group (NWG, formerly the
Royal Bank of Scotland) and UK
Asset Resolution (UKAR).

Office for Budget Responsibility UK Asset Resolution (UKAR)

(OBR)
UKAR is the holding company
Created in 2010 to provide established in October 2010 to
independent and authoritative bring together the businesses of
analysis of the UK’s public finances, Bradford & Bingley plc (B&B) and
the OBR is an Executive Non- NRAM Limited (formerly part of
Northern Rock).

20
 Departmental Public Body (NDPB)
sponsored by the Treasury.

Debt Management Office (DMO)

Established as an Executive Agency

of the Treasury in 1998, the DMO’s
responsibilities include debt and
cash management for the UK
government, lending to local
authorities and managing certain
public sector funds.

Managing public expenditure

The damage done by COVID-19, combined with a level of government financial and
economic support unimaginable at the very start of 2020, has created huge
challenges for the public finances.

In 2020-21, the primary lever for driving effective public expenditure was the 2020
Spending Review, delivered in November. The Spending Review set departmental
budgets and devolved administrations’ block grants for 2021-22, confirming that
core day-to-day spending – that is, before taking into account COVID-19 spending –
will grow at an average of 3.8% a year in real terms over the period 2019-20 to
2021-22. This is the fastest rate in 15 years.

In addition, the Spending Review confirmed a further £38 billion for public services
to continue to fight the pandemic in 2020-21, and £55 billion in 2021-22. This
funding was targeted towards controlling and suppressing the virus and supporting
jobs and businesses.

The Spending Review also announced £100 billion of capital expenditure to kickstart
growth and support jobs in 2021-22. This represented a £27 billion real terms
increase on 2019-20 capital spending, part of the government’s objective of over
£600 billion of gross public investment over the next 5 years.

The 2020 Spending Review furthered the government’s reform agenda by further
strengthening the focus on the outcomes of spending; and by strengthening
financial oversight. It also changed how the government invests in places to put
levelling up at the heart of policy making, including by updating the Green Book
and its application.

HM Treasury also delivered ongoing in-year spending management and

maintenance of the expenditure framework via spending relationships with other
government departments, and through the Main Supply Estimates and
Supplementary Estimates processes.

In March, HM Treasury delivered the 2021 Budget, in which the Chancellor set out a
£65 billion three-point plan to provide support for jobs and businesses as the UK
emerges from the pandemic and forges a path to recovery. This included extensions
to furlough, self-employed support, business grants, loans and VAT cuts. Together

21
with the Prime Minister, he also set out the government’s plan for growth: to drive
jobs, growth and investment to help the economy rebound.

Finally, the Budget set out the scale of the challenge to return the public finances to
a sustainable path, and a number of steps to do so – including by maintaining the
Income Tax personal allowance and higher rate threshold at a steady rate to April
2026, once they rise as planned in 2021-22; and increasing the rate of Corporation
Tax to 25% in 2023.

The significant support for individuals, businesses and public services set out at the
Spending Review 2020 and the Budget totals £352 billion across this year and next
year. Taking into account the measures announced at Budget 2020, which included
significant capital investment, total support for the economy amounts to £407
billion this year and next.

Delivering the government’s fiscal mandate

The economic effects of the COVID-19 pandemic and the government’s response
have resulted in significant increases in borrowing and debt, which are necessary
and affordable in the short term, but which would be unsustainable over the longer
term. Public sector net borrowing is 14.3% of GDP in 2020-21, the highest on
record during peacetime. Public sector net debt is 97.4% of GDP in 2020-21.

The government’s fiscal policy at Spring Budget 2021 prioritised support for the
economy in the short term, while reducing borrowing to sustainable levels once the
economy recovers. The OBR forecast confirms that the current budget deficit as a
share of GDP is expected to fall over the forecast period, and that the current
budget almost reaches balance in the final year of the forecast.

The Treasury will continue to review the fiscal framework, to ensure it remains
appropriate for the macroeconomic context, while ensuring the sustainability of the
public finances. The government intends to set out new fiscal rules later this year,
provided economic uncertainty recedes further.

Fiscal transparency and risk management

The Treasury remains committed to supporting the UK’s high levels of fiscal
transparency.

The Office for Budget Responsibility (OBR) has now been producing independent
economic and fiscal forecasts for ten years, while also producing a number of
reports that fulfil its duty to examine and report on the sustainability of the public
finances.

The OBR also produces biennial Fiscal Risks Reports, providing a comprehensive
survey of potential near-term risks and longer-term pressures on the public finances.
This puts the UK at the forefront of international practice in fiscal risk disclosure and
management. The OBR published its most recent Fiscal Risks Report on 6 July 2021.

22
Tax policy
HM Treasury worked closely across the Policy Partnership with HMRC to deliver the
‘Tax Administration Strategy’, setting out plans for developing the tax administration
system. HM Treasury and HMRC also published a command paper ‘Tax policies and
consultations (Spring 2021)’, alongside which they published around 30 updates for
a number of different areas of policy.

HM Treasury introduced two pieces of primary tax legislation in 2020-21. In

December 2020, the Taxation (Post-transition Period) Act (2020) prepared for the
end of the Transition Period, ensuring the smooth continuation of business across
the UK. For example, it provided the necessary statutory underpinning for VAT,
customs and excise duties and processes to support the practical implementation of
the Northern Ireland Protocol.

In March 2021, the Finance Bill was published to legislate for tax policy announced
at Budget 2021 and previous fiscal events. These changes included the extension of
the stamp duty holiday; increasing the rate of Corporation Tax to 25% on profits
over £250,000 from April 2023; maintaining the Income Tax personal allowance
and higher rate threshold at 2021 levels; and allowing the government to designate
‘tax sites’ in Freeports in Great Britain, where businesses will be able to benefit from
a number of tax reliefs.

Government Finance Function

HM Treasury is responsible for managing public money effectively through its
leadership of the Government Finance Function. In order to develop robust solutions
which are appropriate across government, HM Treasury takes a collaborative
approach with the wider finance community to set priorities and develop learning
products, standards, guidance and tools. The Finance Strategy Board sets the
strategy for the Government Finance Function. The Board is made up of Finance
Directors General from across central government and is chaired by Cat Little, DG for
Public Spending and Head of the Government Finance Function.

In July 2019, the Board set out its 2019-2023 strategy: To put ‘finance at the heart
of decision-making; driving the agenda, not just keeping score’, through the delivery
of 6 objectives:

1 Getting the basics right: Sound forecasting and reporting, with robust
data, efficient transaction processing, and effective management of risk,
supported by standards, policies, guidance and strong functional
leadership.

2 People, diversity and capability: A high performing and diverse function,

with great people in the right roles with the right skills

3 How we operate: A modern digital finance function that delivers quality

services more effectively and efficiently through processes, data
standards, and IT systems that work together

4 Insight: A function informed by analysis, underpinned by good quality

data and supported by analytics and visualisation tools

23
 5 Trusted Partner: The ‘go-to’ partner for colleagues to provide expert
advice and informed decision-making

6 Planning, risk and performance: Driving a strong culture of planning, risk

and performance with integrated financial and business planning, aligned
with robust risk assurance.

In 2020-21, towards these objectives, the Function has continued its digitisation
work through the development of the Online System for Central Accounting and
Reporting (OSCAR II) system, and OneFinance. This will improve financial
management and data provision across government. The Function also led a
number of initiatives to support financial capability and decision-making across
government, including: the delivery of high-quality, specialised training through the
Government Finance Academy; the Green Book Review; establishment of the Risk
Centre of Excellence; and piloting the first £200 million round of the Shared
Outcomes Fund to encourage collaboration between departments on cross-
cutting issues, with an emphasis of thorough evaluation of expenditure.

The Government Finance Functions publishes annual updates on progress

against its strategy on gov.uk.2

2 https://www.gov.uk/government/publications/government-finance-function-strategy-2019-2023

24
Objective 2: Ensure the stability of the macroeconomic environment and
financial system, enabling strong, sustainable and balanced growth as we
leave the EU

Lead minister: The Rt Hon Rishi Sunak MP,

Chancellor of the Exchequer

Lead officials: Mark Bowman, Director General

International and EU

Katharine Braddick, Director General

Financial Services

Clare Lombardelli, Director General

and Chief Economic Adviser

KPIs: GDP
CPI inflation

Arm’s length bodies that support Objective 2:

The Bank of England Financial Services Compensation

Scheme (FSCS)3
The Bank of England has specific
statutory responsibilities for setting The FSCS is a single scheme to
monetary policy, protecting and provide compensation in the event
enhancing financial stability, and of an authorised financial services
subject to those, to support the firm being unable, or likely to be
economic policy of the government, unable, to meet claims against it. It
including its objectives for growth is operationally independent from
and employment. It is operationally the Treasury.
independent from the Treasury.

Macroeconomic stability
The impact of COVID-19 meant the UK economy saw its largest fall in annual output
in over 300 years, with GDP falling by 9.8% in 2020. Activity slowed again at the
start of this year as restrictions were tightened to protect public health. This saw
GDP fall by 1.6% through Q1 2021.

3 The FSCS was reclassified during 2020-21. A result it will be removed from the HM treasury group boundary from 2021-22 and no

longer be consolidated into the Annual Report and Accounts.

25
Before the COVID-19 pandemic, the employment rate was at a record of high of
76.6% in the 3 months to February 2020. However, following this HMRC PAYE data
shows the number of employees on payroll subsequently fell by 772,000 between
February 2020 and March 2021.

The government has acted to support the economy on a scale unmatched in recent
history, implementing a range of support for workers, businesses and public
services, to support near-term growth, and mitigate against longer-term risks of
scarring. A summary of these interventions is set out below. In their March forecast,
the OBR now expect the economy to reach its pre-COVID-19 size six months earlier
(2022 Q2), and for unemployment to peak at 1ppt lower (6.5%), than in their
November 2020 forecast.

During the 2020-21 financial year, the Bank of England’s independent Monetary
Policy Committee implemented measures to respond to the economic shock from
COVID-19 and meet the objectives set out in its remit. These included a £100bn
expansion of the maximum size of the Asset Purchase Facility in June and a further
£150bn expansion in November, taking the total maximum stock of gilt and
corporate bond purchases to £895bn. Consistent with the objectives of the scheme,
the Bank announced that participants of the Term Funding Scheme with additional
incentives for SMEs would be able to extend the term of some of their funding to
align with the term of loans made through the Bounce Back Loan Scheme.

Summary of COVID-19 interventions

Throughout its response to COVID-19, the government has sought to protect
people’s jobs and livelihoods while also supporting businesses and public services
across the UK. The cumulative total of this government support announced since
the start of the pandemic is £352 billion4.

Support for individuals

The Coronavirus Job Retention Scheme (CJRS) was introduced to help employers
whose operations have been severely affected by COVID-19 to retain their
employees and protect the UK economy. All businesses across the UK can access
the scheme, with employees receiving 80% of their usual salary for hours not
worked, up to a maximum of £2,500 per month. At Budget 2021, the Chancellor
extended the CJRS until the end of September 2021. As at 14 June 2021, there
have been 11.6 million unique jobs supported by the CJRS since its inception. A
total of 1.3 million employers have made a claim through the CJRS since it started
in March 2020, totalling £65.9 billion in claims.

In line with the extension to the CJRS, at Budget 2021, the government
announced an extension to the Self-Employment Income Support Scheme (SEISS)
until September 2021. The fifth and final SEISS grant, covering May to
September, will include a turnover test which will determine whether individuals

4 The figure published by the NAO was £372bn (https://www.nao.org.uk/covid-19/cost-tracker/). The difference is due timing

differences of producing the cost estimates, and the different ways of measuring the cost of COVID-19 support. HM Treasury’s
number measures the total fiscal support provided to the economy, including public services, individuals and businesses. The NAO
cost tracker provides an estimate of the gross costs of COVID-19 policy interventions, which include measures funded from
department’s own resources.

26
can continue to receive a grant worth 80% of 3 months' average trading profits,
capped at £7,500, or a 30% grant, capped at £2,850. To date, 2.9 million
individuals have claimed at least one of the four Self-Employment Income Support
Scheme grants. In total, £25.2 billion has been claimed across 9.1 million total
claims. The claims window for the fourth Self-Employment Income Support
Scheme grant closed on 1 June.

To continue to support people on low incomes during the COVID-19 crisis, the
government put in place a temporary £20 per week uplift to the Universal Credit
(UC) standard allowance. HM Treasury also provided £3.6 billion additional
funding in 2021-22 for the Department for Work and Pensions (DWP) to deliver
employment support to those who need it most. HM Treasury also ensured
support for people facing hardship while self-isolating by providing the
Department of Health and Social Care (DHSC) with funding for the Test and Trace
Support Payment.

The government and Financial Conduct Authority put in place UK-wide mortgage
and consumer credit payment holidays for borrowers, and over 2.7 million
mortgage and 1.7 million consumer credit payment holidays have so far been
granted to borrowers impacted by the pandemic. To further stimulate market
activity, and support businesses and jobs in England and Northern Ireland that
rely on the property market, the government put in place a temporary Stamp Duty
Land Tax relief.

Support for businesses

The government has provided comprehensive economic support to protect
businesses from the impacts of the pandemic, helping them to plan for
subsequent months. Over the course of the pandemic, the government has made
up to £25 billion available for business grants in England. Between April and
September 2020, the government provided over £11.6 billion worth of grants to
businesses in England through the Small Business Grant Fund, the Retail,
Hospitality and Leisure Grant Fund, and the Local Authority Discretionary Grant
Fund. We have provided nearly £3.4 billion for new Restart Grants, £2.1 billion for
the Additional Restrictions Grant (ARG); and £8 billion for the previous Local
Restrictions Support Grants (LRSG), and Closed Business Lockdown Payment.
These schemes provided support to businesses in some of the sectors hit hardest
by COVID-19.

Businesses across the devolved administrations have benefitted from UK-wide

support schemes such as the CJRS, SEISS, business loans and tax deferrals. The
devolved administrations also received an additional £4.7 billion Barnett funding
at Spending Review 2020, and Budget 2021 announced a further £2.4 billion of
funding. In addition to this, the government confirmed a further £2.1 billion in
February 2021 that the devolved administrations can spend in 2020-21 or 2021-
22.

Businesses have also been able to use the access to finance schemes, as of 21
March, the Coronavirus Business Interruption Loan Scheme (CBILS), the
Coronavirus Large Business Interruption Loan Scheme (CLBILS) and the Bounce
Back Loan Scheme (BBLS) have collectively approved more than £75 billion worth
of finance through more than 1.5 million facilities to support businesses of all
sizes to get through the pandemic. Additionally, the Future Fund and Covid
Corporate Financing Facility (CCFF) have provided a total of £1.1 billion and £38
billion in support to businesses respectively. The CBILS, CLBILS, BBLS, Future Fund

27
and CCFF are now closed for applications. Following the closure of these
emergency COVID-19 loan schemes, the new Recovery Loan Scheme opened to
new applications on 6 April 2021 and will run until 31 December 2021.

Support for public services

In addition to the substantial support offered to individuals and businesses, the
government took extensive action to ensure public services are supported and
resilient to the pressures of this pandemic. In 2020-21, the government provided
over £100 billion of support across the UK, and at SR20 the government
announced a further £55 billion to support the public services response to COVID-
19 in 2021-22, including £2.6 billion for the devolved administrations.

This includes £63 billion for frontline health services across the UK, including
around £5 billion for the procurement and deployment of vaccines; over £8 billion
of support for local authorities; and £14 billion to keep the country’s transport
networks moving.

The UK vaccination programme

The world-leading UK vaccination programme allowed the government to ease
restrictions across England and support the economic recovery from COVID-19.
Over the course of 2020-21, the government entered into agreements to secure
COVID-19 vaccines for the UK population. Given the uncertainty over which
vaccines would prove successful, the government made multiple agreements with
vaccine developers, to maximise the chance of access to a safe and effective
vaccine. Including recent agreements, the government has now secured early
access to 397 million vaccine doses with six separate vaccine developers, and
reservation agreements with two vaccine developers for a further 110 million
doses.

Multiple vaccines have now received regulatory approval, and following the start
of the vaccine rollout in December 2020, the programme has made rapid
progress. Everybody in cohorts 1-9 – those aged 50 and over, the clinically
vulnerable and health and social care workers – were offered a vaccine ahead of
the government’s 15 April 2021 target. The government is on track to hit its
target of offering a vaccine to all adults by the end of July 2021.
International cooperation
Throughout the year, HM Treasury worked closely with all its international
partners on the international economic response to COVID-19. The UK made
significant contributions to the Access to COVID Tools Accelerator (ACT-A), having
committed £548m to the COVAX Advanced Market Commitment to subsidise
low- and middle-income country access. This is part of a package of over £1bn in
UK Overseas Development Assistance (ODA) support for the global health
response, including £250m to the Coalition for Epidemic Preparedness Innovation
(CEPI).

At the UN General Assembly in September 2020, the Prime Minister announced

support for the World Health Organisation (WHO) in its role coordinating the
global response to COVID-19 and strengthening developing country health
systems, with a core contribution of £340 million over the next 4 years. This
represents a 30% increase to existing funding.

In 2020 the UK provided a new £2.2 billion loan in April to the IMF’s Poverty
Reduction and Growth Trust, maintaining the UK’s position as one of the largest

28
 lenders, and in March 2020 became the first country to commit new financing of
£150 million to the IMF’s Catastrophe Containment and Relief Trust. This has
helped to provide the Fund with the resources it needs to provide support to low
income countries to tackle the impacts of the virus.

The department worked with G20 partners to take forward delivery of the G20
Action Plan for response to COVID-19 and agree further commitments at a joint
meeting of G20 Finance and Health Ministers in September 2020. As part of the
UK’s G7 presidency, the Treasury has also leveraged the G7 finance track to
coordinate on COVID-19 response and recovery and make progress on a package
of support for vulnerable countries.

COVID-19 costings
Responsibility for the CCFF scheme sits with HM Treasury; responsibility for other
COVID-19 schemes sit with other government departments. The latest costings of
the response to COVID-19 were completed at the 2021 Budget and can be found
in the Budget document on gov.uk.5

Macroeconomic framework management

The UK’s macroeconomic framework is designed to deliver the government’s
economic policy objective of achieving strong, sustainable and balanced growth.
Credible fiscal policy, alongside price and financial stability are essential pre-
requisites to achieve this objective in all parts of the UK and sectors of the economy.

The fiscal framework and the Charter for Budget Responsibility (“the Charter”) form
a significant part of the macroeconomic framework. The purpose of the Charter is to
improve the transparency of the government’s fiscal policy framework. As outlined
above, the Treasury will continue to review the fiscal framework to ensure it remains
appropriate for the macroeconomic context, while ensuring the sustainability of the
public finances.

In line with the Bank of England Act 1998 (as amended by the Financial Services Act
2012), the Chancellor published the Financial Policy Committee (FPC) remit and
recommendations, and the Monetary Policy Committee (MPC) remit at Budget
2021.

The Chancellor re-confirmed the inflation target within the MPC remit as 2%, as
measured by the 12-month increase in the Consumer Prices Index. He also set out
the priorities for the FPC, whose primary objective is to monitor and remove systemic
risks to protect and enhance financial stability, working with the Prudential
Regulation Authority and Financial Conduct Authority (FCA) where needed.

Subject to achieving their primary objectives, the MPC and FPC continue to have
secondary objectives to support the economic policy of the government. The
Chancellor stated at the Budget, within the MPC’s remit and FPC’s remit and
recommendations, that the government’s economic objective continues to be
strong, sustainable and balanced growth. The description of the government’s
economic strategy was updated in the remits to reflect the importance of

5 https://assets.publishing.service.gov.uk/government/uploads/system/uploads/attachment_data/file/966868/BUDGET_2021_-

_web.pdf

29
environmental sustainability and the transition to net zero. The Chancellor asked
that the FPC have regard to the impact of their policies on the government’s
economic strategy and seek to support the relevant elements of these where
appropriate.

Letters of recommendations to the FCA and to the Prudential Regulation Committee

(PRC) were issued on 23 March 2021. These letters made recommendations about
matters of government economic policy which the regulators should have regard to
in advancing their objectives and discharging their relevant duties. These letters
included a new recommendation that the FCA and PRC have regard to the
government’s commitment to achieve a net zero economy by 2050 under the
Climate Change Act 2008.

Financial stability
HM Treasury worked closely with the Bank of England and the Financial Conduct
Authority to monitor the implications of COVID-19 on the UK financial system,
through existing contingency planning co-ordination arrangements.

To support the broader financial stability agenda, between December 2020 and
February 2021, the Treasury appointed an independent panel, chaired by Keith
Skeoch, to conduct two separate statutory reviews. The first review will consider the
operation of the legislation related to ring-fencing, which requires large UK banks to
separate retail banking from the rest of their business, to protect retail customers
from risks elsewhere in the bank and in the wider financial system. The second
review will consider banks’ proprietary trading activities, and whether any risks
relating to these activities are appropriately mitigated. The panel is expected to
submit reports on both reviews in the next performance year.

In 2020-21, the government also continued its sale of assets acquired during the
2008-09 financial crisis. On 19 March 2021, HM Treasury and UKGI sold
approximately £1.1 billion worth of government-owned NatWest Group (formerly
RBS Group) shares, equivalent to 4.86% of the company, via a directed buyback
transaction (an off-market sale of shares directly to NatWest). This reduced the
government's shareholding in the bank from 61.7% to 59.8% after share
cancellation by NatWest.

Following a Prudential Regulation Authority (PRA) letter to the largest deposit-takers

in response to COVID-19 (published March 2020), NatWest agreed to suspend
dividends for the remainder of 2020. The PRA announced in December 2020 that it
would not extend these capital restrictions on banks, although any capital return to
shareholders in relation to Financial Year 2020 would be subject to temporary
earnings and capital-based ‘guardrails’. In February 2021, at its Full Year 2020
results, NatWest announced a 3 pence per share final dividend, which equates to
£208 million for HM Treasury. This was paid on 4 May 2021, based on the
government’s 59.8% shareholding at the ex-dividend date of 25 March 2021.

30
At Budget 2021, the government set out its intention to undertake a full disposal of
its NatWest shareholding by 2025-26, subject to market conditions and achieving
value for money for taxpayers.6

Sale of financial sector assets from the government’s interventions in the 2008-09
financial crisis

During 2020-21, HM Treasury made further progress in returning the financial

sector assets acquired as a result of the 2008-09 financial crisis to the private
sector. On 26 February, HM Treasury, UK Asset Resolution (UKAR) and UK
Government Investments (UKGI) announced that a deal had been agreed to sell
Bradford & Bingley plc (B&B), NRAM Limited and their remaining loan assets to a
consortium of Davidson Kempner Capital Management LP and Citibank, with
financing provided by funds managed by Pacific Investment Management
Company LLC (PIMCO). This sale will complete in summer 2021, subject to FCA
approval, and has generated proceeds of circa £5 billion. Like previous UKAR asset
sales, all bidders were required to agree to robust, non-negotiable customer
protections before their bids were considered on the basis of other factors.

Figure 1F:
Total value of B&B and NRAM loans held under UKAR (£bn)*

52.7

35.5

19.5
17.2

5.5 4.7
0

2014-15 2015-16 2016-17 2017-18 2018-19 2019-20 2020-21

*Includes assets held for sale

Figure 1F: shows the decreasing value of mortgage and loan portfolios held under UKAR from 2014-15 to 2020-
21.

Financial services

In October 2020, HM Treasury introduced the Financial Services Act 2021 to ensure
the UK’s world-leading financial services sector continues to thrive and grasp new
opportunities on the global stage. The Bill was designed to:

• enhance the UK’s world-leading prudential standards and promote

financial stability;

6 On 22 July 2020 RBS Group plc changed the name of its parent company to NatWest Group plc

31
 • maintain an effective financial services regulatory framework and sound
capital markets; and

• promote openness between the UK and international markets by

simplifying the process to market overseas investment funds in the UK and
delivering a Ministerial commitment to provide long-term access between
the UK and Gibraltar for financial services firms.

HM Treasury also undertook a series of activities to unlock private investment in the

UK. This included commissioning the UK Listings Review, led by Lord Hill; consulting
on reforming the UK’s regime for investment funds; and committing to establishing
the UK’s first Long-Term Asset Fund to unlock pension fund capital.

This work was complemented by a series of reviews to support innovation and

competition in the UK financial services industry. This includes supporting the Kalifa
Review of UK FinTech; the Payments Landscape Review; and a consultation and call
for evidence on cryptoassets and stablecoins.

Finally, HM Treasury led the government’s work on financial services trade. HM

Treasury granted the EU and EEA member states a package of equivalence decisions,
delivering on its commitment to be open, predictable and transparent, and
providing certainty for firms in both the UK and the EU. The department also led the
negotiation with the EU of a Memorandum of Understanding (MoU) on financial
services, where technical agreement was announced on 26 March 2021. The MoU
will establish the Joint UK-EU Financial Regulatory Forum, which will serve as a
platform to facilitate dialogue on financial services issues between the UK and EU.
HM Treasury also continued to enhance our financial services relationships with key
partner economies, including through the UK-US Financial Regulatory Working
Group; and through an agreement with Switzerland to negotiate a comprehensive
financial services deal.

Global Britain
HM Treasury has continued to work closely with bilateral and multilateral partners to
protect and promote the UK’s global economic interests; and support an open,
rules-based global economy, underpinned by strong international institutions.

Throughout the year, the department worked to ensure the health of international
financial and economic architecture. On the multilateral stage, HM Treasury’s
contribution to the work of the G20 and international financial institutions, and the
early months of leading the finance track of the UK G7 Presidency, focussed on
COVID-19 policy.

Work with the G20 Presidency included delivering a set of shared G20 commitments
to address the health and economic impacts of the crisis, including through the UK’s
role as co-chair of the G20 Framework Working Group, which provides the G20
membership with analysis and policy recommendations to support the
commitments. HM Treasury also played a key role in shaping a meeting of G20
Finance and Health Ministers in September 2020, which reached agreements on
G20 support to COVID-19 Vaccines Global Access (COVAX) to increase countries'
access to vaccines, and strengthening information sharing between members to
enhance decision making. In addition, through its G20 membership, HM Treasury

32
delivered agreements to extend the Debt Service Suspension Initiative and agree a
‘Common Framework’ on future debt treatments in light of COVID-19.

Through its IMF shareholding, the UK approved an unprecedented volume of

emergency financing requests to support emerging markets and developing
economies through the COVID-19 crisis. The UK provided a new £2.2 billion loan in
April to the IMF’s Poverty Reduction and Growth Trust, maintaining the UK’s
position as one of the largest lenders, and in March becoming the first country to
commit new financing of £150 million to the IMF’s Catastrophe Containment and
Relief Trust.

The UK also assumed the Presidency of the G7 Group of advanced economies in

early 2021, with the Chancellor becoming Chair of meetings between G7 Finance
Ministers and Central Bank Governors. The department is leading the government’s
work on the G7 “finance track”; by, working to co-ordinate the G7’s COVID-19
response and recovery, the UK and its G7 partners have made progress on a
package of support for vulnerable countries, including securing G7 support for a
new International Monetary Fund (IMF) Special Drawing Rights allocation.

Aside from COVID-19 priorities, the Chancellor also used his first meeting as Chair of
G7 Finance Ministers and Central Bank Governors in February 2021 to emphasise the
need for policy focus on climate change ahead of the COP26 conference in
November 2021. Preparation for COP26 continued throughout 2020-21 and
included collaboration on the finance track with Multilateral Development Banks,
partner economies, businesses, and stakeholders across the public sector.

Throughout the year, HM Treasury officials supported the Chancellor and his
Ministerial team to enhance bilateral relationships with international economic and
trading partners. HM Treasury held Economic and Financial Dialogues with India and
Brazil; and used our relationships with partners to exchange information on
approaches to issues including the response to COVID-19. The department also
worked closely with the department for International Trade, HM Revenue & Customs
and other government departments to develop and implement the UK Global Tariff
(UKGT): the UK’s first tariff schedule in almost 50 years.

Throughout 2020-21, HM Treasury worked with other departments across

government, to support the government’s negotiations with the EU and prepare for
the end of the Transition Period, including with respect to the Northern Ireland
Protocol. The department led on the Rules of Origin, National Treatment and Market
Access for Goods, and Tax chapters of the Trade and Cooperation Agreement
agreed in December 2020. HM Treasury also led on Customs and Trade Facilitation,
Financial Services, and customs aspects of the Northern Ireland Protocol
implementation; and co-led on negotiations on the terms of UK participation in EU
programmes.

HM Treasury officials also focussed on ensuring the government was prepared for
the end of the Transition Period, continuing to lay and make SIs to ensure UK laws
were fully prepared, and supporting delivery of the Europe (Future Relationship) Bill.
The department progressed plans to be ready for a variety of outcomes, including
appropriate and proportionate planning for a non-negotiated outcome, and worked
with a variety of stakeholders across government and industry to ensure businesses
and citizens could prepare for EU Exit.

33
Since the Trade and Co-operation Agreement was reached in December 2020, HM
Treasury officials have supported its successful implementation, and assisted
businesses as they transition to the new trading arrangements under the agreement.
Following the implementation of the Northern Ireland Protocol on 1 January 2021,
HM Treasury has collaborated closely with HMRC on the implementation of the
agreed terms, including new customs processes in Northern Ireland. In addition, HM
Treasury worked with Foreign, Commonwealth and Development Office in early
2021 to prepare for the upcoming negotiations on Gibraltar’s future relationship
with the EU.

With regard to tackling illicit finance, the department created a Technical Assistance
Unit to support developing countries in meeting Financial Action Taskforce (FATF)
standards; legislated for the UK’s first autonomous list of high-risk third countries
for money laundering and counter terrorist financing; and continued to drive
forward the UK’s Economic Crime Plan. HM Treasury also worked with the FCDO to
implement an extensive programme of secondary legislation transferring existing UN
and former EU sanctions regimes into UK domestic law and helped to design and
launch the Global Human Rights Sanctions Regime.

EU withdrawal: the financial settlement

HM Treasury continued with implementation of the financial settlement, as set out
in the financial provisions of the Withdrawal Agreement. This represents a
settlement of the UK’s financial commitments to the EU and the EU’s financial
commitments to the UK, which result from the UK’s participation in the EU budget,
and other commitments relating to our former EU membership.

The European Union (Withdrawal Agreement) Act 2020 implements the Withdrawal
Agreement. Under the main financial provision of the Act, obligations under the
financial provisions of the Agreement that fall due after 31 March 20217, will be
funded from Supply rather through a Consolidated Fund Standing Service. HM
Treasury will account for the financial settlement obligations and payments falling
due after 31 March 2021. Obligations which fell due before 31 March 2021, such
as Budget contributions during the transition period, and payment of customs
duties on imports from outside the EU before the end of the transition period are
met by the Consolidated Fund, which held the shareholding in the European
Investment Bank (EIB) before transferring it to HM Treasury from 31 March 2021.
The first payment of the UK’s uncalled subscribed capital in the EIB was returned to
the UK on 15 October 2020.

HM Treasury officials co-chair the Specialised Committee on Financial Provisions

(SCFP) with officials from the European Commission. The SCFP is tasked with
technical work related to implementing the financial provisions in Part V of the
Withdrawal Agreement. It meets regularly to oversee delivery of the reporting on the
Withdrawal Agreement which underpin assurance arrangements relating to the
financial settlement. The European Commission delivered detailed reports on
implementation of the financial settlement at the end of March 2021, and the first
request for payment of net liabilities on 16 April. The first payment under the
financial settlement fell due on 30 June 2021.

7 with the exception of customs duties relating to the period up to the end of 2020

34
Further information on the financial impact of EU withdrawal, and the treatment of
the financial settlement in government accounts, is included in Annex E of the
“European Union Finances” publication series. The Whole of Government Accounts8
sets out the financial reporting impacts of the UK’s withdrawal from the EU across
the public sector.

Summary of the financial settlement as it appears within HM Treasury ‘s accounts

Nature of balance Note Value (£m) Consists of

Provisions 17 36,300 Reste a Liquider (RAL), pensions, legal

cases
Trade and other receivables 9 (4,109) Cash returns relating to the EU’s
guarantee funds, share of investment
in European Coal and Steel
Community and European Investment
Fund, budget adjustment,
infringement, fine income for final,
and European Investment Bank
Trade and other payables 16 362 Cash payments relating to the EU’s
guarantee funds and budget
adjustments
Total amount recognised 31 32,553
March 2021
Contingent assets 22 1,492 Fines imposed on companies found
in breach of EU antitrust rules
Contingent liabilities 23 271 Legal cases
Non-IAS 37 contingent Page 117 30,674 European Investment Bank callable
liabilities and returned paid in capital

Additional disclosures are included in Note 1.4 – Significant judgements and

estimates and Note 24.3 – Financial risk, Core Treasury and Agencies – EU Financial
Settlement.

8 https://www.gov.uk/government/publications/whole-of-government-accounts-2018-2019

35
Objective 3: Increase employment and productivity, and ensure strong
growth and competitiveness across all regions of the UK through a
comprehensive package of structural reforms, taking advantage of the
opportunities provided by leaving the EU

Lead minister: The Rt Hon Rishi Sunak MP,

Chancellor of the Exchequer

Lead officials: Phil Duffy, Director General Growth

and Productivity

Clare Lombardelli, Director General

and Chief Economic Adviser

Beth Russell, Director General Tax

and Welfare

KPIs: UK employment rate

Business investment as a share of
GDP
Growth in output per hour

Arm’s length bodies that support Objective 3:

National Infrastructure Commission Office for Tax Simplification (OTS)

(NIC)

The NIC provides the government Created in 2010 to provide the

with impartial, expert advice on government with independent
major long-term infrastructure advice on simplifying the UK tax
challenges. It was established as system, the OTS is an independent
part of the Treasury in 2015 and office of the Treasury.
became an Executive Agency of the
Treasury on 24 January 2017.

Levelling up
At the 2021 Budget, the government confirmed the next stage of the levelling up
agenda, including continued support for local communities and local priorities
across the UK. This includes the first eight Freeports that will be national hubs for
trade, innovation and commerce, regenerating communities across the country, and
the launch of the first round of the £4.8bn Levelling Up Fund, to invest in local
infrastructure that has a visible impact on people and their communities and
support economic recovery. The government also announced a further 45 towns

36
across England that will benefit £1 billion funding from the Towns Fund to support
their long-term economic and social regeneration as well as their immediate
recovery from the impacts of COVID-19.

Throughout the year, HM Treasury also began preparing for the new economic
decision-making campus in Darlington as part of the Places for Growth programme
- which aims relocate 22,000 civil service roles out of London and the South East by
2030.

Encouraging long-term investment and sustainable economic growth

The government’s long-term programme of policymaking to foster economic
growth was set out at Budget 2021 in Build Back Better: our plan for growth. This
plan set out the government’s commitments to support growth through significant
investment in infrastructure, skills and innovation, and to pursue growth that levels
up every part of the UK. The plan also enables the transition to net zero and
supports the vision for a Global Britain.

The plan followed on from the 2020 Spending Review’s provision of £100 billion of
capital expenditure in 2021-22, with a focus on increased infrastructure investment
via the National Infrastructure Strategy. This strategy’s objectives will be supported
by the creation of the new UK infrastructure bank to catalyse private investment in
projects across the UK; as well as through a comprehensive set of reforms to the
way infrastructure is delivered. The strategy also reaffirmed the government’s
commitment to maintaining and building on the UK’s high-quality system of
independent economic regulation as a stable foundation for supporting private
investment. To complement the strategy, HM Treasury officials have led the delivery
of the Project Speed infrastructure delivery taskforce, implementing the
government’s public investment projects more strategically and efficiently.

At Budget 2021, the Chancellor announced a number of measures to stimulate

private sector investment, alongside that of the government. This included
supporting business investment through an unprecedented ‘super deduction on
taxable profits’; two Help to Grow programmes to support SME growth and
productivity; and the launch of the Future Fund: Breakthrough, a new £375 million
direct co-investment fund that will increase the availability of scale-up capital for
R&D-intensive UK businesses seeking funding at later round.

In addition, the Budget announced reforms to the immigration system to help UK

businesses attract and retain the most highly skilled talent from around the world.
To support trade and private investment, the Budget also set out the eight locations
that were successful in the Freeports bidding process for England. Freeports will
allow the government to designate ‘tax sites’ in Great Britain, where businesses will
be able to benefit from a number of tax reliefs. Freeports will be a UK-wide policy,
and the government will work constructively with the Scottish, Welsh, and Northern
Irish administrations on this.

Green growth
HM Treasury supported the development of the Prime Minister’s Ten Point Plan for a
green industrial revolution, which will mobilise £12 billion of government

37
investment to create and support up to 250,000 highly skilled green jobs in the UK,
and spur over three times as much private sector investment by 2030.

The 2021 Budget built on the Ten Point Plan as well as the support announced at
the Spending Review. For example, it announced further details on the timings and
size of the UK’s inaugural green gilts, as well as plans for a linked green retail
product to be offered by NS&I, which will play an important role in financing critical
expenditure to tackle climate change.

The year also saw important progress on two reviews. In February 2021, the Review
into the Economics of Biodiversity, led by Professor Sir Partha Dasgupta, was
published. The Treasury will examine the review’s findings and respond in due
course. In December 2020, HM Treasury published the interim findings of its Net
Zero Review, considering how the transition to a net zero economy could be
funded, and where the costs and opportunities could fall. The final report will be
published later in 2021.

Further information covering how HM Treasury has integrated sustainability into its
policymaking is contained in the Chapter 6 – Sustainability Report.

Supporting the union

Over the reporting year, HM Treasury, working with others, has continued to deliver
on the government’s objectives to support economic growth in all parts of the UK,
including Scotland, Wales and Northern Ireland. The government has committed to
support all nations of the UK in the response to COVID-19 through a range of UK-
wide support schemes, additional funding for the devolved administrations and a
world-leading vaccination programme.

Scotland
From the start of the COVID-19 pandemic to the end of March 2021, the Scottish
Government has benefitted from £13.4 billion of additional funding through the
Barnett formula, with the initial tranche of additional funding confirmed through an
unprecedented upfront funding guarantee announced in July 2020. Using a newly
agreed flexibility to transfer £1.2 billion between financial years, the Scottish
Government is spending £8.6 billion of the additional funding in 2020-21 and £4.8
billion in 2021-22. This funding has enabled the Scottish Government to provide
support to individuals, businesses and public services across Scotland in response to
COVID-19 and will continue to support the recovery through 2021-22.

Alongside this Barnett-based funding, Spending Review 2020 confirmed further

funding for the Scottish Government in 2021-22. The government confirmed £570
million in targeted support to farmers in Scotland and £14 million in support to the
Scottish fisheries sector in 2021-22. In addition, Scotland will benefit from
investment of £27 million in the Aberdeen Energy Transition Zone and £5 million in
the Global Underwater Hub, the first stage in delivering the North Sea Transition
Deal.

The government has also continued to support City and Growth Deals in Scotland.
Spending Review 2020 accelerated investment to four deals by reprofiling the Tay
Cities, Borderlands, Moray and the Scottish Islands deals from 15 to 10 years. At

38
Budget 2021, a further four deals – Ayrshire, Falkirk and Argyll and Bute – were also
re-profiled from 15 years to 10 years to accelerate investment.

Wales
From the start of the COVID-19 pandemic to the end of March 2021, the Welsh
Government has benefitted from £7.9 billion of additional funding through the
Barnett formula, with the initial tranche of additional funding confirmed through an
unprecedented upfront funding guarantee announced in July 2020. Using a newly
agreed flexibility to transfer £660 million between financial years, the Welsh
Government is spending £5.2 billion of the additional funding in 2020-21 and £2.7
billion in 2021-22. This funding has enabled the Welsh Government to provide
support to individuals, businesses and public services across Wales in response to
COVID-19 and will continue to support the recovery through 2021-22.

Alongside this Barnett-based funding, Spending Review 2020 confirmed further

funding for the Welsh Government in 2021-22. The government confirmed £240
million in targeted support to farmers in Wales and £2.1 million in support to the
Welsh fisheries sector in 2021-22. Budget 2021 also committed to investment of
£4.8 million in the Holyhead Hydrogen Hub, and up to £30 million in the Global
Centre for Rail Excellence, subject to business case.

The government has also continued to support City and Growth Deals in Wales.
Budget 2021 accelerated investment to three deals by reprofiling the Swansea Bay,
North Wales and Mid Wales Deals over the remaining years of each Deal.

Northern Ireland
From the start of the COVID-19 pandemic to the end of March 2021, the Northern
Ireland Executive has benefitted from £4.7 billion of additional funding through the
Barnett formula, with the initial tranche of additional funding confirmed through an
unprecedented upfront funding guarantee announced in July 2020. Using a newly
agreed flexibility to transfer £330 million between financial years, the Northern
Ireland Executive is spending £3.0 billion of the additional funding in 2020-21 and
£1.7 billion in 2021-22. This funding has enabled the Northern Ireland Executive to
provide support to individuals, businesses and public services across Northern
Ireland in response to COVID-19 and will continue to support the recovery through
2021-22.

Alongside this Barnett-based funding, Spending Review 2020 confirmed further

funding for the and Northern Ireland Executive in 2021-22. The government
confirmed £315 million in targeted support to farmers in Northern Ireland and £3.1
million in support to the Northern Irish fisheries sector in 2021-22. The government
announced at Budget 2021 a further £5 million for the Tackling Paramilitary
Programme and the Northern Ireland Housing Executive will benefit from a
Corporation Tax exemption.

In December 2020, the government announced the £400 million New Deal for
Northern Ireland. This financial package is aimed at supporting businesses to
operate after the Transition Period, whilst also ensuring that Northern Ireland is
ready to seize the trade and investment opportunities ahead. By Budget 2021,
almost half of the package had been allocated to: new systems for supermarkets
and small traders to manage new trading arrangements; building greater resilience

39
in medicine supply chains; promoting Northern Ireland’s goods and services
overseas; and supporting skills development, subject to business case.

The UK Government has agreed in principle to fund the costs required to meet the
UK’s obligations under the Northern Ireland Protocol. The Northern Ireland Executive
received £29.9 million for the costs of implementing the Protocol in 2020-21.

The government has also continued to support City and Growth deals in Northern
Ireland. These will invest over £618 million across four deals covering: Belfast City
Region, Derry/Londonderry and Strabane, Causeway Coast and Glens and
Mid/South/West Northern Ireland.

COVID-19
Through the government’s response to COVID-19, over 1.45 million jobs in
Scotland, Wales and Northern Ireland have been supported by the CJRS. This is in
addition to 936,000 total claims through the SEISS and over £7 billion being lent
through BBLS and CBILS to over 186,000 businesses in Scotland, Wales and
Northern Ireland.

40
Objective 4: Building a Great Treasury, by creating a more open, inclusive
and diverse department, underpinned by professionalism, skills and
management excellence.

Lead minister: The Rt Hon Rishi Sunak MP,

Chancellor of the Exchequer

Lead official: Tom Scholar, Permanent Secretary

The Treasury’s corporate agenda

Building a great Treasury has been the department’s change programme since
2014. It sought to implement continuous improvement across the department.
Informed by staff feedback, the Executive Management Board refresh the priorities
and strategic direction of the programme on an annual basis.

Over the course of 2020-21, the department‘s corporate priorities focussed on

managing our organisational response to COVID-19 in light of national restrictions.
When the pandemic emerged, HM Treasury’s business continuity plans were
implemented. This work was supplemented by the department’s internal response
to COVID-19, which ensured HR guidance was in place to support the new COVID-
19 context, reflecting official guidance; supported management excellence and staff
wellbeing; and roll-out of new technology. HM Treasury offices were made COVID-
secure, with measures in place to reinforce compliance with national guidance.

At the 2021 Budget, the Chancellor announced that the government’s new
economic campus, which will be home to the new HM Treasury office in the north
of England, will be in Darlington.

The announcement at the 2021 Budget allowed the department to start the process
of securing accommodation, supporting those staff who want to relocate, as well as
delivering on our commitment to recruiting talented people outside of London and
the South East.

This development of the new campus supports the wider Places for Growth target
to move 22,000 civil servants out of London and the South East by 2030. The
economic campus will include at least 750 roles from HM Treasury, the Department
for International Trade, the Department for Business, Energy & Industrial Strategy,
the Ministry of Housing, Communities and Local Government, and the Office
for National Statistics.

Health, safety and wellbeing

The department actively promotes the health, safety and wellbeing of its staff. Less
than five work related accidents, near misses or ill health reports were received in
the reporting period. Staff have been reminded that any incidents occurring at
home during working hours must also be reported.

41
Throughout the COVID-19 pandemic and in response to government guidelines, the
majority of HM Treasury employees have predominantly worked from home. We
provided IT equipment for home working and allowed staff to claim the cost of
appropriate chairs or work surfaces along with appropriate guidance.

Mental wellbeing guidance and details of support available were provided to all HM
Treasury employees. Support included trained Mental Health First Aiders, Treasury
Supporters, and Group Wellbeing Champions. The Employee Assistance Programme
provided awareness and counselling sessions as appropriate.

Reward and recognition

The Treasury continued its reward practice of making pay more competitive with
other government departments. In 2020-21, the focus was to use the pay award to
increase median pay across all delegated grades, targeting money where it was most
needed to build a more rewarding pay system overall, within the public sector pay
policy.

In November 2020, the Chancellor announced as part of the Spending Review 2020
that there will be a temporary pause on pay rises for most public sector workforces
in 2021-22, including the civil service. Therefore, the Treasury will not be awarding
pay rises in 2021-22 – except to lower paid staff or to those where there is a
contractual obligation.

The department has a policy of recognising those staff who have performed
exceptionally in their roles through the payment of awards, paid in three
circumstances:

• Annual non-consolidated awards for performance as part of the staff

appraisal system.

• Special non-consolidated awards paid in-year to staff to recognise

exceptional performance for specific contributions or pieces of work
during the year.

• A reward and recognition voucher scheme “Treasury Thanks”, which

allows managers to provide instant recognition in the form of lower value
vouchers, to staff for excellent pieces of work.

This is in line with practice across the civil service and the private sector. Due to the
nature of the performance appraisal system, annual performance awards are paid in
the year following the one in which the individual’s performance was assessed as
exceptional. Performance awards were made in 2020-21 and will continue in 2021-
22, in line with other government departments.

HM Treasury is also committed to minimising the gender pay gap within the
organisation. In accordance with the Equality Act 2010 (Specific Duties and Public
Authorities) Regulations 2017, HM Treasury publishes the department’s gender pay
gap data annually. The most recent report was published in December 2020,9 and

9The percentages disclosed are for the core Treasury. Information for the Executive Agencies can be found in the full report linked:

https://www.gov.uk/government/publications/hm-treasury-gender-pay-gap-report-2020-2021

42
includes mean and median gender pay gaps (4.4% and 15.1% respectively); the
mean and median gender bonus gaps (3.9% and 2.0% respectively); the proportion
of women and men who received bonuses (68% and 67% respectively); and the
proportions of female employees in each pay quartile (lower quartile: 52%, lower
middle quartile: 46%, upper middle quartile: 41%, top quartile 45%).

Diversity and inclusion

The Treasury is committed to building a Department that reflects those it serves,
drawing on true diversity of background and expertise, to enable it to offer the best
possible advice to ministers, strengthen policymaking, and maintain strong
corporate functions. Activity includes:

• Implementing changes to recruitment processes following the 2020

review

• Continuing the Treasury’s talent offers to support staff to develop and

thrive, particularly focusing on internal progression for underrepresented
groups in the SCS

• Ensuring that the Treasury is an inclusive place to work, where talented

people are able to thrive and perform to the best of their ability,
regardless of their background

• Creating opportunities to expand our socioeconomic diversity, including

continuing to build apprenticeship routes and participating in the civil
service wide Diversity Internship Programme

• Developing ambitious plans to ensure the department is supporting staff

to thrive and perform to the best of their ability, including building
management capability through a refreshed management development
offer, and improving workplace adjustments processes.

Diversity is critical for the Treasury to be able to represent and reflect the interests of
the people it serves. Information about the diversity of the department is available in
the charts below.

43
Figure 1E: Core Treasury diversity as at 31 March 202110

Disabled
15.2% 9.1%

5.2% Not
Female Disabled
51.3% 48.7%
Male Prefer not
to say
70.4%
Not
known

4.5%
5.1% LGBT
Ethnic
minorities 11.8% 7.6%
19.4%
White 6.4%
Heterosexual

Declined to Prefer not to

state say
Not known 74.2%
71.1% Not known

Figure 1E shows diversity of sex, ethnically diverse background, disability and sexual orientation of staff

Our key actions include:

Focus Progress

Recruitment The Treasury participates in the civil service wide Summer

Diversity Internship Programme and is preparing to host 23
interns over summer 2021. The department also participates in
the Civil Service Autism Exchange internship programme,
coordinated by the Cabinet Office, and in the Care Leavers
Internship scheme coordinated by the Department for
Education.
The Treasury continues its involvement in a mentoring scheme
with a local school and participates in the Access Project where
Treasury volunteers coach young people from disadvantaged
backgrounds.
In 2020 the Treasury was ranked 49th out of 119 in the Social
Mobility Employer Index, which ranks employers according to
the actions they are taking to be open to accessing and
progressing talent from all backgrounds.
In 2020, the department completed a recruitment review and
developed an implementation plan to improve recruitment

10 Diversity percentages are calculated based on paid headcount using ONS definitions.

44
Focus Progress

processes, which will include focusing on expanding the

Treasury’s socioeconomic diversity and supporting social
mobility. This includes developing an outreach strategy and
continuing to focus on building apprenticeship routes into the
department, as set out in the recruitment section.

Talent The Treasury has two key talent programmes to support internal
progression for underrepresented groups in the SCS.

Accelerate, now in its third year, is for staff at ranges E and E2

(Grades 7 and 6) who are from an ethnically diverse background,
have a disability or identify as LGBT. The Treasury is currently
expanding the programme to include staff from lower
socioeconomic backgrounds and older staff. A similar
programme for staff at Range D (HEO/SEO) has continued for a
seventh year. There has been increased participation across both
schemes with around 150 staff taking part in total, and the
department is planning to expand the programmes further.

The Treasury also continued to run the Prospects development

programme for staff at grades B/C, doubling the number of
places available on the scheme.

Inclusion and The department reviewed its management development offer

wellbeing and has focused on embedding inclusion across all learning.

The Treasury has improved workplace adjustments for colleagues

with disabilities or specific needs, including reviewing and
relaunching the workplace adjustments process, with particular
focus on how staff with disabilities or health conditions are
supported to work remotely. The department has also continued
to address bullying, harassment and discrimination, raising
awareness through blogs and open surgeries.

Expanding and The department is committed to ensuring that diversity of

diversifying background and expertise results in better policymaking for
our data and those it serves. The Treasury is focused on building its capability
evidence to ensure policy makers are equipped to consider the impacts of
policies on different regions and groups within the UK, including
encouraging greater openness and innovation in our
policymaking, engaging with a wider range of stakeholders, and
bringing in data and evidence from different sources.

The department is developing its data science capability to

ensure better use of analytical techniques and real-time
indicators, which will in turn provide a better understanding of
the broader implications of policymaking.

45
Recruitment

Key recruitment campaigns in the last year included:

• A further two intakes of external graduate recruits, in April and September

2020, with a total of 119 policy advisers at Range D.

• A centralised campaign to appoint 36 new Deputy Directors at SCS1.

• Five new permanent Director appointments at SCS2.

• An internal Director General appointment at SCS3.

• Apprentice recruitment campaigns which brought in 16 policy apprentices

and six finance apprentices; as well as the Government Economics Service
recruitment campaign to recruit seven economics apprentices.

• Participation in cross-government recruitment campaigns for the policy

profession to recruit 15 Range D Policy Advisers and 15 Range E Senior
Policy Advisers.

The department delivered an entirely virtual outreach and assessment process for
those applying to the 2021 Graduate Development Programme (GDP). The GDP
recruitment campaign and website was rebranded and attracted over 8,000
applications for 2021 start dates, with applications increasing from female
candidates, and from people with lower socio-economic and ethnically diverse
backgrounds.

In 2020-21, HM Treasury had its highest ever number of apprenticeship starts. The
core department (excluding arm’s length bodies) will meet the public sector
apprenticeships target of new apprentice starts making up 2.3% of our workforce in
2020-21.

The Treasury commissioned an external Recruitment Review in 2020. The review

made 7 recommendations to improve the recruitment outcomes for under-
represented groups. A plan has been developed to implement the
recommendations, which will include a new Outreach Strategy for recruitment.

The new HM Treasury office in Darlington will present new opportunities to test new
ways of recruiting in 2021-22, including larger, bulk recruitment campaigns to
ensure a wide a reach of candidates as possible. This will include testing
opportunities for outreach with local colleges and universities, piloting some of the
initiatives in our outreach strategy and joining up with other government
departments based in the area.

Staff survey
The Treasury uses its annual staff survey results as an indicator of progress. In
October 2020, the department took part in the annual Civil Service People
Survey. The departmental results show that staff engagement has increased and the
Employee Engagement Index – the key indicator of staff opinion – sits at 76%, two
points higher than the 2019 Staff Survey. This sets the Treasury well above the civil
service average of 66%.

46
Learning, development and skills
HM Treasury is committed to developing a strong learning and development
function. The department is improving the established suite of development
programmes for the policy profession at key transition points (the Graduate
Development Programme and Policy Leadership Programme) and rolling out a new
and clear management development programme. All learning is based on the
following three delivery principles:

1 Learning is accessible: A clear and integrated learning and development

offer is being designed and promoted via a new online portal. This is to
allow easy navigation of well curated learning

2 Learning is inclusive and collaborative: A delivery model aiming to unlock

and use internal knowledge, working with a group of learning and
development co-creators. This will allow the department to leverage
corporate knowledge and promote learning from each other

3 Learning is of high quality and relevant: High quality content that is

performance focused and aligned to organisational strategy. Taking a
performance consulting approach to link to those areas most relevant to
and needed by the business

Other corporate reporting

Transparency and scrutiny of performance
The Treasury welcomes scrutiny, whether from Internal Audit, the National Audit
Office, Members of Parliament or members of the public:

Scrutiny by internal audit – the Government Internal Audit Agency

The 2020-21 annual internal audit plan for the department was developed through
consultation with the Treasury’s senior management team and discussed by
Directors and Executive Management Board, prior to formal agreement by the
Treasury’s Audit and Risk Committee in May 2020.

The Audit and Risk Committee agreed minor changes to the plan throughout the
year, reflecting changes in HM Treasury’s assurance needs, priorities and key risks. By
31 March 2021, Internal Audit had issued 18 reports and 14 pieces of advisory work
for the department.

The outcomes of this work are used to inform the Head of Internal Audit Annual
Report and Opinion, drawing also on the insight available from work undertaken
across the HM Treasury Group by the GIAA and other assurance providers during
the year.

Scrutiny by Parliament
Treasury ministers and officials are committed to providing timely and accurate
responses to Parliamentary Questions and the government has agreed to provide
regular statistics to the House of Commons Procedure Committee.

From 1 April 2020 to 28 February 2021 Treasury ministers responded on or before

the parliamentary deadlines in relation to 99% of the 2,378 ordinary written

47
questions received; 99% of the 1,963 named day questions received; and 93% of
the 534 Lords written questions tabled to the department.

In addition to questions from individual Members of Parliament during the period

from 1 April 2020 to 31 March 2021, ministers and officials appeared at various
Committee sessions, including:

House of Commons Treasury Committee hearings

Economic impact of coronavirus 29 April 2020
Economic impact of coronavirus 15 July 2020
UK Customs Policy 13 October 2020
Work of HM Treasury 11 November 2020
Decarbonisation and Green Finance 16 November 2020
Tax after coronavirus 18 January 2021
Budget 2021 11 March 2021

Source: House of Commons Treasury Committee

House of Commons Petitions Committee hearings

Support for households during COVID-19 Support for 17 September 2020
households during COVID-19
Stamp Duty Land Tax relief during the COVID-19 2 January 2021
outbreak

Source: House of Commons Petitions Committee

House of Commons International Trade Committee

hearings
Freeports 24 February 2021

Source: House of Commons International Trade

Committee

House of Commons Environment Audit Committee

hearings
Energy Efficiency of Existing Homes 2 December 2020
Biodiversity and Ecosystem 4 March 2021

Source: House of Commons Environment Audit

Committee

House of Commons Public Accounts Committee hearings

Local authority commercial investment 15 May 2020
Management of tax reliefs 10 June 2020

48
Government response to COVID-19 15 June 2020
Tackling the tax gap 7 September 2020
Whitehall preparations for EU Exit 8 October 2020
The production and distribution of cash 19 October 2020
Specialist skills in the civil service 2 November 2020
COVID-19 Bounce Back loan scheme 5 November 2020
COVID-19 Support for jobs 12 November 2020
Whole of Government Accounts 2018-19 19 November 2020
Ministry for Housing, Communities and Local 7 December 2020
Government recall
Achieving Net Zero 28 January 2021
Managing the expiry of PFI contracts 8 February 2021
Environmental tax measures 8 March 2021
COVID-19 Local Government finances 18 March 2021

Source: House of Commons Public Accounts Committee

House of Lords Economic Affairs hearings

Work of the Chancellor of the Exchequer 29 April 2020
Employment and COVID-19 17 November 2020

Source: House of Lords Economic Affairs Committee

House of Lords EU Services Sub-Committee hearings

Financial services after Brexit 2 July 2020
Financial services after Brexit 30 November 2020

Source: House of Lords EU Services Sub-Committee

House of Lords Finance Bill Committees hearings

Draft Finance Bill 2020-21 2 November 2020

Source: House of Lords Finance Bill Committee

House of Lords Liaison Committee hearings

Financial Exclusion 16 March 2021

Source: House of Lords Liaison Committee

49
Scrutiny by the public – correspondence and information requests
In the calendar year of 2020 the Treasury replied to 26,218 enquiries from MPs; over
six times more than 2019. The significant increase in correspondence resulted in a
backlog and only 38% of replies to MPs 2020 were within the Treasury’s 20 working
day deadline (down from 90% in 2019). The steps taken during the year to reduce
the outstanding volume of correspondence meant that as of March 2021 timeliness
performance has improved to 70%.

The volume of correspondence from members of the public and Treasury’s response
timeliness was not recorded in the usual way for 2020, as most enquiries from
members of the public were re-directed to information published on GOV.UK. The
Treasury received 917 requests for information that were handled under either the
Freedom of Information Act or the Environmental Information Regulations and in
91% of cases the statutory response deadline was met.

Data Subject Access Requests (DSAR)

In 2020-21, the department received 23 Data Subject Access Requests, of which 14
cases were processed within the statutory response deadline, one case required one
additional day to complete, one case was delayed due to COVID-19 restrictions, and
seven cases were not processed as the identification of the requester could not be
validated. All cases were handled under the General Data Protection Regulations
(GDPR).

Parliamentary and Health Service Ombudsman

The Parliamentary and Health Service Ombudsman (PHSO) can investigate
complaints about the administrative actions of a wide range of government
departments and other public bodies, or the actions of organisations acting on their
behalf. Ten complaints were made to the PHSO regarding the Treasury during 2020-
2021, but none of these were taken forward for investigation.

The National Audit Office

The department welcomes the NAO’s objective and independent commentary on its
work and is diligent in responding to recommendations arising from Public Accounts
Committee hearings following NAO reports. During the year, the National Audit
Office completed and published the following reports specifically relevant to the
department:

• Government response to the COVID-19 pandemic

• Managing PFI assets and services as contracts end

• Tackling the tax gap

• Learning for government from EU exit preparations

• COVID-19 cost tracker

50
 • Production and distribution of cash

• Bounce Back Loan Scheme (BBLS)

• Implementing employment support schemes in response to the COVID-19

pandemic

• Achieving net zero

• Environmental tax measures

• Public service pensions

• Investigation into the government funding to charities during the COVID-

19 pandemic

The ‘Better Regulation’ agenda

As the UK’s economics and finance ministry, the Treasury has strongly supported
regulating only where necessary within the financial services and insurance sectors
and minimising burdens to businesses where possible.

A full report on the Treasury’s actions in relation to the Better Regulation Agenda
can be found in Chapter 5 – Better Regulation section from page 234.

Sustainability
Information covering how the department has met its Greening Government
Commitments and integrated sustainability into both policymaking and delivery can
be found in Chapter 6 – Sustainability report from page 236.

Non-financial information
During the 2020-21 financial year, HM Treasury had no reportable incidents relating
to anti-corruption and anti-bribery matters. Issues of social matters and respect for
human rights are addressed through this report’s separate disclosures on diversity
and disability.

Tom Scholar
Permanent Secretary
16 July 2021

51
Chapter 2
Accountability report

Corporate governance report

Report from the Lead Non-Executive Board Member
In leading the government’s economic response to the COVID-19 pandemic, HM
Treasury has had to rise to significant challenges over the past year, with further
support measures being announced in the Spring Budget. To perform that role, HM
Treasury has worked closely with government departments and other organisations
and businesses to deliver vital support packages and ensure macroeconomic
stability.

In the Budget, the Chancellor announced that the government would be opening a
new economic campus in Darlington: work is already underway on identifying a
suitable site and on recruiting a more geographically diverse workforce. Like other
employers, the department has had to adapt to the changes in the workplace
unleashed by COVID-19 and has undertaken staff consultations this year on future
hybrid working options. Throughout this year of change and challenge, it is worth
highlighting that HM Treasury has succeeded in increasing levels of staff
engagement. At 76% in 2020 this was well above average for the civil service.

In order to respond to the increased workload caused by its work in leading the
response to COVID-19, HM Treasury staffing has grown to 1,992 FTE this year. This
is the biggest the department has ever been. I would like to commend Treasury staff
for the commitment and professionalism they have shown in delivering to a high
standard in such challenging circumstances.

HM Treasury is committed to bringing in different skills, perspectives and

backgrounds to our governance boards. Rena Lalgie joined the Executive
Management Board (EMB) from 27 July 2020 until she left the department in
October 2020. She was succeeded by Veda Poon on 23 November 2020. Phil Duffy
also joined EMB having been promoted to Director General: Productivity and
Growth.

Non-Executive Directors (NEDs) are responsible for providing independent advice to

the Treasury and chairing the Treasury Board Sub-Committee (TB(SC)) and the Audit
and Risk Committee. We have provided external challenge including on finance and
staffing, the COVID-19 response, and the Quarterly Performance and Risk Reports.
We also have oversight of HM Treasury’s arm’s length bodies (and met the Office for
Budget Responsibility, Debt Management Office and the UK Government
Investments during the year).

52
The team of NEDs has remained the same this year. We have extended the contracts
for Richard Meddings (Chair of the Audit and Risk Committee) and Tim Score
(member of the Audit and Risk Committee). This enables us to ensure that the Audit
and Risk Committee remains quorate and to ensure continuity in the sign off the
accounts and publications to revised timescales this year.

The Executive Management Board and NEDs have worked well together this year
and I am grateful for the contribution they have made to the successful running of
the Treasury.

Rt Hon Lord Hill of Oareford CBE

Lead Non-Executive Board Member
16 July 2021

53
Governance statement
The governance statement sets out HM Treasury’s governance, risk management
and internal control arrangements. It applies to the financial year 1 April 2020 to 31
March 2021 and up to the date of approval of the Annual Report and Accounts.

The statement is a personal statement by the Principal Accounting Officer (PAO),

outlining his role and responsibilities and recording the stewardship and risk
management undertaken within HM Treasury. It also sets out the Permanent
Secretary’s views on the key challenges faced by the department in order to give a
sense of how successfully the department has coped with them.

The roles of additional accounting officers and the assurances received in preparing
this report are also declared.

About HM Treasury
As the United Kingdom’s (UK) economics and finance ministry, the department’s
focus is on maintaining control over public spending, setting the direction of the
UK’s economic policy and working to achieve strong and sustainable growth. The
Treasury is responsible for:

• placing the public finances on a sustainable footing ensuring value for

money and improved outcomes in public services

• ensuring the stability of the macroeconomic environment and financial

system, enabling strong, sustainable growth as we leave the European
Union (EU)

• increasing employment and productivity, and ensuring strong growth and

competitiveness across all regions of the UK through a comprehensive
package of structural reforms, taking advantage of the opportunities
provided by leaving the EU

Every member of HM Treasury staff should be able to play a full, productive and
valued role in helping deliver the department’s objectives, while working to ensure
the department operates as a high performing organisation. To achieve this, the
department has a corporate objective to:

• build a great Treasury, by creating a more open, inclusive and diverse

department, underpinned by professionalism, skills and management
excellence

54
How we are structured
The Treasury’s Ministers
The department has 6 ministers.1

The Chancellor of the Exchequer, The Rt Hon Rishi Sunak

MP has overall responsibility for the Treasury. He is
accountable to Parliament for all the policies, decisions
and actions of the department and its arm’s length
bodies. While Treasury civil servants may exercise the
power of the Chancellor, the Chancellor remains
responsible to Parliament for decisions made under his powers.

The Chancellor’s responsibilities cover:

• fiscal policy (including the presenting of the annual Budget)

• monetary policy, setting inflation targets
• ministerial arrangements (in his role as Second Lord of the Treasury)
• overall responsibility for the Treasury’s response to COVID-19

Within the department the Chancellor has devolved responsibility for a defined
range of departmental work to supporting ministers, who at 31 March 2021 were:

The Chief Secretary to the Treasury: Rt Hon Stephen

Barclay MP

The Chief Secretary is responsible for public expenditure.

The Financial Secretary to the Treasury: Rt Hon Jesse

Norman MP

The Financial Secretary is responsible for tax policy and

customs – including border readiness.

The Economic Secretary to the Treasury and City Minister:

John Glen MP

The Economic Secretary is responsible for financial

services.

The Exchequer Secretary to the Treasury: Kemi Badenoch

MP2

The Exchequer Secretary is responsible for UK growth

and productivity. She is also the departmental minister
for HM Treasury Group.

1 A list of current ministers and their individual responsibilities can be found on https://www.gov.uk/government/organisations/hm-

treasury
2 Also, the Parliamentary Under Secretary of State, Minister for Equalities, in the Government Equalities Office from 14 February

2020

55
 Minister of State3: Lord Agnew of Oulton DL

The minister supports the Chancellor of the Duchy of

Lancaster and the Chief Secretary to the Treasury to
deliver cross-government efficiency and public sector
transformation improvements.

First and Second Permanent Secretaries

Tom Scholar is the Permanent Secretary and Principal Accounting Officer (PAO) for
HM Treasury. Tom is responsible for the delivery of the department’s strategy and is
accountable to Parliament for the organisation and management of the
department, including its use of public money and stewardship of assets. He also
has overall responsibility for the delivery of the aims and priorities of ministers and
the decisions and actions taken by Treasury officials.

The Permanent Secretary is supported by the department’s Second Permanent

Secretary, Charles Roxburgh, who has oversight of the department’s economics
ministry functions including financial services, growth and infrastructure. He is the
Accounting Officer for Infrastructure Finance Ltd and IUK Investment Holdings Ltd as
set out on page 248-249. Charles also chairs the Executive Management Board’s
Operating Committee.

3 Joint with Cabinet Office https://www.gov.uk/government/news/latest-updates-on-ministerial-appointments-13-february-2020

56
Non-Executive Board Members (Non-Executive Directors)
The Treasury’s Non-Executive Directors provide challenge to help shape the thinking of ministers and officials.
They are experts from outside government with significant experience of working with the public sector and/or
third sectors and have strong financial and commercial expertise. Through formal meetings and informal advice,
individual members have shared their commercial and professional expertise across the Treasury.
Rt Hon Lord Hill of Oareford CBE

Appointed 1 March 2019 (first term) Lead Non-Executive Director.

Lord Hill brings wide financial regulation experience having been European
Commissioner for Financial Stability, Financial Services and Capital Markets Union
between 2014-16. He has extensive government and political knowledge having
worked in 5 government Departments as well as in the European Commission. He was
Chancellor of the Duchy of Lancaster and Leader of the House of Lords 2013-14 and Parliamentary Under
Secretary of State for Education between 2010-2013.

Other roles: Chairman, Council of Management, Ditchley Foundation (from 1 November 2017); Independent
National Director, Times Newspapers; Senior Adviser, Freshfields Bruckhaus Deringer; Senior Adviser, Deloitte
(professional services network); Senior Adviser, UBS; Senior Adviser, Intercontinental Exchange Inc; Adviser, Banco
Santander SA; Member of International Advisory Panel to Iberdrola; Trustee, Teach First; Board Member, Centre
for Policy Studies and Co-Founder of Prosperity UK. Member of the House of Lords Commission

Richard Meddings Tim Score Gay Huey Evans CBE

Appointed 1 July 2014 (2nd term) Appointed 1 July 2015 (2nd term) Appointed 1 January 2019 (1st term)
Richard was appointed as Audit Tim’s experience covers financial Gay’s experience covers financial and
and Risk Committee (ARC) Chair management and an in-depth regulatory services, banking, capital
on his arrival in 2014. Richard knowledge of the technology markets and commercial. She was
has chaired Audit and Risk sector. Vice Chair Investment Banking and
Committees for a number of He was Chief Financial Officer of Investment Management at Barclays
FTSE 100 companies within the ARM Holdings plc from 2002 to Capital from 2008-2010. She was
Financial Services sector. Richard 2015, Senior independent Head of Governance of Citi
has served as a NED on the director, Chair of Audit and Alternative Investments (EMEA) from
Boards of 3i plc, Legal & General Interim Chairman at National 2007-2008 and President of Tribeca
plc, Deutsche Bank AG and Express Group (2005-2014), CFO Global Management (Europe) Ltd
Jardine Lloyd Thompson. He of Rebus Group and William Baird from 2005-2007, both part of
brings risk and banking PLC, and Group Financial Citigroup. She was Director of
experience to the role having Controller at BTR Plc and markets division and Head of capital
been at Standard Chartered plc LucasVarity PLC. markets sector at UK Financial
from 2002 until 2014 as Group Other roles: Chair of The British Services Authority from 1998-2005
Executive Director responsible for Land Company plc. Member of and has held various senior
Risk and as Group Finance the Board of Trustees of Royal management positions with Bankers
Director for 8 years. National Theatre; Chair of the Trust Company in New York and
Other roles: Richard serves on a Audit Committee of the Football London. She has previously served on
number of Boards including as a Association; NED and Chair of the boards of London Stock Exchange
NED on the Board of Credit Audit Committee at Pearson plc Group plc and Aviva plc.
Suisse Group AG, as Chair of TSB and Senior Independent Director Other roles: Chair of the London
Bank, as Deputy Chair of the at Pearson. Metal Exchange and NED at Standard
charity Teach First and as Chair Chartered plc; IHS Markit and Conoco
on the Hastings Opportunity Philips. A member of the Chatham
Area. House Panel of Senior Advisers; a
trustee of Benjamin Franklin House
and a member of the US Council on
Foreign Relations.

57
Our governance structure
Figure 2A: The Treasury Board and its committees

Treasury Board
The Treasury Board is the most senior of the department’s oversight committees. It
draws together ministerial and civil service leaders with experts from outside
government. The board is chaired by the Chancellor and met once during 2020-21.

On 15 September 2020 Cat Little was announced as the Head of the Government
Finance Function, succeeding Mike Driver who stepped down in August 2020. In
this role she is invited to attend Treasury Board meetings

Committee members as at 31 March 2021 Areas of discussion

• Treasury ministers • Departmental priorities
• Non-Executive Directors • Departmental challenges
• Permanent Secretary • Performance and risk
• Second Permanent Secretary • Staff Survey results
• Chief Economic Adviser
• Finance Director
• Head of Government Finance Function

58
Treasury Board Sub-Committee TB(SC)
TB(SC) is the second most senior board and has delegated authority of the Treasury
Board. TB(SC) is chaired by the Lead Non-Executive Director and met 5 times during
2020-21.

Committee members as at 31 March 2021 Areas of discussion

• Non-Executive Directors • Quarterly Performance and Risk
• Executive Management Board members • Departmental oversight
• Head of Government Finance Function • COVID-19 pandemic
• Board Effectiveness
• Arm’s length body oversight

Board effectiveness evaluation

Undertaking an annual review of a Board’s processes and practices is standard

good corporate practice. The evaluation is coordinated by the Cabinet Office
and the process is set out in the Corporate governance in central government
departments: code of good practice.1

In line with the 2019-20 recommendations the TB(SC) continued oversight of

the department’s arm’s length bodies. During the year TB(SC) met with senior
colleagues from the Office for Budget Responsibility, UK Government
Investments Ltd and the Debt Management Office.

TB(SC) held additional meetings this year on COVID-19 response and

departmental resilience, in line with the recommendation last year to remain
agile, which has enabled the Committee to support the department
appropriately throughout the year.

This 2020-21 year’s evaluation was, in line with guidance, undertaken with
external input. Mervyn Walker, the lead Non-Executive Director of HMRC
observed a TB(SC) meeting and provided feedback to Lord Hill, the chair of the
TB(SC).

The evaluation found that the meeting was well-prepared and well-run with
active engagement, debate and challenge and that the papers were of a good
quality. It recognised the positive relationship between TB(SC) members and
noted the Non-Executive Directors were fully engaged and asked relevant
questions which the executives responded to in a balanced and informative
way.

The recommendations, which centred around considering meeting frequency;

agenda structure; clarity of purpose; provision of written updates and
identification of actions and any changes will be implemented in the coming
year.

1 https://www.gov.uk/government/publications/corporate-governance-code-for-central-government-departments-2017

59
The Executive Management Board (EMB)
EMB has met much more frequently this year to lead the department’s response to
COVID-19 and other departmental priorities. EMB is chaired by the Permanent
Secretary.

An annual business planning process, overseen by EMB, sets the department’s

priorities and resourcing plans for the year ahead. This focuses on the Treasury’s
core functions, ministerial priorities and identified risks. The response to COVID-19
has meant that the department had to be agile in leading the government’s
response to the heightened economic risks. It was a priority to ensure the
department had the right resources to be able to support the UK in its response.

EMB considered the strategic direction of specific Treasury policy areas and also
ensured delivery against the department’s work programme, and the efficient and
effective allocation of resources.

Committee members as at 31 March 2021 Areas of discussion

• Permanent Secretary - Tom Scholar • Quarterly Performance and Risk
• Second Permanent Secretary - Charles Roxburgh Reports
• Director General Financial Services - Katharine Braddick • Business Planning
• Chief Economic Adviser - Clare Lombardelli • Health and Safety
• Director General International and EU - Mark Bowman • Security and Fraud
• Director General Tax and Welfare - Beth Russell • Resourcing, Pay and Performance
• Director General Public Spending - Cat Little • Diversity and Inclusion
• Director General Productivity and Growth – Philip • EU Exit
Duffy1 • COVID-19 pandemic response
• Finance Director - Anna Caffyn • Wellbeing
• Operations Director - Catherine Webb2 • Budget
• Director Strategy, Planning and Budget - Dan York- • G7
Smith • Departmental Staff Survey results
• Director International - Veda Poon3

Sub-committees to the Executive Management Board

The 2 sub-committees of EMB are the Operating Committee and the Diversity
Delivery Committee.

Operating Committee (OpCo)

OpCo’s purpose is to ensure that the department has in place, and operates
effectively, appropriate and robust procedures and business processes in support of
the department’s overall strategy and business needs.

1 Philip Duffy was appointed as Director General Productivity and Growth and joined EMB on 1 June 2020.

2 Siobhan Jones (as noted in last year’s report) provided extra resilience for a short time, following Catherine Webb’s return to work.

Siobhan stepped down from EMB in May 2020.

3 The department has a commitment to ensure diversity on our governance boards, as part of our ambition to bring in different skills

and perspectives and consider a broad evidence base in our decision-making. Rena Lalgie joined EMB from 27 July 2020 until she
left the department in October 2020. She was succeeded by Veda Poon on 23 November 2020.

60
It also acts in an advisory capacity in relation to finance and staffing and assures and
provides approval for business cases. OpCo is chaired by the Second Permanent
Secretary and any member of EMB is welcome to attend any of the meetings.

Committee members as at 31 March 2021 Areas of discussion

• Second Permanent Secretary • Spending Review
• Finance Director • Business Planning
• Operations Director • Operational Risk
• Director Strategy, Planning and Budget • Departmental Operational Readiness for EU
• 2-3 Directors from the policy areas of the Exit
Treasury on a 1-2 year rotation • New economic campus in Darlington
• 3-5 Deputy Directors on a 1-2 year rotation • Flexible Safer Working Project
• Recruitment including Apprenticeships and
Graduates
• Talent
• Wellbeing

Diversity Delivery Committee (DDC)

Diversity and Inclusion remains a key focus for the department. DDC meets monthly.
DDC is chaired by the Director General Tax and Welfare.

Committee members as at 31 March 2021 Areas of discussion

• Director General Tax and Welfare • Recruitment including Graduate Development
• Chair of Diversity and Inclusion Board Programme and apprenticeships
• Operations Director • Sponsoring and mentoring
• 3-5 additional members of SCS on a 1-2 year • Departmental diversity networks
rotation

The Diversity and Inclusion Board (DIB) is a sub-committee of DDC. It has been
established to support the senior management team, to bring together
representatives from networks across the department for consultation and
engagement on diversity policy and promotes inclusion and fair treatment for all.

DIB is chaired by Lowri Khan (Director Financial Stability) who is supported by deputy
co-chairs Sarah Pemberton and Kavalneer Walia. They are joined by representatives
of staff networks across the department. EMB members are welcome to attend any
of the meetings.

Other committees
In addition, EMB has 3 committees focussed on risk, the Economic Risk Group, the
Fiscal Risk Group and the Projects Risk Group. The Risk Groups contribute to the
Treasury’s risk management framework by identifying and tracking indicators,
horizon-scanning, and assessing the likelihood, probable impact and potential
mitigation of risks, enabling EMB and senior managers to act where appropriate.4

The Economic Risk Group meets at least quarterly and is co-chaired by the Director
of Economics and the Director of Financial Stability. The Fiscal Risk Group is chaired

4 Further information on how the department manages risk can be found on pages 68 to 69.

61
by the Director of Fiscal and meets at least quarterly and as needed. The Project Risk
Group is chaired by the Europe Director and meets quarterly.

Audit and Risk Committee (ARC)

ARC supports the Permanent Secretary and the Treasury’s additional accounting
officers in their responsibilities for managing risk, internal control and governance in
relation to the:

• Treasury Group’s Annual Report and Account

• Exchange Equalisation Account

• National Loans Fund

• Consolidated Fund

• Contingencies Fund

• Whole of Government Account

Pre-meetings with the National Audit Office (NAO) and the Government Internal
Audit Agency (GIAA) were held before each meeting of the ARC.

In accordance with the Audit and Risk Committee Handbook5, the Committee
provides independent challenge on the robustness of the mechanisms in place, and
the evidence provided, to deliver the assurance needed by the Board and
Departmental Accounting Officers.

Members of ARC are appointed by the Permanent Secretary. The membership of the
committee on 31 March 2021 was:

• Richard Meddings – see biography on page 57.

• Tim Score – see biography on page 57.

• Zarin Patel6

• Sir Peter Estlin7

The committee is chaired by Richard Meddings, a Non-Executive Director of the

Treasury Board, and it met 8 times during 2020-21.

Committee members as at 31 March 2021 Areas of discussion

• Richard Meddings • Financial controls
• Tim Score • Risk including cyber
• Zarin Patel • COVID-19 pandemic
• Sir Peter Estlin • GIAA and NAO audits and recommendations
• Assurance mapping of HM Treasury Financial
processes

5 https://www.gov.uk/government/publications/audit-committee-handbook

6 Zarin Patel’s interests include: Non-Executive Director of Anglian Water Services Limited and Chair of its Audit and Risk Committee,

Trustee of National Trust and Chair of its Audit and Risk Committee. Appointed to the board of Post Office Limited in November
2019 and sits on its Audit and Risk Committee. Until June 2021, Independent member of the Audit and Risk Committee at John
Lewis Partnership Plc. Formerly the Chief Financial Officer at the BBC and a member of its Executive Board.
7 Sir Peter Estlin’s interests include: Alderman, City of London. Independent Director, Rothschild & Co; Chair, Association of

Apprentices, (previously Group Financial Controller and acting Group CFO, Barclays).

62
 • Business Appointment Rules
• HM Treasury stewardship of Arm’s Length
Bodies and comparison with good practice
• Whole of Government Accounts

Audit and Risk Committee Chair’s Report

The Audit and Risk Committee met 8 times in the year with all meetings held
virtually. In addition to the review and sign off, including any significant
accounting judgments, of the various Treasury accounts (Treasury Group
Resource Account, HM Treasury Trust Statement and Whole of Government
Accounts, Contingencies Fund, National Loans Fund, Consolidated Fund and
Exchange Equalisation Account), the committee also reviewed and received
reports on a number of other areas. These included the EU Financial
Settlement and assurance process; the strategies and governance around the
Exchange Equalisation Account; assurance mapping of HM Treasury finance
processes; governance arrangements around the Ways and Means facility; a
review of Capital Annually Managed Expenditure (C-AME) controls; updates
on NAO value for money audits; cyber risk and IT security risk; the
Department’s stewardship of and the forecasting disciplines of ALB’s; and an
update on Counter Fraud strategy.

In every meeting the committee received a report from the Permanent

Secretary on the work of the department and on issues most relevant to the
committee’s work and also from the second Permanent secretary on, inter
alia, operational risk. Additionally, regular reports were received from the
Finance Director on finance management, financial controls and on
resourcing. The GIAA and NAO also provided reports to each committee as a
standing agenda item and private meetings were also held with them. GIAA’s
annual audit plan for the department was presented, approved and
monitored throughout the year, with particular attention focused on any
material findings. The department has responded very actively to GIAA audit
recommendations.

The committee also oversees the preparation, review and sign off of the
Whole of Government Accounts giving purposeful consideration, in addition
to the accounting judgments, to the clarity of the performance narrative.

In a year of almost inconceivable challenges, and where the department has

energetically combatted the pandemic, responding with a variety of quickly
delivered and economically very meaningful schemes and interventions, all of
the committee pays tribute to the professionalism of the officials and their
continued responsiveness to the committee’s work. I would also like to thank
my colleagues, Sir Peter Estlin, Zarin Patel and Tim Score for their diligence,
enthusiasm and engagement throughout the year.”

Richard Meddings
Chair, Treasury Group Audit and Risk Committee
16 July 2021

63
Nominations committee
The committee is chaired by the Permanent Secretary and met once during 2020-21.

Committee members as at 31 March 2021 Areas of focus

• Permanent Secretary • Succession planning
• Second Permanent Secretary • Identify and develop leadership potential
• Lead Non-Executive Director • Performance and remuneration
• 3 Non-Executive Directors

Attendance of members at board and committee meetings

Attendance Treasury Board TB(SC) ARC Nominations
Committee
Ministers
Chancellor 1/1 - - -
Chief Secretary 1/1 - - -
Financial Secretary 1/1 - - -
Economic Secretary 1/1 - - -
Exchequer Secretary 1/1 - - -
Minister of State 1/1 - - -
Non-Executives and ARC members
Lord Jonathan Hill 1/1 5/5 - 1/1
Richard Meddings 1/1 5/5 8/8 1/1
Tim Score 1/1 4/5 8/8 1/1
Gay Huey Evans CBE 1/1 5/5 - 1/1
8
Mike Driver 0/0 3/3 - -
Sir Peter Estlin - - 8/8 -
Zarin Patel - - 7/8 -
Executives
Tom Scholar 1/1 5/5 - 1/1
Charles Roxburgh 1/1 3/5 - 1/1
Mark Bowman - 4/5 - -
Cat Little 1/1 3/5 - -
Katharine Braddick - 3/5 - -
Clare Lombardelli 1/1 3/5 - -
Beth Russell - 3/5 - -
Dan York-Smith - 4/5 - -
Anna Caffyn 1/1 5/5 - -
Catherine Webb - 5/5 - -
Rena Lalgie - 0/1 - -
Veda Poon - 1/1 - -
9
Siobhan Jones - 0/1 - -

8 Mike Driver stepped down as Head of Government Finance Function in August 2020

9 Siobhan Jones (as noted in last year’s report) provided extra resilience for a short time, following Catherine Webb’s return to work.
Siobhan stepped down from EMB in May 2020.

64
HM Treasury’s internal group structure and functions
The department is structured into 13 Director led groups, with each group working
to achieve the department’s core objectives.

Each Director has responsibility delegated to them from the management board for
the delivery of policy and management of risk within their group. They are also
responsible for ensuring any policy or operational risks in their groups are
understood across the department to help actively manage the cross-cutting risks
facing the Treasury.

The groups and their responsibilities

The aim of the Business and International Tax Group is to provide strategic oversight
of business, environmental, transport and property taxes, VAT, excise taxes and
customs duties that together raise revenue of over £350 billion a year, to deliver policy
change in consultation with key stakeholders, to handle the UK’s relationship with
other countries and international institutions on tax and customs issues and to
manage and mitigate risks to the UK’s tax base including through tackling avoidance
and evasion.

The Corporate Centre Group provides corporate systems, services, solutions and
facilities to enable HM Treasury Group (Treasury and its agencies and public bodies) to
deliver effectively and efficiently. It is formed of 7 teams: Human Resources, Finance,
Commercial, Correspondence and Information Rights, Information Workplace
Solutions (IT, Security and Knowledge Management), Darlington economic campus
programme team, Flexible Safer Working project team and Treasury Group Shared
Services.

The Economics Group is responsible for providing economic surveillance, delivering

the macroeconomic advice and evidence base to underpin policy decisions and
promoting professionalism and economics and social research in government.

The Enterprise and Growth Unit is responsible for growth-related policy and spending.
EGU works to ensure that government policy encourages private sector investment,
enterprise, innovation and the transition to a low-carbon economy.

The Financial Services Group works to ensure the Financial Services Sector can drive
UK economic growth and deliver for consumers and business across the whole of the
UK, and to maintain the UK’s competitiveness as a global financial centre.

The Financial Stability Group contributes to the Treasury’s objectives through ensuring
the stability of the financial system, in a way that supports sustainable growth and
public finances. The group’s overarching aim is to secure the stability and operational
resilience of the UK financial system for the benefit of the economy as we leave the
EU.

The Fiscal Group is responsible for ensuring that fiscal policy supports the
government’s economic objectives and maintains sustainability of the public finances.
It provides oversight of key financial assets and liabilities on the public sector balance
sheet and ensures that the government’s strategic and operational financing needs
are met, every day and in the medium term. It is responsible for publication of high-
quality public sector finance statistics.

65
 The International Group’s objective is to support UK and global economic prosperity
in a rapidly evolving and challenging global context, with an emphasis on responding
swiftly to COVID-19 and paving the way for a strong, sustainable and inclusive
recovery. It will achieve this through promoting and delivering UK interests in
international economic and financial policy, by working closely with and through
major international fora (including as the current G7 and COP26 Presidencies),
international financial institutions, and bilateral relationships; improving the UK’s
response to economic crime and sanctions implementation to advance our national
security and economic prosperity objectives; and developing and strengthening the
UK’s new trading relationships with important partners including with the EU.

The Ministerial and Communications Group supports ministers and the Executive
Management Board in discharging effectively their respective responsibilities. It also
provides a professional communication function for ministers and the whole
department and is responsible for coordinating parliamentary business.

The Personal Tax, Welfare and Pensions Group is at the centre of the government's
relationship with the public through its role in structuring and delivering taxes,
benefits and pensions. It works closely with other government departments including
DWP and HMRC.

The Public Services Group oversees spending on the main public services. Its strategic
aim is the highest quality and best value for money public services. It seeks to achieve
this by working with the government departments directly responsible for the
provision of these services.

The Public Spending Group is at the heart of government: controlling and reporting
on public spending, improving value for money, productivity and efficiency, and
working across Whitehall to improve finance and management information capability.

The work of the Strategy, Planning and Budget Group is at the heart of the Treasury
and core to its strategy. SPB supports the Executive Management Board in setting the
strategic direction for the Treasury. It works with and alongside Groups across the
department to bring together the Treasury’s departmental objectives into a coherent
strategy. SPB co-ordinates fiscal events and this year has co-ordinated the
department’s work on COVID-19 response. SPB works as a single Group at the centre
setting this direction – allocating people and resources and setting policy to achieve it.

Quality of information
The department uses a template for its board and committee papers to ensure they
receive sound advice and information. The template was updated during the year to
include equalities impacts to ensure that protected characteristics under the Public
Sector Equality Duty were at the forefront of policy and decision making.

The template is also structured to ensure risks and resource implications are
highlighted and to ensure sufficient engagement and challenge during discussions.
The board secretariat works with teams to ensure the information provided is of
good quality and the Board Effectiveness Evaluation findings noted that meeting
papers were of a good quality.

66
In 2020-21 the department strengthened its control and oversight over AME
spending, improving guidance and scrutiny on submissions.

Register of interests
As part of ensuring effective management of conflicts of interest, the department
maintains a register to ensure that any perceived or real conflicts of interest can be
identified. Treasury colleagues review their conflicts whenever there is a change in
personal circumstances, as well as annually.

Assurance of all Senior Civil Servants (SCS) was undertaken in April 2021 to ensure
that any outside employment held did not present a conflict of interest. Relevant
information is held by the department in a central register alongside mitigation
measures taken following an assessment by the Conflicts Officer.

Following review and assessment of SCS interests, it is confirmed that no member of

the SCS held company directorships or other interests which may have conflicted
with their responsibilities.

The register of ministers’ interests is held by Parliament. Non-Executive Directors’

interests are set out in this document on pages 57.

The following mitigations have been put in place in relation to potential perceived
conflicts of interest for the department’s Non-Executive Directors.

• Recognising the perceived conflict relating to Richard Meddings role as

Chairman of the TSB and the department’s arm’s length body NS&I and
the work of UKAR, mitigation has been put in place to avoid any
conflict/potential conflict with TSB business.

• Mitigation has also been put in place for Gay Huey Evans CBE to avoid any
perceived conflict with her IHS Markit Non-Executive Director role.

No members of EMB had company directorships or other interests which may have
conflicted with their responsibilities.

In line with the current Declaration of Interests policy for Special Advisers, all Special
Advisers have declared any relevant matters or confirmed they do not consider they
have any relevant interests. The Permanent Secretary has considered these returns
and there are no relevant interests to declare.

Business Appointment Rules

All officials must obtain written permission before undertaking any outside work
(paid or unpaid). In addition, they must make an application under the Business
Appointment Rules if they intend to move on from the civil service so that any risk of
conflict can be identified and managed and any necessary mitigants imposed.

In the Treasury, an application under the Business Appointment Rules is examined by

the Permanent Secretary (or Advisory Committee on Business Appointments
(ACOBA) for applications from Permanent Secretaries and SCS3, as is the case across

67
the civil service). The Business Appointment Rules continue to apply for a year after
leaving Crown service for junior officials and for two years for members of the SCS.

Approval (and any conditions or mitigations) are shared with line managers and
applicants by the Permanent Secretary’s office. OpCo regularly review the Business
Appointment Rules and ARC provides assurance following their annual scrutiny of
the process.

The department is transparent in its determinations under the Business Appointment

Rules and publishes these10 for SCS and Special Advisers. For reasons of data
protection, decisions are not published for applications made by junior officials.

Managing risks to our objectives

The department faces macro and micro level risks in its dual role as the UK’s
economics and finance ministry and a central government department and
employer. The risks faced are diverse in nature and severity and will sometimes be
determined by external forces over which the department may have influence but no
control.

As the government’s economics ministry, the department must react to events in the
global and UK economy and ensure the sustainability of the public finances.
Operationally, the department seeks to ensure that it allocates its budget
appropriately in order to meet its objectives, delivering value for money and delivery
of its duty of care to both staff and stakeholders.

The department has a sound system in place to consider the risks faced, challenge
the assumptions made and offer advice on how best to mitigate them where
appropriate. Within this structure some key positions hold specific accountabilities.

In addition, the business planning process enables the department to consider and
identify risk in the context of its core economics and finance ministry priorities.
While COVID-19 presented significant operational risks during 2020-21, the
department responded flexibly to ensure enough resource was allocated to deliver
key priorities. This included greater use of flexible resourcing to move people with
crisis and project experience into key roles; reprioritisation within the department
including the establishment of new central teams to provide strategy, oversight and
delivery of key interventions; a redeployment exercise to move officials, from
standing roles to the highest priority work across the department; and an increase in
recruitment. Further detail on our COVID-19 response can be found on page 74 of
this report.

HM Treasury’s approach to risk management is informed by principles set out in The

Orange Book.11 In line with the guidance, risk management forms an integral part of
the department’s governance, leadership and activities. HM Treasury’s ARC supports
the accounting officer in overseeing our Risk Management Framework. The
Committee provides independent, objective and constructive challenge on HM
Treasury’s internal control and evidence of assurance. This includes oversight of key

10 https://www.gov.uk/government/collections/hm-treasury-business-appointment-rules-advice

11 Last updated October 2020 (Published 29 May 2013). https://www.gov.uk/government/publications/orange-book

68
publications such as the Treasury Annual Report and Accounts, Central Funds and
Whole of Government Accounts.

Figure 2B: Risk management framework

Our risk management framework

The Treasury’s risk management framework enables the identification and
management of risks to the department’s strategic objectives. The Framework is
underpinned by Directors’, Risk Groups’ and the Operations Committee’s
responsibility for monitoring, challenging and reporting on performance against,
and risks to, the Treasury’s objectives.

The Strategy, Planning and Budget Group synthesises the key updates on
performance and risk for the Executive Management Board and the Treasury Board
(Sub-Committee) on a quarterly basis via the Quarterly Performance and Risk Report,
escalating critical issues and enabling senior managers to take action as appropriate.

For example, throughout 2020-21, the Executive Management Board has taken a
hands-on approach to mitigating and managing specific issues through regular risk
deep-dive meetings. These discussions ranged from managing the ongoing
organisational leadership risks identified through the department’s 2020 Staff
Survey Results, to a series of discussions on top-line policy risks arising from the
COVID-19 pandemic, including fraud and fiscal risks.

69
Principal Accounting Officer’s report

Delegation
The department’s Permanent Secretary, Tom Scholar, is also the PAO for the
department. He has delegated responsibility to each Director for the delivery of
policy and management of risk within their group. They are also responsible for
ensuring any policy or operational risks in their groups are understood across the
department to help actively manage the cross-cutting risks facing the Treasury.

Assurances
During the year there were several independent assurances through the work of the
Non-Executive Board Members, internal and external audit, the Head of the Treasury
Legal Advisers (Government Legal Department) and other bodies such as the Office
of the Civil Service Commissioners.

The Group Chief Internal Auditor has provided assurance to me (as outlined in his
report on page 72) and to the Audit and Risk Committee throughout the period. In
turn the Audit and Risk Committee has challenged and endorsed the Government
Internal Audit Agency’s work programme throughout the year, which included
following up on key internal audit actions with management to ensure they were
complied with.

The Group Annual Accounts are audited by the Comptroller and Auditor General
under the requirements of the Government Resources and Accounts Act 2000. His
Certificate and Report is set out from page 130. The cost of the external audit is
disclosed in Note 28 of the financial statements.

Other internal HM Treasury Group assurances have been provided by:

• UK Debt Management Office, Government Internal Audit Agency, UK

Asset Resolution Ltd, the Financial Services Compensation Scheme, the
Royal Household, Reclaim Fund Ltd and the UK Government Investment
Ltd;

• the Treasury’s Executive Management Board;

• the Group Finance Director; and

• the Fiscal Director, who has confirmed that an appropriate quality

assurance framework is in place and is used for all business-critical
models.

Additional Accounting Officers

To assist in the stewardship of public funds, and to maintain the system of internal
control, additional accounting officers have been appointed across HM Treasury
Group and details can be found from page 247 of this report.

The Central Funds (the Consolidated Fund, the National Loans Fund, the
Contingencies Fund and the Exchange Equalisation Account) are reported on

70
independently of this Annual Report and Accounts, as are the Whole of Government
Accounts. Each accounting officer produces an individual governance statement for
their corresponding account.

Account Name and Accounting Officer Notes

Consolidated Fund (CF) The CF was set up in 1787 and is akin to the

Tom Scholar government’s current account. It receives the proceeds of

taxation and other government receipts to fund public
expenditure.

National Loans Fund The NLF was established in 1968 and is akin to the

Tom Scholar government’s main borrowing and lending account. Most

of the NLF’s borrowing needs are met indirectly through
borrowing on its behalf by the Debt Management Office
and National Savings and Investments.

Contingencies Fund The Contingencies Fund is used to finance payments for

Cat Little urgent services in anticipation of parliamentary

agreement and to provide funds temporarily to
departments for working balances or meet other
temporary cash deficiencies. All advances from the Fund
must be repaid and where legislation allows are recovered
in the same financial year.

Exchange Equalisation Account (EEA) The EEA was established in 1932 to provide a fund that

Clare Lombardelli could be used, when necessary, to regulate the exchange

value of sterling. It holds, amongst other assets, the UK’s
reserves of gold and foreign currency assets and
comprises the UK’s official holdings of international
reserves.

Whole of Government Accounts (WGA) The WGA consolidates the audited accounts of over

Cat Little 9,000 public sector organisations to produce a

comprehensive, accounts-based picture of the financial
position of the UK public sector.

Internal audit arrangements

Nathan Paget, Group Chief Internal Auditor (GCIA) at the Government Internal Audit
Agency, provided his Annual Report and Opinion on the adequacy and effectiveness
of the Treasury’s framework of governance, risk management and control to the
Principal Accounting Officer and the Audit and Risk Committee. Nathan took post
following a change in GCIA in October 2020.

A moderate opinion was provided for the period 2020-21. This assessment is based
on the work that the GIAA have conducted during the year in the department and
HM Treasury’s arm’s length bodies (ALBs) and Executive Agencies (EA’s) where GIAA
undertake their internal auditing. It provides assurance on the adequacy and
effectiveness of the risk management, control and governance framework relevant
to the annual report and accounts. There were no matters arising from the work of
Internal Audit in the period that would give rise to separate comment in the
Governance Statement.

71
 Group Chief Internal Auditor’s Report
A moderate assurance rating has been provided for 2020-21. This is the same level of
assurance on the adequacy and effectiveness of governance, risk management and
internal control that was issued to the Accounting Officer in 2019-20.

I have seen evidence that the department has continued throughout the year to make
improvements to the governance, risk management and control environment
throughout the HM Treasury Group. This is notwithstanding that the department
works with a highly challenging agenda that is regularly impacted by political
uncertainty.

The annual internal audit opinion is a key element of the assurance framework, which
the Accounting Officer needs to inform his annual Governance Statement. It does not
detract from the Principal Accounting Officer’s personal responsibility for the
framework of governance, risk management and control, on the effectiveness of
which he takes assurance from his senior management and format controls, as well as
from internal audit.

The Treasury Internal Audit function is provided by the cross-Whitehall Government

Internal Audit Agency (GIAA), an executive agency of the Treasury.

The planned internal audit programme, including revisions to the programme during
the year, was reviewed and endorsed by the department’s Audit and Risk Committee
and Principal Accounting Officer. GIAA has delivered a wide programme of
challenging internal audit engagements throughout 2020-21 from policy delivery to
core systems and included coverage of a range of Treasury work including OSCAR II,
Remedy Project, PWLB, Risk Management, Help to Buy ISA, Business Critical Models,
corporate functions and detection and prevention of fraud analytics.

GIAA also attended Project Board meetings of key projects (Flexible Return to Work,
Green Bond, Breathing Space, Treasury Office in North East and TRIS 2022) in order to
observe and advise on risk and project management.

Nathan Paget
Group Chief Internal Auditor, Centre of Government
Government Internal Audit Agency

Whistleblowing
Ensuring the highest standards of conduct in all we do is crucial, and our
whistleblowing policy and guidance supports people who wish to raise a concern.

The department’s staff survey results in 2020 showed 57% of staff were aware of
how to raise a concern under the Civil Service Code and 82% were confident that if
a concern was raised it would be investigated properly.

The department has had 5 nominated officers over the financial year responsible for
investigating staff concerns that are raised confidentially. In 2020-21 they were:

• Gwyneth Nurse, Director Financial Services

• Tim Score, Non-Executive Director

• Stephanie Donaldson, former Group Chief Internal Auditor until 4 June 2020

72
 • Ross Tudor, Interim Chief Internal Auditor, 5 June 2020 to 25 November
2020

• Nathan Paget, Group Chief Internal Auditor, from 26 November 2020 to

present

There have been no issues raised by staff in 2020-21.

Transparency and scrutiny

The department welcomes scrutiny, whether from internal audit, the National Audit
Office (NAO), Members of Parliament or members of the public.

The roles and structures described here are designed to ensure the effective
governance, control and management of risk within the department.

Detail on the scrutiny of the department by internal audit, the public and Parliament
can be found from page 47 of the Performance Report.

The NAO undertakes independent scrutiny of the department’s performance. In

addition to the financial audit services, the value for money studies of relevance to
HM Treasury can be found on page 50.

Several parliamentary committees, including the Public Accounts Committee and the
Treasury Select Committee have called witnesses from across HM Treasury Group on
key issues. The department welcomes the oversight, challenge and scrutiny this
process provides, responds constructively to the recommendations it receives, and
implements them where appropriate.

For example, the Public Accounts Committee’s 111th Report of Session 2017-19 on
funding for Scotland, Wales and Northern Ireland12 was published on 26 July 2019,
to which the government formally responded in a Treasury Minute13 published in
October 2019. Progress on the implementation of the PAC’s recommendations was
provided in the Treasury Minutes Progress Report14 published in November 2020
and a further update on progress will be published in the Treasury Minutes Progress
Report due to be published in May 2021.

Workforce reporting
The Treasury’s workforce is critical to its ability to operate effectively, it relies on the
expertise of its staff, their hard work and dedication. Information on sickness
absence, off payroll engagements and staff pension costs is within the Staff Report
on pages 94 to 103.

12 https://publications.parliament.uk/pa/cm201719/cmselect/cmpubacc/1751/1751.pdf

13

https://assets.publishing.service.gov.uk/government/uploads/system/uploads/attachment_data/file/844591/CCS001_CCS09190789
04-001_Response_to_Public_Accounts_on_the_95_and_99th_WEB_Accessible.pdf
14 https://assets.publishing.service.gov.uk/government/uploads/system/uploads/attachment_data/file/933536/CCS1020400954-

001_TM_Progress_Report_Nov_2020_Web_Accessible.pdf

73
Personal data
During 2020-21 there were no personal data incidents that the department was
required to report to the Information Commissioner’s Office. The department takes
its data protection responsibilities very seriously, and this is reflected in the very low
number of cases reported.

Number of personal incidents reported to the Information Commissioner’s Office

Year Number of incidents

2020-21 0

2019-20 0

2018-19 2

Ministerial directions
Should the Permanent Secretary ever be directed by the Chancellor to take
responsibility for the delivery of an aim, priority or action that he believes is contrary
to the principles of Managing Public Money (the main guidance for Accounting
Officers), he may seek a written direction to continue. No written directions have
been sought in the department during 2020-21.

Operational issues facing the department in 2020-21

The Governance Statement considers people, security and policy issues which might
pose challenges to the delivery of the Treasury’s objectives or undermine the
integrity or reputation of the department.

COVID-19 response

As set out in the Performance Report, the department had a major role in the
response to the COVID-19 pandemic, introducing several policies and
interventions both to support the general public and businesses during the
pandemic.

To ensure the department was able to support the policy response several
internal actions were taken including both short term and longer-term
resourcing solutions, as outlined below.

Two new Director roles were created in Strategy, Planning and Budget and
Personal Tax, Welfare and Pensions to ensure the effective response to COVID-
19 and delivery of schemes; an additional Director role on Companies and
Economic Security in EGU was established to focus on sector and company
level support, and a new temporary Director role was created in the Corporate
Centre Group to lead the operational work supporting the department’s
transition to working from home due to the COVID-19 pandemic.

74
The Corporate Centre Group provided additional support to the department
including rolling out new technology to support online meetings and working
from home kits whilst colleagues worked remotely.

EMB met daily to discuss and support both the policy and the department’s
operational response, as well as examine the risks to delivery. These
discussions were informed by the COVID Response Board, which was set up to
drive HM Treasury strategy, analysis and policy development in response to
COVID-19 pandemic and oversee effective collaboration across HM
Treasury. The Board met three times a week during the initial crisis phase
before moving to a weekly rhythm and was chaired by Kate Joseph (COVID
Director). The work brought to this board also informed HM Treasury’s
contribution to the wider cross-Whitehall COVID-19 pandemic governance.
From 2021 onwards, a Directors’ Group on COVID-19 response replaced the
board and met on a regular basis to provide oversight and co-ordination in
the department.
Recognising the increase in correspondence volumes and the need to ensure
the department replied in a timely fashion, it approached HMRC’s Surge and
Rapid Response Team (SRRT) for support. The SRRT improve operational
resilience across the civil service by providing assistance at short notice to deal
with an unexpected increase in demand.

The department used the spending control framework more flexibly than it
otherwise would have done during the pandemic, to respond as quickly as
possible. In doing so, the department made a calculated judgement that the
costs of expediting normal processes were outweighed by the benefits to front
line workers in the NHS and other public services, as well as the health of
citizens. The department sought to mitigate the risks associated with this
increased risk appetite by setting spending conditions, creating bespoke
processes to increase assurance processes where possible, and ensuring
Accounting Officers were satisfied that all decisions met the standards set out
in Managing Public Money. HMRC has also significantly scaled up its
compliance response. The Chancellor announced at the Spring Budget that
the Government is investing over £100m in a Taxpayer Protection Taskforce.
This will increase current deployment on COVID Compliance work to 1,265
FTE, to combat fraud across the schemes, one of the largest and quickest
responses to a fraud risk by HMRC.

The department has nevertheless accepted the higher risks of fraud loss
inherent in the rapid policy development and rollout of stimulus packages.
Whilst delivery partners have primary responsibility for identifying and
managing fraud risks, HM Treasury has a statutory role and responsibility for
the control of public resources.

A full overview of COVID-19 policy response, activity and delivery can be

found in Chapter 1 of this report.

75
How to make HM Treasury a great place to work
Resources and workplace
The department continued to grow throughout 2020-21, as work on planning the
transition from our exit from the EU continued and the department responded to
the COVID-19 crisis. Recruitment activity increased throughout the year to continue
to meet the demands of the department, including a large Deputy Director
recruitment campaign, which saw the appointment of 36 new SCS1 staff. We are
implementing several changes to our recruitment processes in response to an
external recruitment review in 2020, with a view to ensuring that these are as fair
and inclusive as possible, bringing about better diversity outcomes from our
recruitment. We start work on a new outreach strategy, which will allow us to reach
as wide a pool of candidates as possible and this will be particularly helpful as we
move towards planning our new economic campus in Darlington.

Diversity and inclusion

The department is committed to building a department that reflects those we serve,
drawing on true diversity of background and expertise, to enable us to offer the best
possible advice to our ministers, strengthen our policy making, and maintain our
strong corporate functions. We want to ensure that we are an employer of choice;
attracting, retaining and supporting a richly diverse mix of talented individuals to
thrive and perform to the best of their ability. Our ambitious plans include:

• Implementing changes to recruitment processes following the 2020

external review

• Strengthening our internal development offer, including supporting

internal progression for underrepresented groups in the SCS

• Building management capability through a refreshed management

development offer and supporting managers through both structured and
social learning

• Continuing to build apprenticeship routes into the department, and

participating in the civil service wide Diversity Internship Programme

• Establishing a new economic campus in Darlington, which will

significantly expand our geographic diversity, and help us develop a better
understanding of the communities we serve

We are committed to understanding the richness of individual backgrounds and

ensuring that each staff member is supported to thrive as an individual. To this end,
the department will be working with the Cabinet Office to think about how we
define and measure cognitive and intellectual diversity. We also aspire to put data
and evidence at the heart of our inclusion approach, including ensuring that we are
drawing upon the widest possible evidence to better understand and solve both
policy and corporate problems.

Flexible Safer Working

Providing an effective corporate response to the COVID-19 pandemic has been a
priority for the department in 2020-21. We have made our offices COVID-secure in
line with government guidance by introducing a variety of measures including
increasing cleaning, introducing desk booking (to enable track and trace), and

76
reconfiguring space to ensure staff who need to use the office to meet business and
wellbeing needs are able to do so safely.

Ensuring the wellbeing of our staff working remotely has also been an important
focus and has included the provision of homeworking ICT kits, acceleration of the
rollout of software to enhance our ICT provision and funding office furniture for use
at home to meet physical wellbeing needs.

To tackle the challenge to mental health, that the pandemic has raised, the
department has provided a range of mental health resources (including Employee
Assistance Programme, Treasury Supporters, Mental Health First Aiders, and an
online hub) and worked closely with Line Managers to support them in providing
tailored support for staff, recognising the differing impacts of the pandemic.

As the pandemic has progressed, the department has continued to monitor

wellbeing through regular surveys, outreach and communication across the
department, enabling all staff to share their thoughts, shaping the department’s
response and helping to define how the department will working in the future, as
we look to establish our new economic campus in Darlington.
Values
The Treasury’s values were reviewed in 2018, following a consultation exercise with
staff, and updated to reflect the shape of the department today. The importance of
the Treasury’s values grew in 2020 with the onset of the global pandemic. In
response to this, the department carried out a further touchpoint with staff to test
how the values had held up since 2018, to consider how changes in the working
environment might best be managed and what colleagues could do to live the
values in the new hybrid working model. Work continues to ensure the values
remain relevant in 2021 and the virtual team is working on further communications
on the values in 2021.

Economic campus in Darlington

At Budget 2021, the Chancellor announced that the new economic campus
will be in Darlington, home to the new HM Treasury office in the north of
England. The announcement now allows the department to move forward
with securing accommodation, supporting those staff who want to relocate
and delivering on our commitment to recruiting talented people outside of
London and the South East. This supports the wider Places for Growth target
to move 22,000 civil servants out of London and the South East by 2030.

The economic campus will include at least 750 roles from HM Treasury, the
Department for International Trade, the Department for Business, Energy &
Industrial Strategy, the Ministry of Housing, Communities and Local
Government, and the Office for National Statistics.

Activities in 2020-21 to support establishing a new economic campus

included:

• Establishing a team and the appropriate governance to deliver the

programme

77
 • Policy advice and analysis to support a ministerial location decision at
Budget 2021
• Agreeing the Treasury’s organisational design principles for the new
campus
• Work to support the future multi-site operating model
• A regular series of staff engagement and communications events.

Through this programme the department will expand its geographic diversity
and will diversify the range of talent and perspectives that the Treasury is able
to draw on in our policy making.

Security
Security remains a priority for the department in being able to deliver its objectives,
with all facets of the security discipline having been adapted this year to respond to
the COVID-19 pandemic. Two annual security briefings were delivered to EMB by
our Security Adviser.

Security communications to staff have increased substantially this year whilst the
department has worked remotely. Regular, topical communications have been sent
to staff with a focus on how to be conscious of your surroundings and reinforcing
information security policy whilst working outside the office. In addition, we have
increased communications on cyber security, phishing awareness and social
engineering, with a bespoke briefing delivered to senior line management on how
to spot potential social engineering behaviours in their employees.

Business continuity in the department has been reviewed, updated, exercised and
challenged throughout the year. This has included tools such as split team working
and cross-skilling to ensure the resilience of teams during the year, with a tailored
briefing for Private Offices.

The security team has continued to provide support and guidance to HM Treasury
teams, and our arm’s length bodies, either working on sensitive policy and business
matters or embarking on procurements likely to involve the processing and handling
of sensitive data or information.

The security team has undertaken investigations and worked with pan-government
colleagues where necessary. The security team has also worked closely with its
suppliers to mitigate against unauthorised disclosure risks associated with insider
threats and third-party actors.

Policy – Leaving the EU

A significant focus was to ensure that the government was prepared for the
end of the Transition Period on 31 December 2020, and to monitor the most
likely impacts of remaining transition events thereafter.

In the lead up to 31 December 2020, several HM Treasury delivery

workstreams continued to be tracked though various internal governance
structures, such as the Europe Steering Board (ESB) and Domestic Readiness

78
 Portfolio Board (DRPB), to monitor delivery readiness and risks. The
department also fed into regular cross-Whitehall delivery reporting,
coordinated by the Transition Taskforce in Cabinet Office, to track
departments’ preparedness, and met all its critical milestones in advance of 1
January 2021.

HM Treasury approached end of transition contingency planning (D20) by

standing up a dedicated coordination team to manage the department’s
response to emerging issues and feed into the wider Whitehall process.
Preparations for this work included updating EMB on no deal economic
response planning and project management for D20.

The Treasury Group

The Treasury Group wider organisations work to support the government’s
economic and fiscal strategy. The Permanent Secretary to the Treasury is the
Principal Accounting Officer for the Treasury Group.15

The department continued with its programme of Tailored Reviews of its arm’s
length bodies. These reviews consider:

• whether their functions are still necessary

• how effective and efficient they are

• their corporate governance

The GIAA Tailored Review was published in October 202016. Following suspension in
April 2020 to the final stages of the DMO Tailored Review due to COVID-19, the
DMO Tailored Review was published in June 202117. The reviews are overseen
centrally by the Cabinet Office who announced in August 2020 that no new reviews
should commence at this time.

The Corporate Governance Code

As part of the preparation of this report, the department has undertaken an
assessment of its compliance with the Corporate Governance Code for Central
Government Departments. This assessment has provided assurances that the
department complies with the principles of the code.

15 Further information on the Treasury Group can be found in Chapter 7.

16 https://www.gov.uk/government/publications/tailored-review-government-internal-audit-agency-giaa

17 https://www.gov.uk/government/publications/tailored-review-uk-debt-management-office

79
Conclusion
I have considered the evidence that supports this Governance Statement, including
from the department’s governance structures and the independent advice provided
by the Audit and Risk Committee. I conclude that HM Treasury has satisfactory
governance and risk management systems in place with effective plans to ensure
continuous improvement to address weaknesses identified.

Tom Scholar

Permanent Secretary

16 July 2021

80
Statement of Accounting Officer responsibilities
Under the Government Resources and Accounts Act 2000 (the GRAA), HM Treasury
has directed the department to prepare, for each financial year, consolidated
resource accounts detailing the resources acquired, held or disposed of, and the use
of resources, during the year by the department (inclusive of its executive agencies)
and its sponsored non-departmental and other arm’s length public bodies
designated by order made under the GRAA by Statutory Instrument 2020 number
251 and 1530 (together known as the ‘departmental group’, consisting of the
department and sponsored bodies listed at Note 1.2 to the accounts).

The accounts are prepared on an accruals basis and must give a true and fair view of
the state of affairs of the department, the departmental group, the net resource
outturn, application of resources, changes in taxpayers’ equity and cash flows of the
departmental group for the financial year.

In preparing the accounts, the Accounting Officer of the department is required to

comply with the requirements of the Government Financial Reporting Manual and in
particular to:

• observe the Accounts Direction issued by the Treasury, including the

relevant accounting and disclosure requirements, and apply suitable
accounting policies on a consistent basis

• ensure that the department has in place appropriate and reliable systems
and procedures to carry out the consolidation process

• make judgements and estimates on a reasonable basis, including those

judgements involved in consolidating the accounting information
provided by non-departmental and other arm’s length public bodies

• state whether applicable accounting standards as set out in the

Government Financial Reporting Manual have been followed, and disclose
and explain any material departures in the accounts

• prepare the accounts on a going concern basis

• confirm that the Annual Report and Accounts is fair, balanced and
understandable and take personal responsibility for the Annual Report
and Accounts and the judgements required for determining that it is fair,
balanced and understandable

HM Treasury appointed the Permanent Secretary of the department as Principal

Accounting Officer of the department.

The Principal Accounting Officer of the department has also appointed the Chief
Executives or equivalents of its sponsored non-departmental and other arm’s length
public bodies as Accounting Officers of those bodies.

The Principal Accounting Officer of the department is responsible for ensuring that
appropriate systems and controls are in place to ensure that any grants that the
department makes to its sponsored bodies are applied for the purposes intended
and that such expenditure and the other income and expenditure of the sponsored
bodies are properly accounted for, for the purposes of consolidation within the
resource accounts.

81
Under their terms of appointment, the Accounting Officers of the sponsored bodies
are accountable for the use, including the regularity and propriety, of the grants
received and the other income and expenditure of the sponsored bodies.

The responsibilities of an Accounting Officer, including responsibility for the

propriety and regularity of the public finances for which the Accounting Officer is
answerable, for keeping proper records and for safeguarding the assets of the
department or non-departmental or other arm’s length public body for which the
Accounting Officer is responsible, are set out in Managing Public Money published
by HM Treasury.

Statement regarding the disclosure of information to the auditors

As the Principal Accounting Officer, I have taken all the steps that I ought to have
taken to make myself aware of any relevant audit information and to establish that
the Treasury’s auditors are aware of that information. So far as I am aware, there is
no relevant audit information of which the auditors are unaware.

I also confirm that this annual report and accounts is fair, balanced and
understandable, and I take personal responsibility for judgements made to ensure
that it is fair, balanced and understandable.

82
Remuneration and staff report

Remuneration report18

Treasury ministers – single total figure of remuneration (audited)

2020-21 2019-20
Salary20 Benefits Pension Total Salary Benefits Pension Total
£19 (FYE) in kind benefits (FYE) in kind benefits
Rishi Sunak Chancellor of the Exchequer 67,505 6,800 N/A 74,000 13,660 900 2,000 17,000
(from 14/02/20), Chief Secretary to the (67,505)
Treasury (from 24/07/19 to 13/02/20)21
Stephen Barclay Chief Secretary to the 31,680 - 8,000 39,000 4,097 - 1,000 5,000
Treasury (from 14/02/20)
(31,680)
Kemi Badenoch Exchequer Secretary to 22,375 - 5,000 28,000 1,865 - 1,000 3,000
the Treasury (from 14/02/20)
(22,375)
Jesse Norman Financial Secretary to the 31,680 - 8,000 39,000 26,400 - 7,000 33,000
Treasury (from 23/05/19)
(31,680)
John Glen Economic Secretary to the 22,375 - 5,000 22,375 - 6,000 28,000
Treasury
28,000
Sajid Javid Chancellor of the Exchequer - - - - 36,274 3,600 8,000 48,000
(from 24/07/19 to 13/02/20)
(67,505)
Philip Hammond Chancellor of the - - - - 21,231 2,100 6,000 29,000
Exchequer (to 24/07/19)
(67,505)
Simon Clarke Exchequer Secretary to the - - - - 13,353 - 3,000 16,000
Treasury (from 27/07/19 to 13/02/20)
(22,375)
Elizabeth Truss Chief Secretary to the - - - - 10,560 - 3,000 14,000
Treasury (to 24/07/19)
(31,680)
Mel Stride Financial Secretary to the - - - - 5,280 - 1,000 6,000
Treasury (to 22/05/19)
(31,680)
Robert Jenrick Exchequer Secretary to the - - - - 7,458 - 2,000 9,000
Treasury (to 24/07/19)
(22,375)

18 Certain disclosures within the remuneration report have been audited as per the FReM 6.2.1.

19 Salary and full year equivalent (FYE) are presented to the nearest £1. FYE is shown in brackets. Benefits in kind are presented to

the nearest £100, pension benefits and total remuneration to the nearest £1,000.
20 Lord Agnew began his role as Minister of State for HM Treasury and Cabinet office on 14/02/20 and is unpaid in both roles.

21 Rishi Sunak did not receive a salary until 19/12/19 and the 2019-20 benefit in kind relates only to his role as Chancellor of the

Exchequer. The FYE disclosed relates only to his role as Chancellor of the Exchequer. He did not participate in the ministerial
pension scheme in 2020-21.

83
Treasury ministers – severance payments22 (audited)
The table below represents the severance payments made to former ministers.

2020-21 2019-20
Actual Receivable Actual Receivable
£23 Severance Severance Severance Severance
Philip Hammond Chancellor of the Exchequer (to 24/07/19) - - 16,876 16,876

Sajid Javid Chancellor of the Exchequer (from 24/07/19 to - - 16,876 16,876

13/02/20)

Treasury ministers – pension benefits (audited)

Accrued pension at Real increase CETV24 at CETV at Real

pension age as at in pension at 31/3/21 31/3/2025 increase
31/3/21 pension age in CETV

£000
Rishi Sunak Chancellor of the Exchequer21 N/A N/A N/A 2 N/A

Stephen Barclay Chief Secretary to the Treasury 0-5 0-2.5 45 37 3

Kemi Badenoch Exchequer Secretary to the 0-5 0-2.5 7 3 2

Treasury
Jesse Norman Financial Secretary to the Treasury 0-5 0-2.5 36 27 5

John Glen Economic Secretary to the Treasury 0-5 0-2.5 19 14 2

Sajid Javid Chancellor of the Exchequer - - - 128 -

Philip Hammond Chancellor of the Exchequer - - - 287 -

Simon Clarke Exchequer Secretary to the Treasury - - - 2 -

Elizabeth Truss Chief Secretary to the Treasury - - - 6 -

Mel Stride Financial Secretary to the Treasury - - - 81 -

Robert Jenrick Exchequer Secretary to the Treasury - - - 33 -

22 Ministers who have not attained the age of 65 and are not appointed to a relevant ministerial or other paid office within 3 weeks

of the last day of service, are eligible for a severance payment of one quarter of the annual ministerial salary being paid.
23 Severance payments are presented to the nearest £1.

24 Cash Equivalent Transfer Value

25 Figures have been restated where the administrator has made retrospective updates to the data.

84
Additional ministerial remuneration borne by HM Treasury (audited)

£000 2020-21 2019-20

Boris Johnson Prime Minister (from 24/07/19)26 75-80 50-55

Theresa May Prime Minister (to 24/07/19) - 20-25

Mark Spencer Chief Whip, Commons (from 24/07/19) 30-35 20-25

Julian Smith Chief Whip, Commons (to 24/07/19) - 10-15

Stuart Andrew Deputy Chief Whip, Commons (from 14/02/20) 30-35 0-5

Amanda Milling Deputy Chief Whip, Commons (from 28/07/19 to - 15-20

13/02/20)
Christopher Pincher Deputy Chief Whip, Commons (to 24/07/19) - 10-15

Lord Ashton of Hyde Chief Whip, Lords (from 26/07/19) 120-125 80-85

Lord Taylor of Holbeach Chief Whip, Lords (to 24/07/19) - 40-45

The Earl of Courtown Deputy Chief Whip, Lords 105-110 105-110

Baronesses and Lords-in-Waiting27 (5 posts)28 (2019-20: 17 posts, 6 450-455 360-365

unpaid)

Government and Assistant Government Whips27 (17 posts, 1 250-255 255-260

unpaid)29 (2019-20: 32 posts, 4 unpaid)

Additional ministers – severance payments30 (audited)

The table below represents the severance payments made to former ministers.

2020-21 2019-20
Actual Receivable Actual Receivable
£31 Severance Severance Severance Severance
Theresa May Prime Minister (to 24/07/19) - - 18,860 18,860

Craig Whittaker Government Whip, Commons (to 28/07/19) - - 4,479 4,479

26 Boris Johnson received a benefit in kind of £7,500 in 2020-21 (2019-20: £5,200) in respect of the use of the official Downing

Street residence. The 2019-20 benefit in kind relates only to his role as Prime Minister.
27 This disclosure shows all those in post during the year and not only in post at 31 March.

28 Baronesses and Lords-in-Waiting comprise: Baroness Scott of Bybrook, Lord Parkinson of Whitley Bay, Baroness Penn, Baroness

Bloomfield of Hinton Waldrist, Viscount Younger of Leckie.

29Government and Assistant Government Whips comprise: Michael Tomlinson MP, Alex Chalk MP, Eddie Hughes MP, Mike Freer

MP, Rebecca Harris MP, David Rutley MP, Iain Stewart MP, Maggie Throup MP, Leo Docherty MP, Nigel Huddleston MP, Maria
Caulfield MP, James Morris MP, Marcus Jones MP, Tom Pursglove MP, David TC Davies MP, David Duguid MP, Scott Mann MP.
30 Ministers who have not attained the age of 65 and are not appointed to a relevant ministerial or other paid office within 3 weeks

of the last day of service, are eligible for a severance payment of one quarter of the annual ministerial salary being paid.
31 Severance payments are presented to the nearest £1.

85
 Senior management – single total figure of remuneration (audited)
2020-21 2019-20

Salary Bonuses Pension Total Salary Bonuses Pension Total

(FYE) benefits (FYE) benefits
33 33
£00032
Tom Scholar Permanent Secretary 200-205 15-20 100 315-320 195-200 - 94 290-295

Charles Roxburgh Second Permanent 160-165 15-20 N/A 175-180 160-165 15-20 N/A 175-180
Secretary34
Mark Bowman Director General, 140-145 - 102 245-250 135-140 15-20 77 230-235
International and EU
Clare Lombardelli Chief Economic 150-155 - 69 215-220 115-120 - 46 160-165
Advisor
Cat Little Director General, Public 140-145 - 55 200-205 5-10 - 3 10-15
Spending (from 12/03/20)
(135-140)
Beth Russell Director General, Tax and 140-145 15-20 98 250-255 130-135 15-20 64 210-215
Welfare
Philip Duffy Director General, 115-120 10-15 119 245-250 - - - -
Productivity and Growth (from
(130-135)
01/06/20)
Dan York-Smith Director Strategy, 95-100 10-15 51 160-165 90-95 5-10 38 130-135
Planning and Budgeting

Catherine Webb Director, Operations 95-100 10-15 48 160-165 95-100 10-15 47 155-160

Anna Caffyn Director, Finance 90-95 - 40 130-135 90-95 - 85 175-180

Siobhan Jones Acting Director, 15-20 5-10 47 65-70 5-10 - 5 10-15

Operations (from 09/03/20 to
(90-95) (90-95)
31/05/20)35
Veda Poon Director, International (from 40-45 - 22 65-70 - - - -
23/11/20)
(95-100)
Rena Lalgie Director, OFSI (from 30-35 - 12 45-50 - - - -
27/07/20 to 23/10/20)
(90-95)
James Bowler Director General, Public - - - - 125-130 5-10 67 200-205
Spending (to 11/03/20)
(140-145)
Richard Hughes Director, Fiscal (to - - - - 20-25 - - 20-25
30/04/19)36 (125-130)

32 Salary, full year equivalent (FYE), bonuses and totals are presented in £5,000 bands. FYE is shown in brackets. Benefits in kind are

presented to the nearest £100 and pension benefits to the nearest £1,000. There were no benefits in kind for 2020-21 or 2019-
20.
33 The value of pension benefits accrued during the year is calculated as (the real increase in pension multiplied by 20) plus (the real

increase in any lump sum) less (the contributions made by the individual). The real increase excludes increases due to inflation or
any increase or decreases due to a transfer of pension rights. Figures are restated for retrospective updates and are reported
before tax.
34 Charles Roxburgh did not participate in the Civil Service pension scheme.

35 Siobhan Jones was Acting Operations Director from 09/03/20, covering a period of sickness absence. The salary disclosed relates

to the Acting Operations Director role only.

36 Richard Hughes attended EMB meetings once he stepped down as Acting Chief Economic Advisor until 30/04/19.

86
Katharine Braddick joined the Treasury Board on 20 October 2016 as Director
General, Financial Services on funded secondment from the Bank of England. Of
these secondment costs, gross earnings during the accounting period 1 April 2020
to 31 March 2021 (including bonuses of £15k-£20k) were £200k-£205k (2019-20:
£200k-205k).

Pay multiples (audited)

Reporting bodies are required to disclose the relationship between the remuneration
of the highest paid director in the organisation and the median remuneration of the
organisation’s workforce.

The banded remuneration37 of the highest paid director employed by HM Treasury

in the financial year 2020-21 was £215k-£220k (2019-20: £190k-195k). This was
4.3 times (2019-20 Restated: 4.0 times) the median remuneration of the workforce,
which was £50,197 (2019-20 Restated: £48,718).

The increase in the remuneration ratio is primarily driven by a non-consolidated

bonus paid to the highest paid director in 2020-21.

In 2020-21, no employees received remuneration in excess of the highest paid

director. Remuneration ranged from £20.5k to £220k (2019-20: £17.5k to £195k).

Total remuneration includes salary, non-consolidated performance-related pay and

benefits in kind. It does not include severance payments, employer pension
contributions and the cash-equivalent transfer value of pensions.

37 The banded remuneration under the Pay multiples section includes contractual salary amount only, while the banded

remuneration in the table above includes salary adjustments.

87
Senior management – pension benefits38 (audited)

Accrued pension at Real increase in CETV at CETV at Real

pension age as at pension at pension 31/3/21 31/3/2039 increase
31/3/21 and related age in CETV
£000 lump sum
Tom Scholar Permanent Secretary 75-80 plus a lump 5-7.5 plus a lump of 1,411 1,291 63
sum of 155-160 2.5-5
Mark Bowman Director General, 50-55 plus a lump 5-7.5 plus a lump 921 818 68
International and EU
sum of 105-110 sum of 5-7.5
Clare Lombardelli Chief Economic 35-40 2.5-5 444 391 32
Advisor
Cat Little Director General, Public 20-25 2.5-5 221 184 20
Spending
Beth Russell Director General, Tax and 45-50 plus a lump 5-7.5 plus a lump 768 678 59
Welfare
sum of 95-100 sum of 5-7.5
Philip Duffy Director General, 35-40 plus a lump 5-7.5 plus a lump 463 385 68
Productivity and Growth
sum of 60-65 sum of 7.5-10
Dan York Smith Director, Strategy, 30-35 2.5-5 370 329 23
Planning and Budget
Catherine Webb Director, Operations 30-35 plus a lump 2.5-5 plus a lump 401 362 21
sum of 50-55 sum of 0-2.5
Anna Caffyn Director, Finance 25-30 0-2.5 343 312 16
Siobhan Jones Acting Director, 25-30 2.5-5 316 287 23
Operations
Veda Poon Director, International 25-30 0-2.5 290 270 9
Rena Lalgie Director, Office for 20-25 0-2.5 302 296 4
Sanctions and Implementation

38 This table relates to pension benefits in the Civil Service pension scheme and represents the period as a member of EMB only.

39 Figures have been restated where the Civil Service Pension Scheme have made retrospective updates to the data.

88
Fees paid to Non-Executive Board and Audit and Risk Committee members
fees (audited)
2020-21 2019-20
£00040 Fees Benefits in Fees Benefits in
kind kind

Rt Hon Lord Hill of Oareford CBE Lead Non- 20-25 - 20-25 -

Executive for HM Treasury

Richard Meddings Non-Executive Board member 20-25 - 20-25 -

and Chair of the Audit and Risk Committee (from
01/05/19)

Tim Score Non-Executive Board member and 20-25 - 20-25 -

Interim Chair of the Audit and Risk Committee (to
01/05/19)

Gay Huey Evans CBE Non-Executive Board 15-20 - 15-20 -

member

Peter Estlin Member of the Audit and Risk 5-10 - 0-5 -

Committee (from 01/01/20)

Zarin Patel Member of the Audit and Risk 5-10 - 5-10 -

Committee

During the year, Richard Meddings and Rt Hon Lord Hill of Oareford CBE donated
their fees to charity.

Remuneration policy
The pay of senior civil servants is set by the Prime Minister following independent
advice from the Review Body on Senior Salaries. From time to time, the Review Body
advises the Prime Minister on the pay, pensions and allowances of ministers and
others whose pay is determined by the Ministerial and Other Salaries Act 1975.

In making its recommendations, the Review Body considers:

• the need to recruit, retain and motivate suitably able and qualified people to
exercise their different responsibilities
• regional and local variations in labour markets and their effects on the
recruitment and retention of staff
• government policies for improving public services, including the requirement
on departments to meet the output targets for the delivery of departmental
services
• the funds available to departments as set out in the government’s
departmental expenditure limits
• the government’s inflation target, wider economic considerations, and the
affordability of its recommendations
For the Permanent Secretary and Second Permanent Secretary, remuneration is set
by the Prime Minister on the recommendation of the Permanent Secretaries’

40 Fees are presented in £5,000 bands. Benefits in kind are presented to the nearest £100.

89
Remuneration Committee. For the remaining executive members of the Treasury
Board and the Chief Executives of DMO, GIAA and NIC, remuneration is determined
by the Treasury’s Pay Committee in line with this central guidance.

Service contracts
The Constitutional Reform and Governance Act 2010 requires civil service
appointments to be made on merit on the basis of fair and open competition. The
Recruitment Principles published by the Civil Service Commission specify the
circumstances when appointments may be made otherwise.
Unless otherwise stated below, the officials covered by this report hold
appointments which are open-ended. Early termination, other than for misconduct,
would result in the individual receiving compensation as set out in the Civil Service
Compensation Scheme. No such compensation payments were made to senior
managers during the year.

Pay committees
Dependent on the grade of senior manager, the pay committees responsible for
reviewing pay comprise either the Permanent Secretaries, or the Permanent
Secretaries and Directors General.

Salary and bonuses

Salary covers both pensionable and non-pensionable amounts and includes gross
salary; overtime; reserved rights to London weighting or London allowances;
recruitment and retention allowances; private office allowances; and any other
allowance to the extent that it is subject to UK taxation. This report is based on
accrued payments made by the department and thus recorded in these accounts.

In respect of ministers in the House of Commons, departments bear only the cost of
the additional ministerial remuneration. The salary for their services as an MP
(£81,932 from 1 April 2020) and various allowances to which they are entitled are
borne centrally.

However, the arrangement for ministers in the House of Lords is different in that
they do not receive a salary but rather an additional remuneration, which cannot be
quantified separately from their ministerial salaries. This total remuneration, as well
as the allowances to which they are entitled, is paid by the department and is
therefore shown in full in this report.

Bonuses are based on performance levels achieved in 2019-20 and comparative

bonuses on those achieved in 2018-19. Annual bonuses are paid following the
appraisal process.

90
Benefits in kind
The monetary value of benefits in kind covers any benefits provided by the
department and treated by HMRC as taxable. The Chancellor and Prime Minister
have the use of their official residences at Downing Street. Expenses relating to its
use, such as heating and lighting, are chargeable to tax under the terms of the
Income Tax on Earnings and Pensions Act 2003. The benefit in kind is capped at
10% of gross salary.

In addition, staff receive certain minor benefits in kind, such as subscriptions and
taxi journeys. The Treasury has agreed with HMRC to account for Income Tax on
such benefits on an aggregate basis, as it is not practical to disclose individual
amounts.

Ministerial pensions
Pension benefits for ministers are provided by the Parliamentary Contributory
Pension Fund (PCPF). The scheme is made under statute and the rules are set out
within the Ministerial Pension Scheme 2015.41

Those ministers who are Members of Parliament may also accrue an MP’s pension
under the PCPF (details of which are not included in this report). A new MPs’
pension scheme was introduced from May 2015 although members who were MPs
and aged 55 or older on 1 April 2013 have transitional protection to remain in the
previous MPs’ final salary pension scheme.

Benefits for ministers are payable from State Pension age under the 2015 scheme.
Pensions are re-valued annually in line with Pensions Increase legislation both before
and after retirement. The contribution rate from May 2015 is 11.1% and the accrual
rate is 1.775% of pensionable earnings.

The figure shown for pension value includes the total pension payable to the
member under both the pre- and post-2015 ministerial pension schemes.

Civil service pensions

Pension benefits are provided through the civil service pension arrangements. From
1 April 2015, a new pension scheme for civil servants was introduced, the Civil
Servants and Others Pension Scheme (alpha), which provides benefits on a career
average basis with a normal pension age equal to the member’s State Pension Age
(or 65 if higher).

From that date, all newly appointed civil servants and the majority of those already
in service joined alpha. Prior to that date, civil servants participated in the Principal
Civil Service Pension Scheme (PCSPS), which has four sections: three providing
benefits on a final salary basis (classic, premium or classic plus) with a normal
pension age of 60; and one providing benefits on a whole career basis (nuvos) with
a normal pension age of 65.

41 http://qna.files.parliament.uk/ws-attachments/170890/original/PCPF%20MINISTERIAL%20SCHEME%20FINAL%20RULES.doc as

amended in July 2019.

91
These statutory arrangements are unfunded with the cost of benefits met by monies
voted by Parliament each year. Pensions payable under all the above schemes are
increased annually in line with Pensions Increase legislation.

Existing members of the PCSPS who were within 10 years of their normal pension
age on 1 April 2012 remained in the PCSPS after 1 April 2015. Those members who
were between 10 years and 13 years and 5 months from their normal pension age
on 1 April 2012 will switch to alpha between 1 June 2015 and 1 February 2022. All
members who switch to alpha have their existing PCSPS benefits ‘banked’, with
those with earlier benefits in one of the final salary sections of the PCSPS having
those benefits based on their final salary when they leave alpha. (The pension figures
quoted for officials show pension earned in PCSPS or alpha – as appropriate. Where
the official has benefits in both the PCSPS and alpha the figure quoted is the
combined value of their benefits in the two schemes.) Members joining from
October 2002 may opt for either the appropriate defined benefit arrangement or a
‘money purchase’ stakeholder pension with an employer contribution (partnership
pension account).

Employee contributions are salary-related and range from 4.6% and 8.05% for
members of classic, premium, classic plus, nuvos, and alpha. Benefits in classic
accrue at a rate of 1/80th of final pensionable earnings for each year of service. In
addition, a lump sum equivalent to three years’ initial pension is payable on
retirement. For premium, benefits accrue at the rate of 1/60th of final pensionable
earnings for each year of service. Unlike classic, there is no automatic lump sum.
Classic plus is essentially a hybrid with benefits for service before 1 October 2002
calculated broadly as per classic and benefits for service from October 2002 worked
out as in premium. In nuvos a member builds up a pension based on their
pensionable earnings during their period of scheme membership. At the end of the
scheme year (31 March), the member’s earned pension account is credited with
2.3% of their pensionable earnings in that scheme year and the accrued pension is
uprated in line with Pensions Increase legislation. Benefits in alpha build up in a
similar way to nuvos, except that the accrual rate is 2.32%. In all cases, members
may opt to give up (commute) pension for a lump sum up to the limits set by the
Finance Act 2004.

The partnership pension account is a stakeholder pension arrangement. The

employer makes a basic contribution of between 8% and 14.75% (depending on
the age of the member) into a stakeholder pension product chosen by the employee
from a panel of providers. The employee does not have to contribute, but where
they do make contributions, the employer will match these up to a limit of 3% of
pensionable salary (in addition to the employer’s basic contribution). Employers also
contribute a further 0.5% of pensionable salary to cover the cost of centrally
provided risk benefit cover (death in service and ill health retirement)

The accrued pension quoted is the pension the member is entitled to receive when
they reach pension age, or immediately on ceasing to be an active member of the
scheme if they are already at or over pension age. Pension age is 60 for members of
classic, premium and classic plus, 65 for members of nuvos, and the higher of 65 or
State Pension Age for members of alpha. (The pension figures quoted for officials
show pension earned in PCSPS or alpha – as appropriate. Where the official has
benefits in both the PCSPS and alpha the figure quoted is the combined value of

92
their benefits in the two schemes but note that part of that pension may be payable
from different ages.)

Further details about the Civil Service pension arrangements can be found at the
website www.civilservicepensionscheme.org.uk.

Cash Equivalent Transfer Value (CETV)

CETV is the actuarially assessed capitalised value of the pension scheme benefits
accrued by a member at a particular point in time. The benefits valued are the
member’s accrued benefits and any contingent spouse’s pension payable from the
scheme. A CETV is a payment made by a pension scheme or arrangement to secure
benefits in another scheme or arrangement when the member leaves a scheme and
chooses to transfer the benefits accrued in their former scheme.

The pension figures shown relate to the benefits that the individual has accrued as a
consequence of their total membership of the pension scheme, not just their service
in a senior capacity to which the disclosure applies (or, for ministers, their current
appointment as minister).

The figures include the value of any pension benefit in another scheme or
arrangement which the member has transferred to the civil service pension
arrangements. They also include any additional pension benefit accrued to the
member as a result of their buying additional pension benefits at their own cost.

CETVs are calculated in accordance with The Occupational Pension Scheme (Transfer
Values) (Amendment) Regulations 2008 and do not take account of any actual or
potential reduction to benefits resulting from Lifetime Allowance Tax which may be
due when pension benefits are taken.

Real increase in CETV

This is the element of the increase in accrued pension funded by HM Treasury. It
excludes increases due to inflation and contributions paid by the minister or staff
member. It is worked out using common market valuation factors for the start and
end of the period.

93
Staff report42

Workforce dynamics

Core Treasury - Workforce breakdown (headcount)

31 March 2021 31 March 2020

Workforce Dynamics (%) Annual Turnover rate (%) 13.9 16.8

Workforce Diversity (%)43 Ethnically Diverse Background 19.4 17.6

Women 48.7 47.6

Disabled 9.1 8.8

Part time 6.9 8.2

LGBT 7.6 7.4

Diversity of Senior Civil Servants only Ethnically Diverse Background 12.9 9.6
(%)43

Women 48.4 50.7

Disabled 5.2 5.1

Part time 18.1 18.4

Core Treasury – Staff composition (FTE) at 31 March 2021 (31 March 2020)
Female Male Total

All employees 956 (747) 1,036 (852) 1,992 (1,599)

Of which:

Senior Civil Service 68.4 (63.2) 79.7 (66.7) 148.1 (129.9)

Directors (SCS2) 13.5 (14.9) 13.0 (12.0) 26.5 (26.9)

Core Treasury – Number of Senior Civil Servants by pay band (FTE)

Range44 31 March 2021 31 March 2020

SCS1 114 96

SCS2 26 27

SCS3 8 7

Total 148 130

42 This part of the Remuneration and Staffing Report provides details of staff numbers and costs, including pension costs and exit

packages for the Treasury Group in 2020-21. With the exception of the table which details average staff numbers, all numbers are
presented on an actual basis as at the reporting date. Information is reported in headcount unless indicated as FTE in the heading.
For information on staff matters, such as welfare, recruitment policy and diversity see Objective 4 from page 41.
43 Diversity percentages are calculated based on paid headcount using ONS definitions.

44 The Treasury uses the term ‘range’ as an alternative to ‘grade’ or ‘pay band’ to describe the internal structure of the department.

Range B are the most junior officials; ranges SCS1 to SCS3 are members of the Senior Civil Service.

94
Core Treasury - Gender diversity (headcount) as at 31 March 2021 (31 March 2020)
Female Male

Executive Management Board members and Group Directors (%) 51.4 (57.1) 48.6 (42.9)

Senior Managers (SCS, not including EMB) (%) 47.9 (50.0) 52.1 (50.0)

All staff (%) 48.7 (47.6) 51.3 (52.4)

Core Treasury - Grade diversity (headcount) as at 31 March 2021 (31 March 2020)
Range Women People from Ethnically People with LGBT
Diverse Background disabilities

B (%) 55.4 (53.7) 29.2 (25.9) 6.2 (7.4) 7.7 (9.3)

C (%) 63.2 (62.3) 29.2 (31.8) 8.0 (10.4) 5.7 (3.2)

D (%) 49.6 (47.1) 20.9 (17.3) 10.4 (8.8) 7.0 (7.8)

E (%) 43.0 (42.3) 16.0 (16.7) 8.7 (10.0) 10.6 (9.0)

E2 (%) 45.7 (46.7) 15.9 (13.3) 10.5 (7.6) 4.7 (5.8)

SCS 1,2,3 (%) 48.4 (50.7) 12.9 (9.6) 5.2 (5.1) 7.1 (6.6)

Recruitment45

Core Treasury – Recruitment (headcount) 2020-21 (2019-20)

Range Permanent Fixed term Loans from other Secondments Total
Appointments appointments Government
Departments

B46 11 (20) 24 (63) - (-) - (-) 35 (83)

C 68 (42) 17 (2) 2 (3) - (1) 87 (48)

D 307 (181) 19 (4) 8 (16) 5 (3) 339 (204)

E 113 (87) 8 (2) 15 (7) 5 (5) 141 (101)

E2 25 (23) 1 (1) 4 (4) 7 (-) 37 (28)

SCS 1,2,3 10 (9) 1 (-) 3 (4) 3 (1) 17 (14)

Total 534 (362) 70 (72) 32 (34) 20 (10) 656 (478)

45 Recruitment figures based on new people joining the department. The FTA figures include students and apprentices.

46 Including students.

95
Staff redeployments (headcount) – Core Treasury
Loaned In
Loaned in total Loaned in short-term (6 Loaned in long-term Average loan in (years)
months or less)47 (more than 6 months)

Range B 5 - 5 0.7
Range C 4 - 4 1.3
Range D 22 - 22 1.3
Range E 19 1 18 1.8
Range E2 6 2 4 1.6
SCS1 7 - 7 3.1
SCS2 - - - -
Total 63 3 60 1.6

Loaned Out
Loaned out short-term Loaned out long-term
Loaned out total Average loan out (years)
(6 months or less)48 (more than 6 months)
Range B - - - -
Range C 5 - 5 1.9
Range D 42 - 42 2.1
Range E 59 1 58 2.1
Range E2 25 1 24 2.2
SCS1 17 - 17 2.8
SCS2 4 - 4 2.6
Total 152 2 150 2.2

Health, safety and wellbeing

Sickness absence
Jan – Dec 2020 Jan – Dec 2019
(AWDL) (AWDL)

Government departments49 6.6 7.3

Treasury and its agencies 3.0 3.4

Core Treasury 2.4 2.9

Staff with no sickness absence

Jan – Dec 2020 Jan – Dec 2019

Treasury and its agencies 74% 64%

Core Treasury 77% 68%

47 Loaned in staff are classified as an administration cost. Of the 3 short-term loaned in staff, the cost of 1 are met by their home

department. The cost of the other 2 staff is £9k.

48 Loaned out staff are classified as an administration cost. The cost of the 2 staff on short-term loan out is £24k.

49 Figures provided by Cabinet Office. Latest cross-government data for December 2020 has not yet been produced and this

represents the period January 2020 to September 2020.

96
Days lost (in Core Treasury) to mental health and related issues
Jan – Dec 2020 Jan – Dec 2019

Total days lost 1,458.0 962.5

Long term absences days lost 924.5 500.0

Short term absences days lost 533.5 462.5

Trade Union Facilities Time50

Relevant union officials
The total number of employees who were relevant union officials during the relevant
period was two (1 FTE).

Percentage of pay bill spent on facility time

The percentage of total pay bill spent on paying employees who were relevant union
officials for facility time during the relevant period was less than 1%. The total cost
of facility time was £1,849 of a total pay bill of £123.7m.51

HM Treasury has no agreement in place for facilities time and therefore has nothing
to disclose in relation to the percentage of time spent on facility time or paid trade
union activities by employees.

50 There is nothing to disclose for HM Treasury’s agencies – DMO, GIAA and NIC.

51 Calculated as the total gross amount spent on wages, employer pension contributions and employer National Insurance

contributions during the period.

97
Analysis of staff costs (audited)
The following disclosures on staff costs (including pension costs), average number of
persons employed and exit packages have been audited.

Staff costs
2020-21 2019-20

Ministers Permanent Others52 Total Total

In £m staff (Restated)

Salaries and wages 1 172 23 196 163

Social Security costs - 20 - 20 17

Staff pension costs - 25 - 25 19
Total continuing operations 1 217 23 241 199

Less recoveries for outward secondments - - - - (2)

Net continuing operations 1 217 23 241 197

Core Treasury and Agencies 1 169 13 183 152

ALBs and other bodies - 48 10 58 47

Total Continuing operations 1 217 23 241 199

Salaries and wages - 8 1 9 11

Social Security costs - 1 - 1 1

Staff pension costs - - - - 1
Total Discontinued Operations - 9 1 10 13

ALBs and other bodies - 9 1 10 13

Total Discontinued Operations - 9 1 10 13

Total staff costs 1 226 24 251 212

Average number of full-time equivalent persons employed53

2020-21 2019-20
number number
Ministers Special Permanent Others Total Total
Advisors54 staff (Restated)

Core Treasury and agencies 5 9 2,419 47 2,480 2,168

ALBs and other bodies - - 964 116 1,080 977
Total persons employed 5 9 3,383 163 3,560 3,145

52 ‘Others’ relates to non-permanent staff such as short-term contract, agency and temporary staff, as well as staff seconded in

from other bodies.

53 Total staff in ALBs and other bodies includes, 527 Royal Household, 288 FSCS and 265 in other bodies.

54 Following the guidance issued by Cabinet Office, Special Advisors represent those in the position as at 31 March 2021 and not an

average across the year to ensure consistency and alignment to the Annual Report on Special Advisors published by the Cabinet
Office.

98
Special advisers are temporary civil servants. In order to improve efficiency, the
administration of staff costs for all special advisers across government was moved to
the Cabinet Office in July 2019, with corresponding budget cover transfers.

Therefore, special adviser costs are now reported in the Cabinet Office Annual
Report and Accounts. Special advisers remain employed by the respective
departments of their appointing minister.

Staff pension costs

Staff pension costs for permanent staff of £25m (2019-20: £20m) are primarily
employer contributions, including £32m (2019-20: £27m) payable to the Civil
Service Pension schemes55, £5m (2019-20: £4m) payable to defined contribution
schemes and £12m net credit (2019-20: £12m net credit) for United Kingdom Asset
Resolution (UKAR) pension schemes and post-retirement healthcare benefits. The
UKAR schemes are in surplus at the reporting date and the credit reflects the net
interest income on the schemes.

The Civil Servants and Others Pension Scheme (alpha) was launched as a new
pension scheme for civil servants from 1 April 2015. Details on the transition
arrangements between alpha and Principal Civil Service Pension Scheme (PCSPS) are
outlined on pages 91 to 93. The PCSPS scheme actuary valued the scheme as at 31
March 2016. Details can be found in the valuation report by the Government
Actuary Department.56

For 2020-21, employer’s contributions of £32m (2019-20: £27m) were payable to

the PCSPS at one of four rates in the range of 26.6% to 30.3% of pensionable
earnings, based on salary bands. The scheme actuary reviews employer contributions
usually every 4 years following a full scheme valuation. The contribution rates are set
to meet the cost of the benefits accrued during 2019-20 to be paid when the
member retires and not the benefits paid during this period to existing pensioners.

Employees can opt to open a partnership pension account, a stakeholder pension

with an employer contribution. Employers’ contributions of £0.3m (2019-20:
£0.3m) were paid to one or more of a panel of three appointed stakeholder pension
providers. Employer contributions are age-related and have ranged from 8.0% to
14.75% of pensionable pay since 1 October 2015. In addition, employer
contributions of 0.5% of pensionable pay of £10k (2019-20: £10k) were payable to
the Civil Service Pension schemes to cover the cost of the future provision of lump
sum benefits on death in service or ill health retirement of these employees.

Further details of the Treasury Group’s pension schemes are provided in Note 10 –
Net pension asset.

55 The Civil Service Pension schemes are unfunded multi-employer defined benefit schemes, however as the department is unable to

identify the share of the underlying assets and liabilities they are treated as defined contribution schemes.
56 https://www.civilservicepensionscheme.org.uk/media/490508/csps-2016-valuation-report-final.pdf

99
Exit packages (audited)
Core Treasury and Agencies
2020-21 2019-20

Compulsory Other Total Compulsory Other Total

Exit package cost band redundancies departures redundancies departures

<£10,000 - - - - - -

£10,000 – £25,000 - - - 1 3 4

£25,001 – £50,000 - 1 1 1 2 3

£50,001 – £100,000 - 3 3 - - -

£100,001 – £150,000 - - - - - -

£150,001 – £200,000 - - - - - -

>£200,001 - - - - - -

Total exit packages - 4 4 2 5 7

Total Resource Cost (£’000) - 232 232 70 136 206

Group57
2020-21 2019-20

Exit package cost band Compulsory Other Total Compulsory Other Total
redundancies departures redundancies departures

<£10,000 1 2 3 2 2 4

£10,000 – £25,000 9 - 9 7 7 14

£25,001 – £50,000 8 3 11 14 4 18

£50,001 – £100,000 12 4 16 5 3 8

£100,001 – £150,000 1 1 2 - 1 1

£150,001 – £200,000 1 1 2 - - -

>£200,001 3 - 3 1 - 1

Total exit packages 35 11 46 29 17 46

Total Resource Cost (£’000) 2,250 672 2,922 1,377 576 1,953

57 Exit packages are paid, where applicable, in accordance with the terms of the Civil Service Compensation Scheme. Some group

entities, such as UKAR and FSCS, do not make payments under the above scheme but under other schemes as disclosed in their
respective annual accounts.

100
In line with the Constitutional Reform and Governance Act 2010 and the Model
Contract for Special Advisers, a special adviser's appointment automatically ends
when their appointing minister leaves office. Special advisers are not entitled to a
notice period but receive contractual termination benefits to compensate for this.

Termination benefits are based on length of service and capped at six months’
salary. If a special adviser returns to work for HM Government following the receipt
of a severance payment, the payment is required to be repaid, less a deduction in
lieu of wages for the period until their return. Termination costs for special advisers
are reported in the Cabinet Office Annual Report and Accounts.

Consultancy
Consultancy and contingent labour
In £m 2020-21 2019-20

Core Treasury and Group Core Treasury and Group

Agencies Agencies

Consultancy 17 67 18 134

Contingent labour 11 23 8 15

Total 28 90 26 149

HM Treasury, its agencies and arm’s length bodies use professional service providers
to support specialist work. This includes consultancy, contingent labour (temporary
workers), legal advice and IT expertise.
The reduction in consultancy spend is primarily due to a decrease in UKAR’s
consultancy activities following the wind-down of UKAR’s operations.
Non–payroll staff
There were 29.2 non-payroll FTEs across the department and Agencies during 2020-
21, a decrease from 37.1 in 2019-20. These include people who are contingent
staff, including agency workers, interim managers, specialist contractors and
consultants.

Off-payroll transactions
Off-payroll arrangements are those where individuals, either self-employed or acting
through a personal service company (PSC) are paid gross by the employer.

The tables below show off-payroll engagements for all bodies which are
consolidated into the Treasury Group. Entities with nil return for all tables are not
included for disclosure.

There have been no board members and/or senior officials with significant financial
responsibility between 1 April 2020 and 1 April 2021 who have been engaged off-
payroll.

101
Off-payroll engagements as of 31 March 2021, earning at least £24558 per day or
greater

Core DMO GIAA FSCS UKAR RFL

Treasury

The total number of engagements 13 22 1 53 5 1

Of which:

No. that have existed for less than 1 year at 11 10 - 48 - -

time of reporting

No. that have existed for between 1 and 2 2 4 - 4 1 -

years at time of reporting

No. that have existed for between 2 and 3 - 5 - - - -

years at time of reporting

No. that have existed for between 3 and 4 - 1 - 1 - -

years at time of reporting

No. that have existed for 4 or more years at - 2 1 - 4 1

time of reporting

All off-payroll appointments engaged at any point during the year ended 31 March
2021 and earning at least £245 per day

Core DMO GIAA FSCS UKAR RFL

Treasury

The total number of engagements 19 13 1 53 5 -

Of which:

Not subject to off-payroll legislation59 - - - 3 - -

Subject to off-payroll legislation and 16 11 1 47 - -

determined in-scope of IR35

Subject to off-payroll legislation and 3 2 - 3 5 -

determined as out-of-scope of IR35

No. of engagements reassessed for compliance or - 2 - - - -

assurance purposes during the year

Of which:

No of engagements that saw a change to the - - - - - -

IR35 status following review

58 The £245 threshold is set to approximate the minimum point of the pay scale for a Senior Civil Servant.

59 A worker that provides their services through their own limited company or another type of intermediary to the client will be

subject to off-payroll legislation and the department must undertake an assessment to determine whether that worker is in-scope
of intermediaries legislation (IR35) or out-of-scope for tax purposes.

102
None of these engagements were direct (via PSC, contracted to the department) and
are not on the payroll. Two engagements were reassessed for consistency or
assurance purposes during the year and none saw a change in IR35 status.

Tom Scholar
Permanent Secretary

16 July 2021

103
Parliamentary Accountability and Audit Report
Statement of Outturn against Parliamentary Supply and related
notes (audited)
For the period ended 31 March 2021

In addition to the primary statements prepared under IFRS, the Government

Financial Reporting Manual (FReM) requires HM Treasury to prepare a Statement of
Outturn against Parliamentary Supply (SOPS) and supporting notes.

The SOPS and related notes are subject to audit, as detailed in the Certificate and
Report of the Comptroller and Auditor General to the House of Commons.

The SOPS is a key accountability statement that shows how an entity has spent
against their Supply Estimate in detail. Supply is the monetary provision (for resource
and capital purposes) and cash (drawn primarily from the Consolidated fund), that
Parliament gives statutory authority for entities to utilise. The Estimate details supply
and is voted on by Parliament at the start of the financial year.

Should an entity exceed the limits set by their Supply Estimate, called control limits,
their accounts will receive a qualified opinion.

The format of the SOPS mirrors the Supply Estimates, published on gov.uk, to
enable comparability between what Parliament approves and the final outturn.

The SOPS contain a summary table, detailing performance against the control limits
that Parliament have voted on, cash spent (budgets are compiled on an accruals
basis and so outturn won’t exactly tie to cash spent) and administration.

The supporting notes detail the following: Outturn by Estimate line, providing a
more detailed breakdown (note 1); a reconciliation of outturn to net operating
expenditure in the Statement of Comprehensive Net Expenditure (SOCNE), to tie the
SOPS to the financial statements (note 2); a reconciliation of outturn to net cash
requirement (note 3); and, an analysis of income payable to the Consolidated Fund
(note 4).

The SOPS and Estimates are compiled against the budgeting framework, which is
similar but different to IFRS. HM Treasury sets the budgetary framework for
government spending.

104
 TME

AME DEL

Resource Capital Resource Capital

AME AME DEL DEL

Admin Programme
RDEL RDEL

The total amount a department spends is referred to as the Total Managed

Expenditure (TME); which is split into:

• Annually Managed Expenditure (AME)

• Departmental Expenditure Limit (DEL)

HM Treasury do not set firm AME budgets. They are volatile or demand-led in a way
the department cannot control. The department monitors AME forecasts closely and
updates them annually.

HM Treasury set firm limits for DEL budgets, as DEL budgets are understood and
controllable. The limit is set at spending reviews which occur every 3 to 5 years.

Budgets are classified into resource and capital.

Resource DEL includes a further split into:

• ‘programme’ budgets for frontline service provision

• ‘admin’ budgets such as back-office functions, rent and IT

Further information on the Public Spending Framework and the reasons why
budgeting rules are different to IFRS can also be found in chapter 1 of the
Consolidated Budgeting Guidance, available on gov.uk60.

60 https://www.gov.uk/government/collections/consolidated-budgeting-guidance

105
 2020-21 2019-20
Estimate Outturn Voted Outturn Outturn
compared with
Voted Estimate
Note Voted Non- Total Voted Non- Total Saving/ Total
In £000 Voted Voted (Excess)
Departmental
Expenditure
Limit
SOPS
Resource 344,891 1,703 346,594 318,038 2,209 320,247 26,853 353,887
1.1
SOPS
Capital 18,311 - 18,311 8,490 - 8,490 9,821 139,429
1.2
Annually
Managed
Expenditure
SOPS
Resource 60,267,356 4,259 60,271,615 42,508,037 4,672 42,512,709 17,759,319 708,520
1.1
SOPS
Capital (1,635,462) - (1,635,462) (7,469,838) - (7,469,838) 5,834,376 (2,064,398)
1.2
Total Budget 58,995,096 5,962 59,001,058 35,364,727 6,881 35,371,608 23,630,369 (862,562)

Total Resource 60,612,247 5,962 60,618,209 42,826,075 6,881 42,832,956 17,786,172 1,062,407
Total Capital (1,617,151) - (1,617,151) (7,461,348) - (7,461,348) 5,844,197 (1,924,969)
Total 58,995,096 5,962 59,001,058 35,364,727 6,881 35,371,608 23,630,369 (862,562)

Net Cash
SOPS3 (405,244) (2,771,864) 2,366,620 (7,511,312)
Requirement

Administration
279,225 256,973 22,252 203,396
costs

Figures in the areas outlined in thick line cover the voted control limits, voted by
Parliament. Refer to the Supply Estimates guidance manual, available on gov.uk, for
detail on the control limits voted by Parliament.

Although not a separate voted limit, any breach of the administration budget will
also result in an excess vote.

106
SOPS1.1 Analysis of net resource outturn by section
2020-21 2019-20
Administration Programme Outturn Estimate Outturn Outturn Outturn
net total net total compared compared net total
HMT to Estimate to
Gross Net Gross Net Estimate,
Obj1 expenditure
Income
expenditure expenditure
Income
expenditure adjusted
for
In £000 virements
Spending in Department Expenditure Limit (DEL)

Voted
A Core Treasury All 238,891 (27,383) 211,508 49,926 (6,400) 43,526 255,034 270,577 15,543 15,543 295,965
B Debt Management Office 1 22,873 (1,884) 20,989 6,416 (934) 5,482 26,471 27,080 609 609 18,868
C Government Internal Audit Agency 1 37,303 (37,860) (557) - - - (557) 2,856 3,413 3,413 (204)
D Office of Tax Simplification 1 927 - 927 - - - 927 1,012 85 85 951
E Office for Budget Responsibility (net) 1,2 3,784 - 3,784 - - - 3,784 3,825 41 41 3,316
F Infrastructure Finance Unit Limited (net) 3 - - - 3,414 - 3,414 3,414 - (3,414) (3,414) -
G IUK Investments Ltd (net) 3 - - - (706) - (706) (706) - 706 706 (705)
I HM Treasury UK Sovereign Sukuk Plc (net) 3 - - - - - - - 1 1 1 (1)
J Royal Mint Advisory Committee (net) 1 - - - - - - - 1 1 1 -
K Asian Infrastructure Investment Bank 3 - - - 9,349 - 9,349 9,349 9,349 - - 9,549
L National Infrastructure Commission 3 4,321 (49) 4,272 - - - 4,272 5,000 728 728 4,626
M UK Government Investments Limited (net) 1 16,050 - 16,050 - - - 16,050 25,190 9,140 9,140 13,865
Total Voted spending in DEL 324,149 (67,176) 256,973 68,399 (7,334) 61,065 318,038 344,891 26,853 26,853 346,230
Non-voted
O Banking and gilts registration services 2 - - - 8,556 (6,347) 2,209 2,209 1,703 (506) (506) 7,657
Total spending in DEL 324,149 (67,176) 256,973 76,955 (13,681) 63,274 320,247 346,594 26,347 26,347 353,887

1 HMT Corporate Objectives located in the Performance Report section of the report.

107
 2020-21 2019-20
Administration Programme Outturn Estimate Outturn Outturn Outturn
net total net total compared compared net total
HMT to Estimate to
Gross Net Gross Net Estimate,
Obj2 expenditure
Income
expenditure expenditure
Income
expenditure adjusted
for
In £000 virements
Spending in Annually Managed Expenditure (AME)

Voted
P Core Treasury (AME) All - - - 204 - 204 204 250 46 46 (12,647)
Q Provisions All - - - 233,999 - 233,999 233,999 325,000 91,001 91,001 191,685
R UK coinage manufacturing costs 1 - - - 6,217 - 6,217 6,217 10,000 3,783 3,783 15,897
S UK coinage metal costs 1 - - - 3,926 (890) 3,036 3,036 8,000 4,964 4,964 15,234
T Royal Mint dividend 1 - - - - 2,000 2,000 2,000 (2,000) (4,000) (4,000) (4,000)
U Loans to Ireland 2 - - - - (21,794) (21,794) (21,794) (21,850) (56) (56) (57,301)
Assistance to financial institutions, businesses
V 2 - - - 44,767,657 (226,637) 44,541,020 44,541,020 55,564,555 11,023,535 11,023,535 (36,712,718)
and individuals
Sovereign Grant funding of the Royal
W 1 - - - 87,492 - 87,492 87,492 95,900 8,408 8,408 70,100
Household (net)
X Financial Services Compensation Scheme (net) 2 - - - 146 - 146 146 117,000 116,854 116,854 (552)
Y UK Asset Resolution Ltd (net) 2 - - - 33,524 - 33,524 33,524 (74,500) (108,024) (108,024) 40,342
Z Help to Buy (net) 3 - - - 465 - 465 465 1 (464) (464) -
AA Help to Buy ISA 3 - - - 6,295 - 6,295 6,295 10,000 3,705 3,705 11,797
AB UK Government Investments Limited (net) 1 - - - 200 - 200 200 1,000 800 800 575
EU Withdrawal Agreement Financial
AD 2 - - - (2,384,750) - (2,384,750) (2,384,750) 4,234,000 6,618,750 6,618,750 37,190,954
Settlement
AE Reclaim Fund Ltd (net) 1 - - - (17) - (17) (17) - 17 17 -
- Investment in Bank of England 2 - - - - - - - - - - (45,376)
Administration of the Equitable Life payment
- 2 - - - - - - - - - - 203
scheme
Total Voted spending in AME - - - 42,755,358 (247,321) 42,508,037 42,508,037 60,267,356 17,759,319 17,759,319 704,193
Non-voted
AF Royal Household Pensions 1 - - - 4,731 (456) 4,275 4,275 3,900 (375) (375) 3,968
AG Civil List 1 - - - 397 - 397 397 359 (38) (38) 359
Total spending in AME - - - 42,760,486 (247,777) 42,512,709 42,512,709 60,271,615 17,758,906 17,758,906 708,520
Total resource outturn 324,149 (67,176) 256,973 42,837,441 (261,458) 42,575,983 42,832,956 60,618,209 17,785,253 17,785,253 1,062,407

2 HMT Corporate Objectives located in the Performance Report section of the report.

108
 SOPS1.2 Analysis of net capital outturn by section
2020-21 2019-20

Outturn net
total
Outturn net compared to
HMT Outturn net Estimate net total compared Estimate, adj. Outturn net
In £000 Obj Gross Income total total to Estimate for virements total

Spending in Department
Expenditure Limit (DEL)

Voted
A Core Treasury All 2,255,138 (2,253,830) 1,308 5,608 4,300 4,300 593
B Debt Management Office 1 2,140 - 2,140 3,400 1,260 839 622
Infrastructure Finance
F 3 4,289 - 4,289 8,600 4,311 4,311 43,825
Unit Limited (net)
IUK Investments Limited
G 3 (368) - (368) 1 369 369 461
(net)
IUK Investments
H 3 - - - 1 1 1 -
Holdings Limited (net)
Asian Infrastructure
K 3 - - - - - - 93,303
Investment Bank
National Infrastructure
L 3 811 - 811 700 (111) (111) 625
Commission
UK Government
M 1 310 - 310 - (310) (310) -
Investments Limited (net)
European Bank for
N Reconstruction & 3 1,309,946 (1,309,946) - 1 1 1 -
Development
Capital spending in DEL 3,572,266 (3,563,776) 8,490 18,311 9,821 9,821 139,429
Annually Managed
Expenditure (AME)
Voted
U Loans to Ireland 2 - (1,613,480) (1,613,480) (1,613,480) - - (1,613,480)
Assistance to financial
V institutions, businesses 2 - (2,594) (2,594) (2,593) 1 1 (4,745)
and individuals
Sovereign Grant funding
W of the Royal Household 1 4,596 - 4,596 3,000 (1,596) (1,596) 12,180
(net)
Financial Services
X Compensation Scheme 2 (82) - (82) 500 582 582 778
(net)
Y UK Asset Resolution (net) 2 (4,950,925) - (4,950,925) (303,000) 4,647,925 4,647,925 (600,137)
AA Help to Buy ISA 3 151,184 - 151,184 175,000 23,816 23,816 141,006
Infrastructure Finance
AC 3 27,080 - 27,080 105,000 77,920 77,920 -
Unit Limited (net)
AE Reclaim Fund Ltd 1 39,724 - 39,724 111 (39,613) (39.613) -
- Sale of shares 2 - (1,125,341) (1,125,341) - 1,125,341 1,125,341 -
Capital spending in AME (4,728,423) (2,741,415) (7,469,838) (1,635,462) 5,834,376 5,834,376 (2,064,398)
Total Capital Outturn (1,156,157) (6,305,191) (7,461,348) (1,617,151) 5,844,197 5,844,197 (1,924,969)

Virements are the reallocation of provision in the Estimates that do not require
parliamentary authority (because Parliament does not vote to that level of detail and
delegates to HM Treasury). Further information on virements are provided in the
Supply Estimates Manual, available on gov.uk. The outturn net total compared to
estimate, adj. for virements column is based on the total including virements. The
estimate total before virements have been made is included so that users can tie the
estimate back to the Estimates laid before Parliament.

109
Explanation of key variances between Estimate and net resource outturn
as at 31 March 2021

SOPS 1.1 Analysis of net resource outturn by section

Spending in Department Expenditure Limit (DEL)
A Core Treasury:

Underspends are driven mainly by ringfenced funding of £7.5m for UK

Infrastructure Bank not being utilised. This is due to the focus on responding to
COVID-19 in the department; along with ringfenced underspend of £7.0m on
budgets earmarked for the OSCAR II programme, EU Exit audit costs and support
for companies in distress.
B Debt Management Office:
Variance is due to lower costs incurred as a result of lower gilt issuance sales than
previously estimated, for the last quarter of the year.
C Government Internal Audit Agency:
Underspend has arisen due to GIAA’s reduced variable costs, due to the pandemic.
M UK Government Investments Limited:
Underspend from the ringfenced Covid Intervention Resolution Group funding of
£7.5m for administration costs not being utilised due to fewer companies falling
into distress than previously estimated.

Spending in Annually Managed Expenditure (AME)

V Assistance to Financial Institutions:
The variance mainly relates to the £11.0bn variance for fair value movements in the
Bank of England Asset Purchase Facility Fund (BEAPFF) derivative, which had a loss
of £44.8bn during the year (for more information see Note 14 – Derivative Financial
Assets).

Due to the volatile and unpredictable nature of the derivative estimate, a decision
was made to cover a potential £55bn loss (calculated by reference to historic
movements since inception), thereby generating the variance disclosed. By electing
to budget for the potential downside this ensured that a breach in control totals
was less likely to occur.
AD EU Withdrawal Agreement Financial Settlement:
The variance relates to the changes in provisions and receivables for the Financial
Settlement following the UK’s exit from the European Union (see Note 9 – Trade
and other receivables and Note 17 – Provisions.)

Due to unpredictable exchange rate movements and uncertainty over movements in

the underlying assets and liabilities at the time that budgetary cover was sought, a
decision was made to cover a £4.2bn net increase in the liability, thereby generating
the variance disclosed. By electing to budget for the potential downside, this
ensured that a breach in control totals was less likely to occur.

110
SOPS 1.2 Analysis of net capital outturn by section
Spending in Department Expenditure Limit (DEL)
A Core Treasury:
Underspend is mainly driven by £5m ringfenced funding for the new Darlington
economic campus not being used as the costs are now expected to fall in future
years, following the announcement in the Spring Budget.
F Infrastructure Finance Unit Limited (net):
Variance is because a loan of £8.6m was made available to a project company in the
UK Guarantees Scheme, of which only £4.3m had been drawn down. The remaining
undrawn amount of £4.3m is expected to be fully used in 2021-22.

Spending in Annually Managed Expenditure (AME)

F Infrastructure Finance Unit Limited (net):
Underspend relates to lower than anticipated drawdown of the Digital Infrastructure
Investment Fund, with the remaining undrawn amount, after decommitments in the
year, available in the future years of the funds’ operation. See also Note 20
Commitments.

Due to the unpredictability of the timing of projects, the re-classification from C-DEL
to AME was approved from the 2020-21 financial year.
Y UK Asset Resolution:
Variance is due to the completion of the UKAR sale of residual asset portfolio during
2020-21, which was not included in the Estimate due to the uncertainty around the
timing of the sale.
AA Help to Buy ISA:
Underspend is due to the reduction in the housing market activities early in the
financial year as a result of COVID-19.
AE Reclaim Fund Ltd
Variance represents the net purchases of investment securities.
Sale of shares
Variance is due to £1,125m income related to the sale of NatWest shares not being
included in the Estimate due to the uncertainty around the timing of the sale.

111
SOPS2 Reconciliation of outturn to net income

In £000 Note 2020-21 2019-20

Total resource outturn in SOPS SOPS1.1 42,832,956 1,062,407
Add: Capital provisions 150,674 141,007
Add: Capital research 811 657

Less: Capital grant in kind received (3,563,776) -

Less: Capital distributions (6,028) -

Less: Income payable to the Consolidated Fund (1,657,772) (272,629)

Net income in the SoCNE 37,756,865 931,442

As noted in the introduction to the SOPS above, outturn and the Estimates are
compiled against the budgeting framework, which is similar but different to IFRS.
Therefore, this reconciliation bridges the resource outturn to net operating
expenditure, linking the SOPS to the financial statements.

Capital grants are budgeted for as C-DEL but accounted for as spend on the face of
the SoCNE, and therefore function as a reconciling item between Resource and Net
Operating Expenditure. The capital grants made relate to Help to Buy ISA bonus
payments which are charged against Capital AME within the SOPS capital outturn.

Income payable to the consolidated fund do not appear within the budgetary
framework but are accounted for as spend on the face of the SoCNE, and therefore
function as a reconciling item between Resource and Net Operating Expenditure.
The income payable to the Consolidated Fund primarily relates to £1.5bn gifts to the
nation in respect of repayments of business rates received during the year and
£171m Pool Re fees, which have been accrued for and will be paid over to the
Consolidated Fund when they have been received by the Treasury.

Capital grants in kind are budgeted for as C-DEL but accounted for as spend on the
face of the SoCNE, and therefore function as a reconciling item between Resource
and Net Operating Expenditure. The capital grants in kind in 2020-21 relate to the
transfer from the Department of International Development of the UK’s
shareholding in the European Bank for Reconstruction and Development, and the
transfer from the Consolidated Fund of the long term receivable arising from the
return of paid in capital from the UK’s former shareholding in the European
Investment Bank.

Research meeting the ESA101 definitions of research, but not the IFRS criteria for
capitalisation are budgeted for as C-DEL but accounted for as spend on the face of
the SoCNE, and therefore function as a reconciling item between Resource and Net
Operating Expenditure. The research costs relate to research undertaken by the
National Infrastructure Commission.

1 European System of Accounts 2010

112
SOPS3 Reconciliation of net resource outturn to net cash requirement
2020-21
Outturn Net total
compared with
Estimate:
In £000 Note Estimate Outturn saving/(excess)
Resource Outturn SOPS1.1 60,618,209 42,832,956 17,785,253
Capital Outturn SOPS1.2 (1,617,151) (7,461,348) 5,844,197

Accruals to cash adjustments: (59,400,340) (38,136,591) (21,263,749)

Of which:
Adjustments to remove non-cash
items:
Depreciation (5,924) (5,545) (379)
Derivative fair value movements (55,000,000) (44,762,460) (10,237,540)
New provisions and adjustments to
(4,559,000) 1,961,696 (6,520,696)
previous provisions
Other non-cash items (200) (23,903) 23,703
Adjustments for ALBs and other
bodies:
Remove voted resource and capital 17,369 4,195,407 (4,178,038)
Add cash grant-in-aid 114,915 105,450 9,465
Adjustments to reflect movements in
working balances:
Increase in inventory - 7,392 (7,392)
Increase in receivables - 144,187 (144,187)
Increase in payables - 1,498 (1,498)
Use of provisions 32,500 239,687 (207,187)
Subtotal (399,282) (2,764,983) 2,365,701
Removal of non-voted budget
items:
Banking and gilts registration service (1,703) (2,209) 506
Royal Household Pension Scheme (3,900) (4,275) 375
Civil List (359) (397) 38
Net cash requirement (405,244) (2,771,864) 2,366,620

As noted in the introduction to the SOPS above, outturn and the Estimates are
compiled against the budgeting framework, not on a cash basis. Therefore, this
reconciliation bridges the resource and capital outturn to the net cash requirement.

113
SOPS4.1 Income payable to the Consolidated Fund
In addition to income and capital receipts retained by HM Treasury, the following
amounts are payable to the Consolidated Fund.
2020-21 2019-20
Outturn Outturn Cash Outturn Outturn Cash
In £000 Income receipts Income receipts
Operating income outside the scope of the Estimate 1,657,772 1,672,913 272,629 223,852
Capital receipts outside the scope of the Estimate - 13,662,544 - 7,136,860
Excess cash surrendered to the Consolidated Fund 2,832,031 2,832,031 7,507,138 7,507,138
Excess cash surrenderable to the Consolidated Fund (60,166) (60,166) 4,607 4,607
Total amounts paid and payable to the
4,429,637 18,107,322 7,784,374 14,872,457
Consolidated Fund

Operating income outside the scope of the Estimate includes the income received to
the government as a gift to the nation. See also Note 2 – Other operating income.

Capital receipts outside the scope of the estimate consists entirely of cash transfers
from the BEAPFF derivative. See also Note 14 – Derivative Financial Assets and Note
24 – Financial Risk.

Excess cash surrendered to the Consolidated Fund – relates to cash held in HM

Treasury which is not required to fund the department’s continuing operations and
is therefore passed to the Consolidated Fund. See also Statement of Cash Flows for
further information.

SOPS4.2 Consolidated Fund income

Consolidated Fund income shown in the table above does not include any amounts
collected by the department where it was acting as agent of the Consolidated Fund
rather than as principal. Full details of income collected as agent for the
Consolidated Fund are in the department's Trust Statement in Chapter 4 of this
Annual Report and Accounts.

Parliamentary accountability disclosures

Losses and special payments (audited)

During the financial year 2020-21 the Treasury Group, excluding UKAR and FSCS,
had one special payment totalling £0.9m (2019-20: one, £80.6m) and no
reportable losses (2019-20: nil) totalling over £300,000. The special payment is
related to the settlement of £0.9m for a contractual dispute.

UKAR Losses and special payments (audited)

A loan to a customer is written off and any associated impairment allowance
released when and only when the property is sold or the account is redeemed, or in
respect of unsecured loans where the collections process indicates a loan is not

114
recoverable. Any subsequent proceeds are recognised on a cash basis and offset
against previous impairments in the Statement of Comprehensive Income.

During 2020-21, loan to customer balances written off was £11.5m (2019-20:
£20.1m). At 31 March 2021 £nil (2019-20: £19.9m) of these balances were still
subject to enforcement action. During the year to 31 March 2021 recoveries net of
costs on previously written off loans totalled £8.6m (2019-20: £16.4m).
FSCS Losses and special payments (audited)
Total losses and special payments were £0.4m (2019-20: £0.5m) during the year.
There were no individual losses or special payments exceeding £300,000.

Fees and charges (audited)

The Treasury Group receives the below fees, levies and charges for services

Fees, levies and charges (core Treasury) Income (£m)

Pool Re loan commitment2 171

UK Guarantee Scheme 11

Mortgage Guarantees 11

Fees, levies and charges (Group) Income (£m)

FSCS Levies 600

GIAA Audit fees 38

UKAR Fees and charges 3

DMO Fees and charges 2

Fees for guarantees and loan commitments provided by core Treasury are set based
on the risk of a call on the underlying guarantees and commitments and are entered
into to ensure the stability of the economy rather than to achieve a financial
objective of recovering the annual costs of a service being provided. There is no
material administration cost incurred in providing these services.

All other details regarding income from fees, levies and charges received by arm’s
length bodies can be found in the relevant bodies’ annual reports and accounts.

Income in the above tables is included within the income from sale of goods and
services, Other operating income (Note 2) and Finance income (Note 6) lines in the
SOCNE.

2 Including interest due on receivable

115
Payment of suppliers
In May 2010, the government introduced a 5-day target for all suppliers to receive
payment. During 2020-21, the Treasury Group made 83% (2019-20: 78%) of all
supplier payments within 5 days, against a cross-government target of 90%.

Auditor
The Comptroller and Auditor General carries out the audit of the consolidated
accounts of the Treasury Group under the Government Resources and Accounts Act
2000.

Central Funds
As detailed in the Governance Statement above, HM Treasury has oversight and
administrative responsibility for the government’s Central Funds, namely the
Consolidated Fund, National Loans Fund, Contingencies Fund and Exchange
Equalisation Account. These funds are accounted for outside of the Treasury
departmental group, and disclosures within the Annual Report and Accounts of
each of these funds should be viewed alongside those of the departmental group.

Contingent liabilities not required to be disclosed under IAS 37 (audited)

In addition to contingent liabilities reported under IAS 37 in Note 23, HM Treasury is
required to disclose liabilities for which the likelihood of a transfer of economic
benefit in settlement is too remote to meet the definition of a contingent liability or
a contingent liability otherwise outside the scope of IAS 37, such as financial
guarantees.

These disclosures are required by Managing Public Money and are related to
Parliamentary accountability. All contingent liabilities must be reported to Parliament
by a departmental minute so that Parliament has the opportunity to debate the
merits of the item and to bind the government to honour the obligation. To meet
the relevant disclosure requirements HM Treasury is required to provide a brief
description of the nature of each contingent liability and where practical, an
estimate of its financial effect.

In many cases, entering into arrangements that create a contingent liability has a
distinct policy advantage; as they allow the government to intervene where it deems
necessary, whilst not requiring an injection of government funding. While the risk of
settlement may be remote, if they did crystallise there is a possibility that the
government may have to distribute funds. The contingent liabilities disclosed by HM
Treasury are linked to the role of being the UK’s finance and economics ministry, or
because there is no other practical place to disclose these within the public sector.

A remote contingent liability represents the maximum potential exposure assuming

trigger events occur, and the maximum exposure crystallises. If any of the
contingent liabilities detailed below were to crystallise and HM Treasury was

116
required to settle an obligation this would be achieved through the normal Supply
Estimates3 process.

HM Treasury’s contingent liabilities include indemnities, financial guarantees and

letters of support. These are explained in more detail below.

EU Withdrawal Agreement
The background of the EU Withdrawal Agreement is set out in the Performance
Report.

HM Treasury’s financial statements and related disclosures set out the accounting
implications of the financial settlement for HM Treasury. See Note 1.4 – Significant
judgements and estimates, Note 9 – Trade and other receivables, Note 17 –
Provisions and Note 22 – Contingent assets for detail.

HM Treasury also has a remote contingent liability, which does not meet the
threshold for disclosure in the financial statements, in respect of the UK’s contingent
liability to the European Investment Bank (EIB). The terms of this are set out in
Article 150 of the EU Withdrawal Agreement and is limited to the callable and
returned paid in capital the UK held as a member state. The remote contingent
liability is valued at £30.7bn as at 31 March 2021.

HM Treasury, in addition, discloses here an unquantifiable remote contingent

liability for any other liabilities that may ultimately fall to HM Treasury as result of
the implementation of the Withdrawal Agreement.

Further information on the financial impact of EU Withdrawal Agreement is

included in Annex E of the “European Union Finances” publication series.4

Bank of England Asset Purchase Facility Fund Limited (BEAPFF)

On 19 January 2009, to effect what is known as quantitative easing, HM Treasury
authorised the Bank of England to purchase high quality private sector assets and
UK Government debt purchased on the secondary market. The government has
indemnified the Bank and BEAPFF, the fund specially created to implement the
facility, from any losses arising out of or in connection with the facility.

BEAPFF is financed by a loan from the Bank of England, which totalled £794bn at
31 March 2021, (2019-20: £454bn). On 19 March 2020 the MPC announced a
£200bn expansion in the APF, which increased the total size of the BEAPFF loan
facility from the Bank to £645bn. On 18 June 2020 the MPC announced an
additional £100bn expansion of the APF, followed by another MPC announcement
on 5 November 2020 that expanded the APF by an additional £150bn. Once
completed these expansions will increase the total size of BEAPFF’s loan from the
Bank of England to £895bn. The indemnity provided to the Bank of England
represents a remote contingent liability for HM Treasury, which would crystallise if
BEAPFF incurred losses when ultimately wound up and HM Treasury were required
to fund a shortfall of cash needed to repay the Bank of England loan. Payments of

3 The Supply Estimates Guide can be found at

https://www.gov.uk/government/uploads/system/uploads/attachment_data/file/220744/estimates_manual_july2011.pdf
4 The ”European Union Finances Statement” can be found at https://www.gov.uk/government/collections/eu-annual-statement

117
interest may also need supporting by HM Treasury if there were a significant
increase in the Bank of England’s base rate (Bank Rate).

The portfolio of gilts and corporate bonds held by BEAPPF is valued at market rates
and is sensitive to fluctuations in interest rates. Moves in market rates, over and
above those caused by the operations of BEAPFF itself, are driven by multiple
factors, including actual or expected monetary and fiscal policy changes, changes in
market's risk premia assessments and movements in related international markets.

HM Treasury's current exposure under the indemnity is represented on the

Statement of Financial Position (SoFP) as a derivative. The derivative is valued on the
basis of the difference between the fair value of BEAPFF’s assets and liabilities.

It is difficult to predict the movement in the BEAPFF related derivative as the fair
value of its financial assets is re-priced in response to market changes. At 31 March
2021 BEAPFF’s assets exceeded its liabilities by £15.2bn (31 March 2020: £73.6 bn),
driven by market-value gains within its portfolio and interest income received. When
there is an excess of assets over liabilities, the derivative value is represented by a
liability on BEAPFF’s SoFP and by a corresponding asset on HM Treasury’s SoFP (see
Note 14 of the Accounts). Quarterly transfers of surplus cash between BEAPFF and
HM Treasury under the indemnity agreement impact the value of BEAPFF's net assets
and so also the value of the derivative. However, the derivative does not mature and
become payable until the scheme is unwound, at which time the outstanding value
of the derivative would be settled.

If the fair value of BEAPFF’s assets fell below that of its liabilities, the indemnity
would conversely entail BEAPFF recognising a derivative asset and HM Treasury a
derivative liability. That liability would similarly not be payable until the scheme is
unwound. However, in such market conditions and prior to wind-up, it may be
unlikely that there would be a surplus of cash available in BEAPFF if the interest
payable at Bank Rate on the Bank of England Loan increased significantly above
coupon income receivable on the BEAPFF’s assets. If there were a shortfall of cash
HM Treasury would fund this by way of the quarterly cash transfers, as set out in the
deed of indemnity and in line with the current quarterly arrangement with BEAPFF.

Therefore, although HM Treasury benefitted from the operations of BEAPFF as at 31

March 2021 to the extent that gains in fair value were reflected in a derivative asset,
the indemnity may generate a liability and require payments of cash to BEAPFF in
future periods. These would be accounted for via HM Treasury’s Supply Estimate:
quarterly cash payments would be classified as non-budget, but any residual
settlement of the derivative on wind-up would be AME.

Accordingly, a remote contingent liability is disclosed to reflect the remote possibility

that, despite risk management undertaken by the Bank of England on BEAPFF and
HM Treasury’s behalf (see Note 24 of the Accounts), there is a net loss to the public
sector over the life of BEAPFF. Although the indemnity supports authorised total
asset acquisitions and lending of £895bn, the crystallisation of a potential loss on
realising these assets is currently unquantifiable, as the quantum of any potential
loss is driven by both the Bank of England’s future policy decisions regarding when
to wind up the scheme and by market prices at that time.

118
The risk management undertaken by the Bank of England on the BEAPFF and HM
Treasury’s behalf is detailed in Note 24.4 – Financial Risk, Core Treasury and
Agencies – Other.

Covid Corporate Financing Facility Limited

On 17 March 2020 HM Treasury authorised the Bank of England to purchase high
quality commercial paper from non-financial institutions that made a material
contribution to the UK economy. This authorisation allowed the Bank of England to
purchase commercial paper both on the primary and secondary market. The
government has indemnified the Bank of England and Covid Corporate Financing
Facility Limited (CCFF), which is the fund specifically created to implement the
facility, from any losses arising out of or in connection with the facility.

CCFF is financed by central bank reserves. The indemnity represents a contingent

liability for HM Treasury which would crystallise if losses arise in the CCFF, following
the default of an institution which issued Commercial Paper through the facility.

Since CCFF launched, HM Treasury and the Bank of England introduced measures to
minimise the probability a default crystallising. In May 2020, they introduced
restrictions on senior pay and dividend payments for those issuing Commercial Paper
maturing on or after 19 May 2021. On 9 October 2020, they introduced a Risk
Management Framework tightening access to the scheme, requiring participants to
be able to evidence a recent investment grade rating or pass through a credit
committee process assessing their ability to repay to retain access to the scheme.

CCFF closed to new issuance with effect from 23 March 2021. As of 31 March, the
net balance of the scheme was £7.9bn, while the total issued into the scheme over
the twelve months it was open was £37.95bn (from a total approved borrowing
limit of over £85bn). As at 1 June 2021, a further £3.4bn has been repaid.
Bank of England capital framework
In June 2018 HM Treasury and the Bank of England announced reforms to the Bank
of England’s financial framework to boost transparency, reinforce the Bank of
England’s resilience and independence and strengthen the financial system.

The formal agreement that HM Treasury recapitalise the Bank of England in the
event of a major capital loss results in a remote contingent liability for HM Treasury.
This is currently unquantifiable as the occurrence of the conditions required for the
contingent liability to crystallise cannot be accurately calculated, given the
unprecedented nature of the economic conditions required, and as the framework is
not for a finite term.

The Bank of England has a strong capital base, and the risk of a major capital loss to
the Bank of England requiring further injection by HM Treasury is considered remote
due to the unprecedented nature of the economic conditions that would cause it to
crystallise.

Decommissioning Relief Deeds – oil and gas industry

The government has entered into Deeds with oil and gas companies to guarantee
the basis on which tax relief for decommissioning is available.

119
As part of the terms of becoming a participator in a licence in the UK or UK
Continental Shelf, companies have a statutory obligation to decommission their
operations properly once oil and gas production has ceased.

The Deeds have been signed by the government and eligible companies. Any
company that has carried on a ring-fenced trade, and the associates of those
companies, are eligible to be party to a Deed. The Deed provides companies with
greater certainty in respect of decommissioning tax relief and allows them to adopt
post-tax securitisation arrangements for the future costs of decommissioning.

The Deeds support the government’s objective of maximising economic production

of oil and gas reserves in the UK Continental Shelf. The Deeds are designed to free
up capital that otherwise would have been held in reserve against possible changes
in tax rules. In March 2021 Oil and Gas UK estimated that £8.1bn of capital had
been unlocked for reinvestment as a result of the Deeds.

As at 31 March 2021, 98 Deeds had been signed and were in force (2019-20: 96).
These Deeds indemnify the companies for changes in tax legislation or the default of
joint-venture partners in respect of their decommissioning activities, allowing them
to claim relief potentially otherwise available to the field’s operators from HMRC
through the tax system.

The crystallisation of any liability is dependent on the financial health of the

companies (and their joint-venture partners) that are party to the Deeds.

Since inception, one claim has been made. The remaining amount of the claim has
been reflected as a provision for £258m; see Note 17 – Provisions.

HM Treasury has not disclosed the potential financial value of the Decommissioning
Relief Deeds because it is unquantifiable, given the absence of comparable data to
use in any calculation.
Director indemnities
HM Treasury employees and others can be called upon to act as a director of one of
the incorporated companies within the HM Treasury Group or other wholly owned
companies. HM Treasury has granted directors an indemnity against any losses or
liabilities incurred in the course of their duties whilst the incorporated companies
remain in public ownership. The crystallisation of any liability is dependent on the
actions of the directors.

HM Treasury has not disclosed the financial effect of director indemnities because it
is not practicable to do so, as there is no evidence to evaluate.

Service provider indemnities

UK Government Investments (UKGI) provided an uncapped indemnity to an
investment bank providing corporate finance advice on a specific UKGI mandate to
cover the risk that they could become liable to market participants for any
misrepresentation, misleading statements or omissions (based on information from
HM Government) made in the context of their engagement.

HM Treasury provided an investment management company with a capped £3m

indemnity for support on the design of the Bounce Back Loan Scheme, which was
created to support small businesses during the COVID-19 pandemic. The limited

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indemnity covers the risk that the company could become liable to third parties for
claims made in the context of their engagement.

UK Guarantees
The UK Guarantee scheme was announced on 18 July 2012. The scheme aims to
support infrastructure projects that may have stalled because of adverse credit
conditions. The Scheme enables the Treasury to issue a guarantee to infrastructure
project lenders ensuring that principal and interest payments will be paid in full and
on time. Up to £40bn of guarantees could be offered under the scheme.

As at 31 March 2021 ten projects were guaranteed including 5 existing debt

guarantees and 5 new guarantees issued during the year. Note 24.4 – Financial Risk,
Core Treasury and Agencies – Other, gives more detail on each infrastructure
project.

With respect to the debt guarantees, if a borrower is in a default position and not
able to meet the principal and interest obligations, the guarantee will be called, and
HM Treasury will assume responsibility for these payments.

However, default would not necessarily mean a full pay out of the borrower’s
obligations. The Treasury would seek to recover as much as possible from the
borrower, and to refinance within 12 months.

The crystallisation of any liability is dependent on individual borrowers being unable

to make their repayments. To date, no call has been made under the scheme and as
a result no amounts have been required to be paid.

As at 31 March 2021 the maximum potential liabilities under this scheme were
estimated to be £1.1bn. A breakdown of the exposure by each infrastructure project
can be seen in Note 24.4 – Financial Risk, Core Treasury and Agencies – Other.

Mortgage guarantee schemes

The Help to Buy: mortgage guarantee scheme was launched on the 8 October 2013
to address the shortage of high loan-to-value mortgages by offering lenders the
option to purchase a guarantee on mortgages where the borrower has a deposit of
between 5% and 20%. The scheme closed to new loan applications on 31
December 2016.

A portion of the liability would crystallise if the following events occurred: 1) a

borrower defaults on their mortgage 2) the sale proceeds from property are less
than the outstanding principal and interest repayments owing; and 3) the lender
makes a claim to HM Treasury for the difference. During the life of the scheme there
have been 28 successful claims totalling £327k. Since inception, bank rates have
been at historic lows on average property values have increased and most recently
incomes have largely been preserved through government support schemes during
the pandemic. This has contributed to a low number of claims.

Under the scheme rules, the maximum contingent liability limit was set at £12bn. As
at 31 March 2021 the maximum potential liabilities under this scheme were
estimated to be £281m.

For information on the related financial guarantee see Note 18 of the Accounts. See
also Note 31.3 Events after the reporting period

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Asian Infrastructure Investment Bank
The Asian Infrastructure Investment Bank (AIIB) was set up in December 2015 with
the UK as a shareholder, along with a large number of other countries, to support
financing for infrastructure projects across Asia. The UK’s investment, like that of all
other shareholders in the bank, is in the form of 20% paid-in capital and 80%
callable capital. The paid-in capital was made in 5 annual instalments of US$122m,
totalling US$611m, with the last payment in December 2019.

A remote contingent liability arises in relation to the US$2.4bn (approximately

£1.7bn) of callable capital. This is not paid over, but the AIIB would be able to call
on it in the event that the bank were not able to meet its obligations.

Although the AIIB has the right to call for payment of this callable capital if there is
a crisis affecting the bank’s assets or loans, the equity base of the bank is currently
more than sufficient to meets its financial objectives by absorbing risk from its own
resources, thus protecting member countries from a possible call on callable capital.
Three major credit ratings agencies re-affirmed the bank with AAA ratings in 2020,
and no such instance whereby payment has been called has occurred in any major
multilateral development bank in the past. If the liability were to be called, provision
for any payment would be sought through the normal Supply Estimates procedure.

European Bank for Reconstruction and Development

The European Bank for Reconstruction and Development (EBRD) was set up in
March 1991 with the UK as a shareholder, along with a large number of other
countries, to help build a new, post-Cold War era in Central and Eastern Europe. The
UK’s investment is in the form of 20.9% paid-in capital and 79.1% callable capital.
The shareholding of the ERBD was transferred from FCDO to HM Treasury in 2021.

A remote contingent liability arises in relation to the €2.0bn (approximately £1.7bn)

of callable capital. This is not paid over, but the ERBD would be able to call on it in
the event that the bank were not able to meet its obligations.

Although the ERBD has the right to call for payment of this callable capital if there is
a crisis affecting the bank’s assets or loans, the equity base of the bank is currently
more than sufficient to meets its financial objectives by absorbing risk from its own
resources, thus protecting member countries from a possible call on callable capital.
Three major credit ratings agencies re-affirmed the bank with AAA ratings in 2020
and 2021, and no such instance whereby payment has been called has occurred in
any major multilateral development bank in the past. If the liability were to be
called, provision for any payment would be sought through the normal Supply
Estimates procedure.

UKAR: Bradford & Bingley plc and NRAM Ltd mortgage assets
To facilitate each sale of UKAR’s B&B and NRAM assets, HM Treasury has offered
certain fundamental market-standard warranties which have created remote
contingent liabilities. The crystallisation of any liability is dependent on the
occurrence and identification of any defects covered by the warranties. Given their
nature, such occurrence is considered remote.

Each of these sales and the associated remote contingent liability are listed below:

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 • On the 31 March 2017, the Chancellor announced the sale of a portfolio of
UKAR’s B&B loan book assets to Prudential plc and funds managed by
Blackstone. The proceeds of the sale were £11.4bn.
Maximum value of remote contingent liabilities arising from:

Fundamental warranties £11.4bn

• On the 26 April 2018, the Chancellor announced the sale of a portfolio of

UKAR’s B&B loan book assets to an investor group led by Barclays. The
proceeds from the sale were £5.3bn.

Fundamental warranties £5.3bn

• On the 27 September 2018, the Chancellor announced the sale of a

portfolio of UKAR’s B&B and NRAM loan book assets to Rothesay Life. The
proceeds from the sale were £983m.
Maximum value of remaining remote contingent liabilities arising from:

Fundamental warranties £195m

• On 2 April 2019 the Economic Secretary to the Treasury announced the sale
in March 2019 of a portfolio of UKAR’s NRAM ‘together’ loans to Citi with
majority funding from PIMCO. The proceeds from the sale were £4.9bn.
Maximum value of remote contingent liabilities arising from:

Fundamental warranties £4.9bn

• On 26 February 2021 the Economic Secretary to the Treasury announced the

sale of Bradford & Bingley plc (B&B), NRAM Limited and their remaining
assets to a consortium of Citibank and Davidson Kempner, with financing
provided by PIMCO. The proceeds from the sale were £5.0bn.

Maximum value of remote contingent liabilities arising from:

Fundamental warranties £5.1bn

Intermediate warranties £1.0bn
Other warranties £5.1bn
Capped indemnities £0.3bn
Tax covenant £0.3bn

During the year ended 31 March 2021 items reported in the 2019-20 Accounts
have now closed as a result of the final sale of assets. These consist of Fundamental
warranties £5.3bn and other warranties £1.1bn.

For information on the related contingent liabilities arising from these transactions
see Note 23.

Pool Re and Pool Re (Nuclear) Limited

Pool Re and Pool Re (Nuclear) are mutual reinsurance companies providing terrorism
cover for damage to industrial and commercial property or nuclear facilities and
consequential business interruption in Great Britain. They pay a portion of their

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income to HM Treasury which is held to their credit (currently C.£1bn for Pool Re) in
the event of losses exceeding their available resources. Pool Re has C.£9bn funding
(including its own reinsurance) before it would seek recourse to HM Treasury. For
further losses HM Treasury would extend them a repayable loan.

The total reserves of Pool Re and of Pool Re (Nuclear) as at the date of their latest
management accounts are £6.9 billion December 2020 (2019-20: £7 billion) and
£31.5m December 2020 (2019-20: £30.6m) respectively. Maximum potential
liabilities under this arrangement are considered unquantifiable as there is no past
experience to use in forming an estimate, and the size and scale of a potential
terrorist incident cannot be predicted. It is also considered remote that
circumstances would arise requiring HM Treasury to provide such financial
assistance. These arrangements are given statutory authority under the Reinsurance
(Acts of Terrorism) Act 1993.

Royal Mint
The Royal Mint Trading Fund has a Memorandum of Understanding arrangement
with the National Loans Fund by which it can draw down against a financing
facility, with an upper limit of £36m. Parliamentary authority limits the overall
amount of public money available to the Royal Mint at £50m.

If the Royal Mint Trading Fund was unable to repay any drawdowns against this
commitment the National Loans Fund funding conditions dictate that the amount
outstanding would have to be met by HM Treasury.

HM Treasury has provided an indemnity to the Cabinet Office in respect of employer

contributions payable to the Civil Service Pensions Scheme when the Royal Mint’s
pensions transferred under ‘new fair deal’.5 This liability would only materialise in
the unlikely event that the Royal Mint failed to make payments to the pension
scheme. It is unquantifiable since the scheme is expected to run for the foreseeable
future, and the timing and scale of any possible failure by the Royal Mint cannot be
predicted.
UK Government Investments
UK Government Investments (UKGI) maintains framework contracts with 24
financial-services firms to manage the disposal of the government’s shareholdings.
These services would typically include drafting prospectuses and other market-facing
documents on the basis of information provided by the government. As is market-
standard, these firms require an indemnity to cover the risk that they could become
liable to market participants for any misrepresentation, misleading statements or
omissions (based on the information from the government) made in the context of
their engagement. Only the issuer/seller - not the bank - is responsible for the
information contained in prospectuses and other documents. Therefore, any claims
brought against the bank on these grounds would be meritless, meaning the
likelihood of their success (and therefore of the liability crystallising) is seen to be
exceptionally low. The number and breadth of participants involved, and value of
any transaction is such that it is not possible to assert with any confidence what a
suitable estimate might be.

5 https://www.civilservicepensionscheme.org.uk/employers/applying-to-join-civil-service-pensions/new-fair-deal/

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It was necessary to procure specialist capital-markets advice as part of due-diligence
work for companies in distress as a result of COVID-19 at the start of the pandemic
in early 2020. One advising bank, working on one company’s case, required an
indemnity to cover the risk that they could become liable to market participants for
any misrepresentation, misleading statements or omissions (based on information
from the government) made in the context of their engagement. Any such claims
would almost certainly be without merit – the contract provides no duty of care or
contractual obligations to third parties – meaning the likelihood of their success is
seen to be exceptionally low. Because of the breadth of this indemnity and the
extreme unlikelihood of its crystallising, it is impossible to estimate a value.

Reclaim Fund Limited – Dormant Assets

In accordance with the terms of the Act, Reclaim Fund Limited (RFL) has inherited
the liability for all dormant balances transferred from participants. The total
remaining exposure that RFL may be required to settle above and beyond the
amounts already set aside is currently estimated at £869m as at 31 March 2021
(£814m at 31 March 2020).

125
Treasury core tables

Total resource and capital spending for the Treasury Group

The tables on the following pages provide a summary of HM Treasury’s net
expenditure outturn for 2020-21 and the 4 prior years, along with the planned
expenditure for 2021-22. The outturn and planned expenditure is recorded on the
same basis as the information on financial performance in the Statement of Outturn
against Parliamentary Supply beginning on page 104. They represent the spending
incurred collectively across the departmental group in meeting its objectives detailed
in the Performance Report in Chapter 1.

Resource

In £m Outturn Budget
2016-17 2017-18 2018-19 2019-20 2020-21 2021-22
Resource DEL
Core Treasury 118 170 189 296 255 202
Debt Management Office 18 18 17 19 27 23
Government Internal Audit Agency 2 4 1 - (1) 3
Office of Tax Simplification 1 1 1 1 1 1
UK Financial Investments 2 2 - - - -
Office for Budget Responsibility 3 2 3 3 4 4
Infrastructure Finance Unit Ltd (4) (4) - - 4 18
IUK Investments Limited - - - (1) (1) -
UK Government Investments Ltd 11 12 13 14 16 21
National Infrastructure Commission 1 5 5 5 4 5
Asian Infrastructure Investment Bank - 9 10 9 9 -
Non-voted: Banking & gilts registration 7 7 7 8 2 2
Total Resource DEL 159 226 246 354 320 279
Resource AME
Core Treasury - - - (13) - 2
Provisions 244 141 135 192 234 53
Coinage manufacturing 31 43 23 16 6 9
Coinage metal costs 21 25 4 15 3 7
Investment in the Royal Mint (4) (4) (4) (4) 2 (2)
Investment in the Bank of England (103) (62) (54) (45) - -
Equitable Life administration 3 1 - - - -
Financial stability (24,832) (217) (15,114) (36,770) 44,520 20,573
Credit easing (61) (3) - - - -
Sovereign Grant 42 47 66 70 88 114
MAS (6) 9 - - - -
FSCS (301) (75) (11) (1) - -
Reclaim Fund Ltd (net) - - - - -
UKAR (497) (592) (328) 40 34 18
Help to Buy - - - - - (141)
Help to Buy ISA - - - 12 7 8
IUK Investments - 3 - - - -
UK Financial Investments 1 1 - - - -
UK Government Investments - - 1 1 - -
Infrastructure Finance Unit Limited - - - - - (6)
EU Withdrawal Agreement Financial
- - - 37,191 (2,385) -
Settlement
Non-voted: Royal Household pension 4 4 4 4 4 4
Total Resource AME (25,458) (679) (15,278) 708 42,513 20,639
Total Resource DEL and AME (net) (25,299) (453) (15,032) 1,062 42,833 20,918
of which:
DEL Depreciation 8 8 5 4 4 -

Note: data for years beyond 2020-21 is not held, so only 5 historic years and one future year is included.

126
Resource DEL

Resource DEL in Core Treasury has decreased in 2020-21 predominately due to an

extra-contractual legal settlement of £80.6m in the prior year. See losses and special
payments on page 114-115 for more detail.

Resource AME

Financial stability comprises fair value movements in derivatives, changes to financial

stability provisions, fees and interest arising from financial stability interventions,
impairments of financial instruments and proceeds from the sale of NatWest shares.

EU Withdrawal Agreement Financial Settlement includes the movements in

provisions and receivables recognised for the UK’s share of EU’s assets and liabilities
following the UK’s exit from the European Union.

Provisions relate primarily to bonus payments under the Help to Buy ISA scheme,
and the Equitable Life Payment Scheme.

Capital

In £m Outturn Budget
2016-17 2017-18 2018-19 2019-20 2020-21 2021-22
Capital DEL
Core Treasury - 1 1 1 2 6
Debt Management Office - 3 5 1 2 1
Infrastructure Finance Unit Ltd (5) (88) 63 43 4 -
IUK Investments Limited 2 6 1 - - -
National Infrastructure
- - - 1 1 1
Commission
Eurostar - - - - - -
Asian Infrastructure Investment
- - 97 93 - -
Bank
Total Capital DEL (3) (78) 167 139 9 8
Capital AME
Investment in Bank of England - - 1,180 - - -
Assistance to Financial
(3,515) (942) (2,509) (1,618) (2,742) -
Institutions
Sovereign Grant 2 5 9 12 5 8
Reclaim Fund Ltd - - - - 40 -
FSCS (2) (24) 1 1 - -
UKAR (16,270) (2,840) (11,807) (600) (4,951) -
Help to Buy ISA 53 104 128 141 151 204
Infrastructure Finance Unit Ltd - - - - 27 807
EU Withdrawal Agreement
- - - - - (265)
Financial Settlement
Total Capital AME (19,732) (3,697) (12,998) (2,064) (7,470) 754
Total Capital DEL and AME
(19,735) (3,775) (12,831) (1,925) (7,461) 762
(Net)

Total Departmental Spending (45,034) (4,228) (27,863) (863) 35,372 21,680

127
Capital DEL

The 2016-17 and 2017-18 capital subscription to the Asian Infrastructure

Investment Bank was made by the Department for International Development (DfID),
so does not appear in HM Treasury’s expenditure in these years and the
corresponding amount provided for in HM Treasury’s budget was transferred to
DfID accordingly. From 2018-19, the capital subscriptions are again made by HM
Treasury. The final subscription was made in 2019-20.

Infrastructure Finance Unit Limited’s Manchester Waste loans were paid off in 2017-
18 and in 2018-19, loans provided as part of the Digital Infrastructure Investment
Fund (DIIF) were accelerated.

From 2020-21 spending by Infrastructure Finance Unit Ltd on the Digital

Infrastructure Investment Fund and Charging Infrastructure Investment Fund were
transferred from DEL to AME.

Capital AME

Assistance to financial institutions can fluctuate considerably due to the nature of

the activity being driven by market conditions providing value for money.

UKAR capital receipts fluctuate between years, largely due to sales of former
Bradford and Bingley and Northern Rock mortgage books, which are driven by
market conditions providing value for money. There have been no mortgage book
sales during 2019-20 and 2020-21 saw the sale of all remaining mortgages held
within UKAR.

The budget for EU Withdrawal Agreement Financial Settlement from 2021-22 is for
the repayment of the UK’s paid in capital by the European Investment Bank. The
transfer of this asset from the Consolidated Fund, where the capital expenditure
from the asset addition offsets the equivalent income from the capital grant-in-kind
was included in DEL in 2020-21, and transferred to AME from 2021-22.

Analysis of administration costs

An analysis of administration income and expenditure is provided below.

IN £M OUTTURN BUDGET
2016-17 2017-18 2018-19 2019-20 2020-21 2021-22
Core Treasury 125 123 150 165 212 196
Debt Management Office 15 15 13 15 21 18
Government Internal Audit Agency 2 4 1 - (1) 3
Office of Tax Simplification 1 1 1 1 1 1
UK Financial Investments 2 2 - - - -
Office for Budget Responsibility 3 3 3 3 4 4
UK Government Investments 11 12 13 14 16 21
Infrastructure Finance Unit Limited - - - - - 18
National Infrastructure Commission 1 5 5 5 4 5
Total Net Administration Costs 160 165 186 203 257 266
of which:
Staff Costs 129 140 151 168 200
Other Expenditure 85 85 94 97 124
Income (54) (60) (59) (62) (67)

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Staff costs and other expenditure
Both staff costs and other expenditure have increased as result of HM Treasury’s
continued need to meet the demands of the pandemic crisis.
Income

Income remained consistent with 2019-20.

Disaggregated information on arm’s length bodies

The following table provides a breakdown of total operating income, total operating
expenditure, net expenditure for the year, staff numbers and staff costs in respect to
arm’s length bodies.6

Total Total Net Permanently employed staff Other staff

In £m operating operating expenditure Number of Staff costs Number of Staff costs
income expenditure for the year employees employees
(including
financing)
Debt Management Office (3) 29 27 100 10 29 4
National Infrastructure
- 5 5 40 3 - -
Commission
Government Internal Audit
(38) 37 (1) 436 31 29 5
Agency
UK Asset Resolution Ltd (5) 41 26 98 (4) 11 1
Financial Services
(664) 664 - 225 20 63 6
Compensation Scheme
UK Government Investments
(1) 17 17 108 12 27 2
Ltd
Infrastructure Finance Unit
- - (3) - - - -
Ltd
IUK Investments Ltd - - (1) - - - -
Office for Budget
- 4 4 33 3 - -
Responsibility
Royal Household Sovereign
(8) 98 90 500 25 19 2
Grant
Reclaim Fund Ltd (90) 93 - 11 1 - 1
Total (809) 988 164 1,551 101 178 21

Figures may not agree directly to the published ALB accounts, due to FReM
alignment, intergroup eliminations, timing differences and other consolidation
adjustments.

Tom Scholar
Permanent Secretary

16 July 2021

6 Financial Reporting Advisory Board, IUK Investments Holdings Ltd, Help to Buy (HMT) Ltd, Royal Mint Advisory Committee and HM

Treasury UK Sovereign Sukuk plc are excluded from the table as nil for all columns.

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The Certificate and Report of the Comptroller and Auditor
General to the House of Commons
Opinion on financial statements
I certify that I have audited the financial statements of HM Treasury and of its
Departmental Group for the year ended 31 March 2021 under the Government
Resources and Accounts Act 2000. HM Treasury comprises the core Department and
its agencies. The Departmental Group consists of the Department and the bodies
designated for inclusion under the Government Resources and Accounts Act 2000
(Estimates and Accounts) (Amendment) (No. 2) Order 2020. The financial
statements comprise: HM Treasury’s and the Departmental Group’s Statements of
Comprehensive Net Expenditure, Financial Position, Cash Flows, Changes in
Taxpayers’ Equity; and the related notes, including the significant accounting
policies. These financial statements have been prepared under the accounting
policies set out within them. The financial reporting framework that has been
applied in their preparation is applicable law and International Accounting
Standards as interpreted by HM Treasury’s Government Financial Reporting Manual.
I have also audited the Statement of Outturn against Parliamentary Supply and the
related notes, and the information in the Accountability Report that is described in
that report as having been audited.
In my opinion, the financial statements:
▪ give a true and fair view of the state of HM Treasury’s and the Departmental
Group’s affairs as at 31 March 2021 and of HM Treasury’s and the
Departmental Group’s net expenditure for the year then ended; and
▪ have been properly prepared in accordance with the Government Resources
and Accounts Act 2000 and HM Treasury directions issued thereunder.

Opinion on regularity
In my opinion, in all material respects:
• the Statement of Outturn against Parliamentary Supply properly presents the
outturn against voted Parliamentary control totals for the year ended 31 March
2021 and shows that those totals have not been exceeded; and
• the income and expenditure recorded in the financial statements have been
applied to the purposes intended by Parliament and the financial transactions
recorded in the financial statements conform to the authorities which govern
them.

Basis for opinions

I conducted my audit in accordance with International Standards on Auditing (ISAs)
(UK), applicable law and Practice Note 10 ‘Audit of Financial Statements of Public
Sector Entities in the United Kingdom’. My responsibilities under those standards are
further described in the Auditor’s responsibilities for the audit of the financial
statements section of my certificate.

130
Those standards require me and my staff to comply with the Financial Reporting
Council’s Revised Ethical Standard 2019. I have also elected to apply the ethical
standards relevant to listed entities. I am independent of HM Treasury in accordance
with the ethical requirements that are relevant to my audit of the financial
statements in the UK. My staff and I have fulfilled our other ethical responsibilities in
accordance with these requirements.
I believe that the audit evidence I have obtained is sufficient and appropriate to
provide a basis for my opinion.
The framework of authorities described in the table below has been considered in
the context of my opinion on regularity.

Framework of authorities
Authorising legislation Government Resources and Accounts Act
2000
Parliamentary authorities Supply and Appropriation Acts
HM Treasury and related authorities Managing Public Money

Conclusions relating to going concern

In auditing the financial statements, I have concluded that HM Treasury’s use of the
going concern basis of accounting in the preparation of the financial statements is
appropriate.
Based on the work I have performed, I have not identified any material uncertainties
relating to events or conditions that, individually or collectively, may cast significant
doubt on HM Treasury's ability to continue as a going concern for a period of at
least twelve months from when the financial statements are authorised for issue. My
responsibilities and the responsibilities of the Accounting Officer with respect to
going concern are described in the relevant sections of this certificate.
The going concern basis of accounting for HM Treasury is adopted in consideration
of the requirements set out in HM Treasury’s Government Reporting Manual, which
require entities to adopt the going concern basis of accounting in the preparation of
the financial statements where it is anticipated that the services which they provide
will continue into the future.

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Overview of my audit approach
Key audit matters
Key audit matters are those matters that, in the my professional judgment, were of
most significance in the audit of the financial statements of the current period and
include the most significant assessed risks of material misstatement (whether or not
due to fraud) identified by the auditor, including those which had the greatest effect
on: the overall audit strategy; the allocation of resources in the audit; and directing
the efforts of the engagement team.
These matters were addressed in the context of the audit of the financial statements
as a whole, and in forming my opinion thereon. I do not provide a separate opinion
on these matters.
I consider the following areas of particular audit focus to be those areas that had
the greatest effect on my overall audit strategy, the allocation of resources in my
audit and directing the efforts of the audit team in the current year. These matters
were addressed in the context of my audit of the financial statements as a whole,
and in forming my opinion thereon, and I do not provide a separate opinion on
these matters.
This is not a complete list of all risks identified by my audit but only those areas that
had the greatest effect on my overall audit strategy, allocation of resources and
direction of effort. I have not, for example, included information relating to the
work I have performed around management override of controls, an area where my
work has not identified any matters to report.
The areas of focus were discussed with the Audit and Risk Committee; their report
on matters that they considered to be significant to the financial statements is set
out in the governance statement.
In this year’s report the following changes to the risks identified have been made
compared to my prior year report:
• The UK Asset Resolution (UKAR) loans to banking customers were sold
during the year, with cash received in March. The loans to banking
customers are therefore no longer on the Group Statement of Financial
Position at year end and I have removed this risk as a result.
• There is no significant risk of a breach of Capital Annually Managed
Expenditure (C-AME) as HM Treasury are within their C-AME limit following
the sale of UKAR loans.
• I have separated out the risk in respect of HM Treasury’s indemnity to the
Bank of England and the Covid Corporate Financing Facility from the
significant risk in relation to the potential impact of the COVID-19 pandemic
on amounts recognised within the financial statements. Both are included as
key audit matters below.

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Key audit matter 1 - EU Financial Settlement
Description of risk
The UK left the European Union (EU) on 31 January 2020 under terms defined by
the Withdrawal Agreement. The Agreement includes a Financial Settlement and sets
out the various rights and obligations of the UK and EU during the transition period
and beyond. These include financial rights and obligations that fall to HM Treasury.
The transition period ended on 31 December 2020. I have identified a significant
risk of material misstatement in the HM Treasury accounts because of the underlying
complexity and sensitivity of judgements surrounding interpretation of the
withdrawal agreement. I consider this area to be a key audit matter.
The specific areas of risk identified by my audit are:
• Completeness and classification: the end of the transition period means that
the classification of assets and liabilities may need to change, including
where those previously considered to be contingent, have now crystallised.
There is also a risk of misstatement if liabilities due to, or from the UK are
not identified for inclusion within the financial statements; or if information
received after the reporting date, such as the publication of the European
Commission’s annual accounts, provides additional evidence in relation to
events or conditions in existence at 31 March.
• Valuation: the valuation of items arising from the Withdrawal Agreement
requires the use of different estimation techniques, with varying degrees of
complexity, that utilise a range of inputs and assumptions with varying
degrees of sensitivity. For some of these estimates, there is a high level of
estimation uncertainty. Reports received from the European Commission, in
accordance with the requirements of the Withdrawal Agreement, may also
provide additional information that HM Treasury will need to consider when
preparing these estimates.

How the scope of my My response to addressing the risk of material misstatement

audit responded to the in this area included:
risk
• reviewing governance processes and the design of
controls in place over the models used to prepare
the estimates, and the process in place to ensure
appropriate balances and disclosures derived from
these models are appropriately included in the
financial statements;
• undertaking review of previous judgements on
recognition to ensure these remain valid and to
identify any changes required due to the end of the
Transition Period on the 31 December 2020. I have
also considered whether the financial reporting
impact of these is appropriately recognised and
disclosed within the financial statements;

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 • reviewing the models used in preparing the
estimates, to confirm the estimates drawn from
these models are reasonable, based on relevant
information, and follow an appropriate
measurement methodology;
• identifying where management have used experts
and evaluating the competence, capabilities and
experience of those experts. This has included
confirming that the scope of their work is
appropriate and sufficient for the purposes relied
upon by management;
• engaging my own experts in Modelling, Economics
and Statistics, Corporate Finance and Actuaries to
support my work evaluating the methodology,
logical integrity and assumptions applied in the
estimates performed by management;
• reviewing management's assessment of the level of
uncertainty present within these estimates and the
processes in place to address this uncertainty;
• evaluating and challenging management’s
assessment of information received after the
reporting date, including additional reporting under
the withdrawal agreement as well as information
published within the European Commission’s own
accounts. This included requesting and reviewing
management’s comparison of the balances
reported in the European Commission’s 2020
accounts with their own assessment; and
• reviewing the proposed disclosures required under
the Government Financial Reporting Manual and
Managing Public Money to ensure that these are
adequate and sufficient for readers to be able to
gauge the level of estimation uncertainty within the
amounts recognised and disclosed.
Key observations
Based upon the evidence reviewed and the audit work
completed, I am satisfied that the amounts recognised
within the financial statements are appropriate.
I have found that HM Treasury's recognition and
measurement of assets and liabilities within the
Departmental and Group accounts identified in the
Withdrawal Agreement to be complete and accurate.

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 I have found that the models prepared by management use
appropriate input data and apply reasonable and
appropriate measurement techniques based on the data
available. Key judgements and sensitivities are disclosed in
notes 1.4 and 17.2 respectively. The Department has used
the discount rates mandated by the Government Financial
Reporting Manual, the basis for which is explained in note
17 and 24. Future cash flows are denominated in Euros,
and therefore valuations are particularly sensitive to future
change in exchange rate also explained in note 17 and 24.
I note that the nature of the data available to the
Department in estimating the value of assets and liabilities
has limitations that require management to make
significant judgements. This, together with the long term
and forward-looking nature of the estimates involved,
heightens the level of uncertainty in the valuation.

Key audit matter 2 - BEAPFF valuation

Description of risk
HM Treasury provides an indemnity to the Bank of England over its loan to the Bank
of England Asset Purchase Facility Fund (BEAPFF). The indemnity is recognised as a
derivative financial instrument in HM Treasury’s accounts - a derivative asset of
£15.2 billion as at 31 March 2021.
BEAPFF prepares its 2020-21 financial statements to 28 February, one month before
HM Treasury’s reporting date. HM Treasury uses BEAPFF’s management accounts to
establish the value of the derivative at year end. Due to the non-coterminous year
ends, the magnitude of the debt security holdings and volatility to market prices, I
identified the valuation of the indemnity as a significant risk and key audit matter.

How the scope of my My response to addressing the risk of material misstatement

audit responded to the in this area included:
risk
• assessing the design and implementation of
controls, carried out by HM Treasury, to ensure that
the figures reported in the BEAPFF management
accounts for March 2021 are sufficiently accurate to
use for the valuation of the BEAPFF derivative asset
in HM Treasury’s accounts;
• using the work of my team auditing the BEAPFF
financial statements to obtain assurance over the
derivative value at 28 February 2021;

135
 • verifying the movements in assets and liabilities
between 28 February and 31 March;
• confirming the asset holdings at year end to
independent sources to ensure these are complete
and accurate;
• independently confirming that the quoted market
prices used by HM Treasury are within a reasonable
variance using an independent market source;
• confirming that management have performed the
calculations and processes underpinning the
valuation appropriately and applied these accurately;
and
• considering movements in the valuation of the
derivative after the reporting date, to confirm
whether additional disclosure in respect of events
after the reporting date are required.
Key observations
Based upon the evidence reviewed and the audit work
completed, I am satisfied that the amounts recognised
within the financial statements are appropriate. I did not
identify any misstatements as a result of the work I have
performed.
As explained in note 24, quoted market prices may vary
reasonably between reputable sources. I am content that
management have accurately used appropriate pricing data
but note that, as indicated by management’s sensitivity
analysis, small variations from using alternative data sources
would have a material impact on the accounts.

Key audit matter 3 - CCFF derivative

Description of risk
HM Treasury launched the COVID Corporate Financing Facility (CCFF) in March
2020. The company is funded by a loan from the Bank of England which is in turn
indemnified by HM Treasury. At year end, the fair value of commercial paper held by
the scheme was £7.9bn. The indemnity is recognised as a derivative financial
instrument in HM Treasury’s accounts - a derivative asset of £21m as at 31 March
2021.

Similar to BEAPFF, the CCFF prepares its financial statements to 28 February, one
month before HM Treasury’s reporting date. HM Treasury needs to ensure that an
appropriate asset valuation methodology is applied, consistent with the
requirements of the Government Financial Reporting Manual, which takes account
of the credit risk of the underlying borrowers to the scheme. The calculation of

136
credit risk is an area of management judgement. HM Treasury will also need to
ensure that sufficient disclosure is included within the financial statements, to
comply with financial reporting requirements.

Due to the non-coterminous year ends, the magnitude of the holdings, and
potential changes to credit risk of underlying borrowers, the valuation could change
materially between 28 February and 31 March. I have identified a significant risk per
ISA (UK) 315 and a key audit matter as a result.

How the scope of my My response to addressing the risk of material misstatement

audit responded to the in this area included:
risk
• evaluating the design and implementation of the
controls that HM Treasury has in place to ensure the
derivative asset is not materially misstated;
• reviewing HM Treasury’s accounting treatment for
the indemnity provided to the Bank of England in
respect of losses incurred over the life of the
scheme;
• reviewing and relying on the work performed by my
team auditing the CCFF accounts, which utilised
Corporate Finance expertise, on the appropriateness
of the asset valuation methodology applied. This
included consideration of the credit spreads used;
• re-calculating the CCFF portfolio valuation
independently and performing sensitivity testing on
the inputs;
• reconciling the trade log and bank statement to the
March year-end position as well as the Bank of
England loan balance; and
• confirming that sufficient disclosures in line with
financial reporting requirements, have been
adequately included within the financial statements.
Key observations
Based upon the evidence, I am satisfied that the amounts
recognised within the financial statements are appropriate. I
did not identify any misstatements as a result of the work I
have performed.

I am content that all required disclosures are included

within the financial statements.

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Key audit matter 4 - Impact of COVID-19
Description of risk
The COVID-19 pandemic has resulted in widespread economic and financial
disruption within the UK and global economy. In response, the Chancellor of the
Exchequer announced a range of initiatives intended to support businesses and jobs.
The changed economic and fiscal outlook caused by the COVID-19 pandemic has a
number of potential impacts on HM Treasury’s financial statements:
• Changes in the economic climate for the short and medium term has a
pervasive impact on HM Treasury’s financial statements. As a result, a
number of account balances face potentially material measurement issues.
These include items measured at fair value, assessment of forward-looking
expected credit losses, appropriateness of actuarial assumptions, and the
assessment of provisions. There is a risk that these will not be updated to
sufficiently reflect changing economic conditions and forecasts at the
reporting date or have been applied inconsistently or inappropriately.
• The Chancellor of the Exchequer, and HM Government more broadly, have
introduced a wide array of initiatives aimed at supporting individuals and
companies during the challenges posed by the pandemic. There is therefore
a risk that the reporting of financial impacts within HM Treasury’s financial
statements is not complete.
I have identified a significant risk of material misstatement under ISA (UK) 315 and a
key audit matter as a result.

How the scope of my My response to addressing the risk of material misstatement

audit responded to the in this area included:
risk
• reviewing the design and implementation of
controls in place at HM Treasury to ensure that the
financial reporting implications of the impact of the
pandemic are identified, considered and
appropriately included in the financial statements;
• performing my own assessment of management’s
consideration to confirm that it is adequate and
complete;
• reviewing all account balances potentially affected
by the pandemic, for example those relying on
forward looking estimates of economic conditions,
to ensure that relevant assumptions, measurements
and assessments remain valid and that HM
Treasury’s accounts are materially correct;
• performing a completeness assessment of
government initiatives made in response to the
COVID-19 pandemic to ensure that, where

138
 appropriate, all relevant financial statements
impacts are captured in HM Treasury’s accounts;
and
• considering management’s assessment of events
after the reporting period to ensure that it is
complete and that the requirements of IAS 10
Events after the reporting period have been applied
appropriately.
Key observations
Based upon the evidence I am satisfied that the amounts
recognised within the financial statements are appropriate. I
did not identify any misstatements as a result of the work I
have performed.

Key audit matter 5 - UKAR Defined Benefit Pension Liability

Description of risk
The HM Treasury Group financial statements recognise a net pension asset in
relation to the closed defined benefit pension schemes recognised by UKAR. These
consists of a gross defined benefit pension liability and the offsetting scheme assets.
The gross defined benefit pension liability is highly material to the financial
statements and subject to a high level of estimation uncertainty and, to a lesser
extent, management judgement. As such the valuation of the defined benefit
pension scheme liabilities has been recognised as a significant risk per ISA (UK) 315
and a key audit matter in respect to the audit of the Departmental Group.
The scheme assets include a buy-in policy that is intrinsically linked to the scheme
liabilities, and so this asset was scoped into the significant risk. All other pension
assets continue to be recognised as an area of limited management judgement, due
to the balance being primarily made up of assets with externally quoted prices. The
estimation uncertainty for the asset balance is lower than for the liabilities and as
such is not considered to represent a material risk of misstatement.

How the scope of my My audit approach was based upon review and assessment
audit responded to the of the work performed by the UKAR component audit team
risk in respect to UKAR’s defined benefit pension schemes. The
UKAR team’s approach to the risk included:
• evaluating the design and implementation of the
controls that UKAR has in place to ensure the
liability is not materially misstated. This has included
consideration of management's review of
assumptions used, and final IAS 19 report issued to
support the valuation of the liability;

139
 • evaluating the design and implementation of
controls over membership data in place as the
pension scheme administrator;
• reviewing the actuary’s report and agreement to the
accounts;
• performing procedures to earn the right to rely on
the work of the scheme actuary as a management
expert in accordance with ISA 500 Audit Evidence;
• engaging with our own actuarial experts to obtain
assurance over the reasonableness of key
assumptions used by the actuary in calculating the
liability;
• review of policy documentation for the NRAM
pension scheme buy-in policy; and
• performing procedures to obtain assurance over
membership data and other inputs used to calculate
the liability.
Key observations
I have obtained sufficient assurance over this risk through
my substantive testing. I did not identify any misstatements
as a result of the work I have performed.

Application of materiality
Materiality
I applied the concept of materiality in both planning and performing my audit, and
in evaluating the effect of misstatements on my audit and on the financial
statements. This approach recognises that financial statements are rarely absolutely
correct, and that an audit is designed to provide reasonable, rather than absolute,
assurance that the financial statements are free from material misstatement or
irregularity. A matter is material if its omission or misstatement would, in the
judgement of the auditor, reasonably influence the decisions of users of the financial
statements.
Based on my professional judgement, I determined overall materiality for the
Department’s financial statements as a whole as follows:

140
 Departmental group Department
Overall Account £153m £152m
Materiality
Basis for determining 1% of the BEAPFF Derivative 1% of the BEAPFF Derivative
overall account Financial Asset of £15.2bn Financial Asset of £15.2bn
materiality (1% of BEAPFF asset value of (1% of BEAPFF asset value of
£73.6bn in 2019-20) £73.6bn in 2019-20)
Rationale for the The role of HM Treasury that is The role of HM Treasury that is
benchmark applied principally shown within the principally shown within the
(overall account financial statements is its role financial statements is its role
materiality) acting as a custodian of acting as a custodian of
assets. The BEAPFF derivative assets. The BEAPFF derivative
financial asset is the most financial asset is the most
significant asset within the significant asset within the
financial statements and the financial statements and the
item we consider of most item we consider of most
interest to users, being interest to users, being
taxpayers’ exposure to the taxpayers’ exposure to the
gains and losses of the gains and losses of the
BEAPFF. BEAPFF.
Residual Account £146m £140m
Materiality (for
balances excluding
BEAPFF and the EU
Financial Settlement)
Basis for determining 0.5% of the residual asset 0.5% of the residual asset
residual account base of £29.2bn (0.5% of base of £28bn (0.5% of
materiality residual asset base of £23.8bn residual asset base of £23.8bn
in 2019-20) in 2019-20)
Rationale for the Despite the dominance of the Despite the dominance of the
benchmark applied BEAPFF derivative within BEAPFF derivative within
(residual account HMT’s balance sheet, I HMT’s balance sheet, I
materiality) consider that the readers of consider that the readers of
the accounts would also have the accounts would also have
a significant level of interest in a significant level of interest in
other balances that reflect other balances that reflect
HMT’s delivery of wider HMT’s delivery of wider
policies. I do not consider that policies. I do not consider that
this interest is diminished by this interest is diminished by
the presence of the BEAPFF the presence of the BEAPFF
derivative. Therefore it is derivative. Therefore it is
appropriate to adopt lower appropriate to adopt lower
materiality for other balances materiality for other balances
in the accounts. in the accounts.

141
Performance Materiality
I set performance materiality at a level lower than materiality to reduce the
probability that, in aggregate, uncorrected and undetected misstatements exceed
the materiality for the financial statements as a whole. Group performance
materiality was set at 85% of Group materiality for the 2020-21 audit (2019-20:
85%).

Other Materiality Considerations

There were significant revisions to materiality threshold as the audit progressed. The
value of the BEAPFF indemnity fell significantly during the year, and this was
reflected in the overall materiality level. Initially I also included a separate materiality
for items relating to the EU financial settlement (as in 2019-20). This is because I
considered that users of the financial statements are particularly interested in this
item. At the planning stage of my audit, I selected the net EU financial settlement as
a separate materiality benchmark, calculating the separate materiality as 0.5% of
that balance. However, when I recalculated my materiality benchmarks using draft
financial statement figures this materiality level aligned to the updated overall
materiality level and was therefore not required as a separate materiality level.
As well as quantitative materiality there are certain matters that, by their very nature,
would if not corrected influence the decisions of users, for example, any errors
reported in the Accountability Report. Assessment of such matters would need to
have regard to the nature of the misstatement and the applicable legal and
reporting framework, as well as the size of the misstatement.
I applied the same concept of materiality to my audit of regularity. In planning and
performing audit work in support of my opinion on regularity and evaluating the
impact of any irregular transactions, I took into account both quantitative and
qualitative aspects that I consider would reasonably influence the decisions of users
of the financial statements.

Error Reporting Threshold

I agreed with the Audit and Risk Committee that I would report to it all individual
uncorrected misstatements identified through my audit in excess of £1 million, as
well as all uncorrected misstatements in aggregate whose individual values are
between £300,000 and £1 million. I undertook to report differences below this
threshold that in my view warranted reporting on qualitative grounds.
I also report to the Audit and Risk Committee on disclosure matters that I identified
when assessing the overall presentation of the financial statements.
Total unadjusted audit differences reported to the Audit and Risk Committee have
increased net expenditure and decreased net assets by £9m.

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Audit scope
The scope of my Departmental Group audit was determined by obtaining an
understanding of the Group and its environment, including Group-wide controls,
and assessing the risks of material misstatement at the Group level.
I identified three significant components for my audit of the Departmental Group:
HM Treasury, UKAR and Reclaim Fund Limited (RFL); with FSCS being classed as a
material non-significant component. Together these represent 99% of the group’s
gross assets.
I carried out a full audit of HM Treasury as part of the audit of the Departmental
Group and had regular involvement in my statutory audit of UKAR, particularly in
respect of the significant risk that I have identified in relation to the UKAR Defined
Benefit Pension Liabilities. I also worked closely with the component audit team
carrying out the work on the RFL component to ensure that the required assurances
could be obtained from the work which they were conducting on my behalf. This
work covered substantially all of the group’s assets and net income, and together
with the procedures performed at the group level, gave me the evidence I needed
for my opinion on the group financial statements as a whole.

Other Information
The other information comprises information included in the annual report, but
does not include the parts of the Accountability Report described in that report as
having been audited, the financial statements and my auditor’s certificate thereon.
The Accounting Officer is responsible for the other information. My opinion on the
financial statements does not cover the other information and except to the extent
otherwise explicitly stated in my certificate, I do not express any form of assurance
conclusion thereon. In connection with my audit of the financial statements, my
responsibility is to read the other information and, in doing so, consider whether the
other information is materially inconsistent with the financial statements or my
knowledge obtained in the audit or otherwise appears to be materially misstated. If I
identify such material inconsistencies or apparent material misstatements, I am
required to determine whether this gives rise to a material misstatement in the
financial statements themselves. If, based on the work I have performed, I conclude
that there is a material misstatement of this other information, I am required to
report that fact.
I have nothing to report in this regard.

143
Opinion on other matters
In my opinion, based on the work undertaken in the course of the audit:
▪ the parts of the Accountability Report to be audited have been properly
prepared in accordance with HM Treasury directions made under the
Government Resources and Accounts Act 2000; and
▪ the information given in the Performance and Accountability Reports for the
financial year for which the financial statements are prepared is consistent
with the financial statements.

Matters on which I report by exception

In the light of the knowledge and understanding of HM Treasury and its
environment obtained in the course of the audit, I have not identified material
misstatements in the Performance and Accountability report. I have nothing to
report in respect of the following matters which I report to you if, in my opinion:
▪ adequate accounting records have not been kept or returns adequate for my
audit have not been received from branches not visited by my staff; or
▪ the financial statements and the parts of the Accountability Report to be
audited are not in agreement with the accounting records and returns; or
▪ certain disclosures of remuneration specified by HM Treasury’s Government
Financial Reporting Manual are not made; or
▪ I have not received all of the information and explanations I require for my
audit; or
▪ the Governance Statement does not reflect compliance with HM Treasury’s
guidance.

Responsibilities of the Accounting Officer for the financial statements

As explained more fully in the Statement of Accounting Officer’s Responsibilities, the
Accounting Officer is responsible for:
• the preparation of the financial statements in accordance with the applicable
financial reporting framework and for being satisfied that they give a true
and fair view;
• internal controls as the Accounting Officer determines is necessary to enable
the preparation of financial statement to be free from material
misstatement, whether due to fraud or error.
• assessing HM Treasury’s ability to continue as a going concern, disclosing, as
applicable, matters related to going concern and using the going concern
basis of accounting unless the Accounting Officer anticipates that the
services provided by HM Treasury will not continue to be provided in the
future.

144
Auditor’s responsibilities for the audit of the financial statements
My objectives are to obtain reasonable assurance about whether the financial
statements as a whole are free from material misstatement, whether due to fraud or
error, and to issue a certificate that includes my opinion. Reasonable assurance is a
high level of assurance but is not a guarantee that an audit conducted in
accordance with ISAs (UK) will always detect a material misstatement when it exists.
Misstatements can arise from fraud or error and are considered material if,
individually or in the aggregate, they could reasonably be expected to influence the
economic decisions of users taken on the basis of these financial statements.
I design procedures in line with my responsibilities, outlined above, to detect material
misstatements in respect of non-compliance with laws and regulation, including
fraud.
My procedures included the following:
• inquiring of management, the internal audit and those charged with
governance, including obtaining and reviewing supporting documentation
relating to HM Treasury’s policies and procedures relating to:
o identifying, evaluating and complying with laws and regulations and
whether they were aware of any instances of non-compliance;
o detecting and responding to the risks of fraud and whether they
have knowledge of any actual, suspected or alleged fraud; and
o the internal controls established to mitigate risks related to fraud or
non-compliance with laws and regulations including HM Treasury’s
controls relating to the Government Resources and Accounts Act
2000 and Supply and Appropriation (Anticipation and Adjustments)
Act 2021.
• discussing among the engagement team, including the significant
component audit team and relevant internal and external specialists in
Modelling, Economics and Statistics, Corporate Finance and Actuaries,
regarding how and where fraud might occur in the financial statements and
any potential indicators of fraud. As part of this discussion, I identified
potential for fraud in the following areas: revenue recognition, posting of
unusual journals, bias in management estimates;
• obtaining an understanding of HM Treasury’s framework of authority as well
as other legal and regulatory frameworks that HM Treasury and the Group
operates in, focusing on those laws and regulations that had a direct effect
on the financial statements or that had a fundamental effect on the
operations of HM Treasury. The key laws and regulations I considered in this
context included the Government Resources and Accounts Act 2000 and
Supply and Appropriation (Anticipation and Adjustments) Act 2021,
Managing Public Money, European Union (Withdrawal Agreement) Act
2020, Bank of England Act 1998, employment law, tax legislation and
pensions legislation;

145
 • review internal audit reports; and
• reviewing board minutes.
In addition to the above, my procedures to respond to identified risks included the
following:
• reviewing the financial statement disclosures and testing to supporting
documentation to assess compliance with relevant laws and regulations
discussed above;
• enquiring of management, internal audit and the Audit and Risk Committee,
concerning actual and potential litigation and claims, as well as any
investigations or enforcement action being undertaken by a relevant
authority;
• reading minutes of meetings of those charged with governance and the
Board;
• in addressing the risk of fraud through management override of controls,
testing the appropriateness of journal entries and other adjustments;
assessing whether the judgements made in making accounting estimates are
indicative of a potential bias; and evaluating the business rationale of any
significant transactions that are unusual or outside the normal course of
business;
• confirming compliance with Managing Public Money where this is relevant
to my audit of the financial statements and of the parts of the Accountability
report that are described in that report as having been audited. I performed
this by confirming that relevant approvals required under Managing Public
Money have been obtained by management and that disclosures required by
Managing Public Money have been appropriately included within the
financial statements and are complete; and
• confirming that the department has complied with the parliamentary control
totals set out in the Supply and Appropriations (Anticipation and
Adjustments) Act 2021 by confirming that outturn is within the limits
approved by Parliament, that the allocation of amounts to those
parliamentary control categories is appropriate and that management have
not vired amounts inappropriately between control totals approved by
Parliament. I also performed work to confirm that journals which move
amounts in favourable directions, from a parliamentary control total
perspective, were appropriate and did not indicate fraud through
management override of controls.
I also communicated relevant identified laws and regulations and potential fraud
risks to all engagement team members including internal specialists and significant
component audit teams and remained alert to any indications of fraud or non-
compliance with laws and regulations throughout the audit.
A further description of my responsibilities for the audit of the financial statements
is located on the Financial Reporting Council’s website at:
www.frc.org.uk/auditorsresponsibilities. This description forms part of my certificate.

146
I am required to obtain evidence sufficient to give reasonable assurance that the
Statement of Outturn against Parliamentary Supply properly presents the outturn
against voted Parliamentary control totals and that those totals have not been
exceeded. The voted Parliamentary control totals are Departmental Expenditure
Limits (Resource and Capital), Annually Managed Expenditure (Resource and
Capital), Non-Budget (Resource) and Net Cash Requirement. I am also required to
obtain evidence sufficient to give reasonable assurance that the expenditure and
income recorded in the financial statements have been applied to the purposes
intended by Parliament and the financial transactions recorded in the financial
statements conform to the authorities which govern them.
I communicate with those charged with governance regarding, among other
matters, the planned scope and timing of the audit and significant audit findings,
including any significant deficiencies in internal control that I identify during my
audit.

Report
I have no observations to make on these financial statements.

Gareth Davies 19 July 2021

Comptroller and Auditor General

National Audit Office

157-197 Buckingham Palace Road
Victoria
London
SW1W 9SP

147
Chapter 3
Financial statements
Consolidated Statement of Comprehensive Net Expenditure
(SoCNE)
for the period ended 31 March 2021

Core Treasury and Agencies Group

In £m 2019-20
Note 2020-21 2019-20 2020-21
(Restated)1
Continuing operations
Income from sale of goods and services (40) (39) (40) (39)
Other operating income 2 (1,706) (334) (2,469) (1,093)
Total operating income (1,746) (373) (2,509) (1,132)

Staff costs 3 183 152 241 199

Purchase of goods and services 4 121 120 246 238
Other operating expenditure 5 (1,826) 39,301 (1,246) 39,899
Total operating expenditure (1,522) 39,573 (759) 40,336
Net operating expenditure before financing (3,268) 39,200 (3,268) 39,204
Capital grant in kind 9,11 (3,564) - (3,564) -
Finance income 6 (817) (3,891) (252) (1,183)
Finance expense 18 7 18 8
Revaluation of financial assets and liabilities 7 44,782 (37,136) 44,782 (37,136)
Net (income)/expenditure before tax 37,151 (1,820) 37,716 893
Taxation - - 4 -
Net (income)/expenditure after tax from continuing
37,151 (1,820) 37,720 893
operations
Net (income)/expenditure after tax from discontinued
29 - - 37 38
operations
Total net (income)/expenditure after tax 37,151 (1,820) 37,757 931

1 Prior periods have been restated due to the first-time consolidation of Reclaim Fund Ltd and the classification of NRAM and

Bradford and Bingley (B&B) as a disposal group. See also Note 30 – Prior period restatements.

148
 Core Treasury and Agencies Group
2019-20
In £m Note 2020-21 2019-20 2020-21
(Restated)
Other comprehensive net (income)/
expenditure from continuing operations
Items that will not be reclassified to net operating
expenditure
Revaluation of property plant and equipment - (3) - (3)
Net loss on assets recognised in reserves 11 (5,404) 12,425 (6,039) 9,631
Actuarial (gain) on pension scheme liabilities - - 198 (154)
Total other comprehensive net (income)/ expenditure
(5,404) 12,422 (5,841) 9,474
from continuing operations
Other comprehensive net (income)/
expenditure from discontinued operations
Items that may be reclassified to net operating expenditure
when specific conditions are met
Net loss on assets recognised in reserves - - (101) 186

Net transfer from reserves and recognised as income in year - - - -

Total other comprehensive net (income)/ expenditure
- - (101) 186
from discontinued operations
Net comprehensive (income)/expenditure for the year 31,747 10,602 31,815 10,591

The notes on pages 154 to 222 form part of these accounts.

149
Consolidated Statement of Financial Position (SoFP)
as at 31 March 2021
Core Treasury and Agencies Group

Note 2019-20 2018-19

2020-21 2019-20 2020-21
In £m (Restated)2 (Restated)2
Non-current assets
Property, plant and equipment 8 170 172 201 203 161
Intangible assets 9 9 9 9 9
Trade and other receivables 9 3,971 2,030 3,894 1,909 506
Net pension asset 10 - - 595 821 651
Equity Investments 11 26,766 21,145 21,316 15,060 24,553
Loans and investment 12 6 7 223 187 1,876
securities
Loans to banking customers 13 - - - 4,144 4,747
Total non-current assets 30,922 23,363 26,238 22,333 32,503
Current assets
Inventory 31 23 31 23 28
Trade and other receivables 9 1,080 304 1,166 446 5,751
Loans and investment 12 - 1,613 186 1,798 1,664
securities
Loans to banking customers 13 - - - 564 778
Derivative financial assets 14 15,184 73,609 15,184 73,609 45,124
Cash and cash equivalents 15 5 66 4,096 1,609 1,422
Assets held for sale 29 - - 1,656 - -
Total current assets 16,300 75,615 22,319 78,049 54,767
Total assets 47,222 98,978 48,557 100,382 87,270
Current liabilities
Trade and other payables 16 (622) (295) (1,070) (691) (891)
Provisions 17 (9,835) (1,080) (10,400) (1,793) (1,372)
Debt securities in issue - - - - (204)
Financial guarantees 18 (19) (18) (19) (18) (23)
Liabilities held for sale 29 - - (55) - -
Total current liabilities (10,476) (1,393) (11,544) (2,502) (2,490)
Non-current liabilities
Trade and other payables 16 (386) (428) (557) (558) (476)
Provisions 17 (28,229) (39,185) (28,229) (39,187) (647)
Financial guarantees 18 (85) (95) (85) (95) (110)
Total non-current liabilities (28,700) (39,708) (28,871) (39,840) (1,233)

Total assets less liabilities 8,046 57,877 8,142 58,040 83,547

Equity
General fund SoCTE 17,067 75,046 21,585 80,266 95,958
Fair value reserve SoCTE (9,071) (17,219) (14,521) (23,405) (13,588)
Revaluation reserve SoCTE 50 50 50 50 47
Merger reserve SoCTE - - 1,028 1,129 1,130
Total equity 8,046 57,877 8,142 58,040 83,547

The notes on pages 154 to 222 form part of these accounts.

Tom Scholar, Permanent Secretary

16 July 2021

2 Prior periods have been restated due to the first-time consolidation of Reclaim Fund Ltd and the merger of the Pension reserve into

the General fund. See also Note 30 – Prior period restatements.

150
Consolidated Statement of Changes in Taxpayers’ Equity3 (SoCTE)
for the period ended 31 March 2021

Group
Re-
General Fair value Merger Total
Note valuation
fund reserve reserve reserves
In £m reserve
Balance at 1 April 2019 (Restated)2 95,958 (13,588) 47 1,130 83,547
Net income/(expenditure) after tax (931) - - - (931)
Change in CFERs payable to the
16 (49) - - - (49)
Consolidated Fund
CFERs paid to the Consolidated Fund SOPS 4.1 (7,361) - - - (7,361)
Change in excess cash payable to the
SOPS 4.1 (5) - - - (5)
Consolidated Fund
Excess cash paid to the Consolidated Fund SOPS 4.1 (7,507) - - - (7,507)
Consolidated Fund standing services 4 - - - 4
Actuarial gains and losses on pension
154 - - - 154
schemes
Revaluation gains and losses - (9,817) 3 - (9,814)
Transfers 1 - - (1) -
Other movements 2 - - - 2
Balance at 31 March 2020 (Restated)2 80,266 (23,405) 50 1,129 58,040
Net income/(expenditure) after tax (37,757) - - - (37,757)
Change in CFERs payable to the
16 15 - - - 15
Consolidated Fund
CFERs paid to the Consolidated Fund SOPS 4.1 (15,335) - - - (15,335)
Change in excess cash payable to the
SOPS 4.1 60 - - - 60
Consolidated Fund
Excess cash paid to the Consolidated Fund SOPS 4.1 (2,832) - - - (2,832)
Consolidated Fund standing services 5 - - - 5
Actuarial gains and losses on pension
(198) - - - (198)
schemes
Revaluation gains and losses - 6,140 - - 6,140
Transfers (2,643) 2,744 - (101) -
Other movements 4 - - - 4
Balance at 31 March 2021 21,585 (14,521) 50 1,028 8,142

The notes on pages 154 to 222 form part of these accounts.

3 This statement shows the movement in the year on the different reserves held by HM Treasury Group, analysed into ‘general fund

reserves’ (i.e. those reserves that reflect a contribution from the Consolidated Fund). The Fair Value Reserve reflects the change in
financial instrument asset values that have not been recognised as income or expenditure. The Revaluation Reserve reflects the
change in other asset values that have not been recognised as income or expenditure. The General Fund represents the total assets
less liabilities of a department, to the extent that the total is not represented by other reserves and financing items. The merger
reserve was generated on 1 October 2010 when the UKAR acquired all the issued shares of B&B and NRAM plc from the Treasury
Solicitor via a share-for-share exchange. The merger reserve represents the difference between the value attributed to the UKAR’s
investment in each company and the nominal value of the share capital issued by the Company in exchange.

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Consolidated Statement of Changes in Taxpayers’ Equity
for the period ended 31 March 2021

Core Treasury and Agencies

Re-
General Fair value Merger Total
Note valuation
fund reserve reserve reserves
In £m reserve
Balance at 1 April 2019 88,142 (4,794) 47 - 83,395
Net income/(expenditure) after tax 1,820 - - - 1,820
Change in CFERs payable to the
16 (49) - - - (49)
Consolidated Fund
CFERs paid to the Consolidated Fund SOPS 4.1 (7,361) - - - (7,361)
Change in excess cash payable to the
SOPS 4.1 (5) - - - (5)
Consolidated Fund
Excess cash paid to the Consolidated
SOPS 4.1 (7,507) - - - (7,507)
Fund
Consolidated Fund standing services 4 - - - 4
Revaluation gains and losses - (12,425) 3 - (12,422)
Other movements 2 - - - 2
Balance at 31 March 2020 75,046 (17,219) 50 - 57,877
Net income/(expenditure) after tax (37,151) - - - (37,151)
Change in CFERs payable to the
16 15 - - - 15
Consolidated Fund
CFERs paid to the Consolidated Fund SOPS 4.1 (15,335) - - - (15,335)
Change in excess cash payable to the
SOPS 4.1 60 - - - 60
Consolidated Fund
Excess cash paid to the Consolidated
SOPS 4.1 (2,832) - - - (2,832)
Fund
Consolidated Fund standing services 5 - - - 5
Revaluation gains and losses - 5,404 - - 5,404
Transfers (2,744) 2,744 - - -
Other movements 3 - - - 3
Balance at 31 March 2021 17,067 (9,071) 50 - 8,046

The notes on pages 154 to 222 form part of these accounts.

152
Consolidated Statement of Cash Flows (SoCF)
for the period ended 31 March 2021
Core Treasury and Agencies Group
2019-20
In £m Note 2020-21 2019-20 2020-21
(Restated)1
Cash flows from operating activities
Net operating income/(expenditure) before financing from
SoCNE 3,268 (39,200) 3,268 (39,204)
continuing operations
Net operating income/(expenditure) before financing from
- - (30) (225)
discontinued operations
Other non-cash transactions 19 (1,959) 39,074 (1,901) 39,436
Changes in working capital 13 (71) 152 (34)
Corporation Tax paid - - (15) (46)
Use of provisions 17 (239) (236) (442) (473)
Net cash flows from operating activities 1,083 (433) 1,032 (546)
Cash flows from investing activities
Proceeds: derivative financial assets 14 13,663 7,137 13,663 7,137
Proceeds: sale of shares UK listed entities 1,125 - 1,125 -
Proceeds: sale of investment securities and other assets - - 211 95
Net cash outflows from debt securities in issue - - - (204)
Proceeds: interest, dividend and other finance income 668 4,726 198 2,202
Purchases: financial assets (37) (137) (283) (318)
Proceeds: repayment of financial assets 1,616 3,591 1,616 1,618
Advances and repayments of loans to banking customers - - 373 661
Proceeds: sale of loans to banking customers - - 4,459 4,474
Other investing activities (14) (12) (15) (65)
Net cash flow from investing activities 17,021 15,305 21,347 15,600
Cash flows from financing activities
Cash from the Consolidated Fund (non-supply) 5 4 5 4
Advances from the Contingencies Fund - 84 - 84
Repayments to the Contingencies Fund - (84) - (84)
Capital element of the PFI contract (3) (3) (3) (3)
Net cash flows from financing activities 2 1 2 1
Net increase in cash and cash equivalents before
18,106 14,873 22,381 15,055
Adjustments
Payments of amounts due to the Consolidated Fund SoCTE (15,335) (7,361) (15,335) (7,361)
Excess cash paid to the Consolidated Fund – current year SoCTE (2,766) (7,446) (2,766) (7,446)
Excess cash paid to the Consolidated Fund – prior year balance SoCTE (66) (61) (66) (61)
Net increase/(decrease) in cash and cash equivalents after
15 (61) 5 4,214 187
adjustments
Cash and cash equivalents at the beginning of the period 15 66 61 1,609 1,422
Cash and cash equivalents at the end of the period4 15, 29 5 66 5,823 1,609

The notes on pages 154 to 222 form part of these accounts.

4 Cash and cash equivalents are a total of the balances for the continued and discontinued operations.

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Notes to the Resource Accounts
1. Statement of accounting policies

These financial statements have been prepared in accordance with the Government
Financial Reporting Manual 2020-21 (FReM) and the Government Resources and
Accounts Act 2000. The accounting policies contained in the FReM apply
International Financial Reporting Standards (IFRS) as adapted and interpreted for the
public sector context. Where the FReM permits a choice of accounting policy, the
accounting policy which is judged to be most appropriate to the particular
circumstances of HM Treasury for the purpose of giving a true and fair view has
been selected.

The particular policies adopted by HM Treasury are described below. In addition to

the primary statements prepared under IFRS, the FReM requires HM Treasury to
prepare a Statement of Outturn against Parliamentary Supply and supporting notes
analysing the net resource outturn and capital outturn against control totals voted
by Parliament through the Estimate. These are included within the Parliamentary
Accountability section of this document.

HM Treasury is domiciled in the United Kingdom and is located at 1 Horse Guards

Road, London. The presentational and functional currency is pound sterling.

In common with other government departments, the financing of HM Treasury’s

future service provision and liabilities are to be met by future grants of Supply and
the application of future income, approved annually by Parliament. Parliament has
authorised spending for 2021-22 in the Central Government Main Supply Estimates
and there is no reason to believe that future approvals will not be made. It has been
considered appropriate to adopt a going concern basis for the preparation of these
financial statements.

1.1 Accounting convention

These accounts have been prepared on an accruals basis under the historical cost
convention, modified to account for the revaluation of land and buildings and
certain financial instruments to fair value, as determined by the relevant accounting
standards and the bespoke accounts direction issued by HM Treasury.5

1.2 Basis of consolidation

These accounts consolidate Core Treasury and Agencies and those entities which fall
within the Departmental Boundary as defined in the FReM and listed in the
Designation Order 2020-21 issued by HM Treasury. Core Treasury and Agencies
include HM Treasury plus Office of Financial Sanctions Implementation and Office of
Tax Simplification along with the UK Debt Management Office, National
Infrastructure Commission and the Government Internal Audit Agency who are
recognised as executive agencies. Transactions between entities included in the
reporting boundary are eliminated on consolidation. All entities other than Reclaim

5 The bespoke accounts direction directs HMT to account for income received from the financial settlement of the EU Withdrawal

Agreement within the consolidated group accounts, rather than in a trust statement.

154
Fund Ltd6 have a 31 March reporting date. The Treasury Group includes, in addition
to Core Treasury and Agencies:

Entity Name Principal Activity

UK Asset Resolution Ltd (UKAR) Financial institution

Financial Reporting Advisory Board Advisory
Financial Services Compensation Scheme Deposit guarantee scheme
UK Government Investments Ltd Manage government shareholdings
Infrastructure Finance Unit Ltd Provides infrastructure loans
IUK Investments Holdings Ltd Investment in IUK Investments Ltd
IUK Investments Ltd Investment in PF2 projects
Help to Buy (HMT) Ltd Delivers the mortgage guarantee schemes
Office for Budget Responsibility Independent fiscal watchdog
Royal Household Sovereign Grant Public funding for the Royal Household
Royal Mint Advisory Committee Advisory
HM Treasury UK Sovereign Sukuk plc Issue of Sukuk
Reclaim Fund Ltd Distribution of Dormant Assets

UKAR includes the consolidation of a number of arm’s length bodies relating to

NRAM Ltd and B&B plc.7

For details on HM Treasury’s ownership interests in other entities which are not
consolidated, refer to Note 11 – Equity Investments.

1.3 Standards issued but not yet effective

The Treasury Group has not early-adopted any new or amended standards in
preparing these consolidated financial statements.

IFRS 16 Leases

IFRS 16 is being applied by HM Treasury in the FReM from 1 April 2022 with a
limited option for early adoption from 1 April 2019. Four of the Treasury Group’s
entities with operating leases, UKAR, FSCS, UKGI and RFL have adopted IFRS 16 with
effect from 1 April 2019 in line with their obligations under the Companies Act
2006. The Treasury Group has not early adopted IFRS 16, and therefore, the
consolidated group numbers exclude the effect of early adoption unless trivial.

IFRS 16 specifies how an entity will recognise, measure, present and disclose leases.
The standard provides a single lessee accounting model, requiring lessees to
recognise assets and liabilities for all leases unless the lease term is 12 months or less
or the underlying asset has a low value. Lessors continue to classify leases as
operating or finance, with IFRS 16’s approach to lessor accounting substantially
unchanged from its predecessor, IAS 17.

The Treasury Group’s expectation is that the adoption of IFRS 16 will result in an
increase in reported assets (in the form of right-of-use assets) and reported liabilities
(representing the obligation to make future lease payments). For leases where the

6 Reclaim Fund Ltd has a 31 December reporting date.

7 http://www.ukar.co.uk/about-us/financial-reports/2021

155
underlying asset has a low value, or where the lease term expires within 12 months
from the date of transition, the Treasury Group will apply the recognition
exemptions mandated by the FReM and lease costs will be expensed as incurred on
a straight-line basis over the remaining term of the lease.

Ahead of the initial IFRS 16 transition date of 1 April 2020, the Treasury Group
carried out an assessment of the impact of this standard on the financial
statements. This assessment showed no material impact from transition at 1 April
2020. The Financial Reporting Advisory Board subsequently deferred the
implementation of IFRS 16 in Central Government until 1 April 2022. The revised
assessment at 31 March 2021 shows immaterial impacts. This assessment exercise
will be reperformed again ahead of this deferred implementation date.

IFRS 17 Insurance Contracts

IFRS 17 was issued in May 2017 and applies to annual reporting periods beginning
on or after 1 January 2023 (subject to endorsement by the UK). The Treasury Group
does not intend to early adopt IFRS 17.

IFRS 17 establishes the principles for the recognition, measurement, presentation

and disclosure of insurance contracts within the scope of the standard. The objective
of IFRS 17 is to ensure that an entity provides relevant information that faithfully
represents those contracts. This information gives a basis for users of financial
statements to assess the effect that insurance contracts have on the entity's financial
position, financial performance and cash flows. Once effective, IFRS 17 will replace
IFRS 4 Insurance Contracts. The Treasury Group impact assessment exercise will be
performed ahead of the implementation date.

There are no other IFRS or IFRIC interpretations not yet effective that would be
expected to have a material impact on the Treasury Group.

1.4 Significant judgements and estimates

Expected credit losses and impairments on loans and investment securities

The allowance for expected credit losses on loans and investment securities held at
amortised cost is management’s estimate of losses expected at the reporting date,
on the basis of a probability-weighted evaluation of a range of possible outcomes,
based on historic, current and forward-looking information.

For those loans where recovery is being sought from an administrator, the expected
credit losses are dependent on a similar evaluation of the possible timing and
amount of repayment. A sensitivity analysis of capital recoveries for these loans is
included in the credit risk section of Note 24.2 – Financial risk. In addition to
assessing the amount of repayment, timing is also considered for interest free loans.

Impairments are recognised to reflect the cost of all interest free loans. The
impairment loss equals the difference between the carrying value of the loan and
the present value of the estimated future cash flows discounted at the Treasury
discount rate applicable at inception of the loan. The actual amount of the future
cash flows and their timing may differ significantly from the assumptions made for
the purposes of determining the impairment allowances and consequently these
allowances can be subject to variation as time progresses. These assumptions are
reviewed at each reporting date.

156
Fair value of investment securities

Under IFRS 9 the Treasury Group’s investment securities held by Reclaim Fund Ltd
are held at amortised cost. Management intends to hold the assets to maturity to
collect contractual cash flows and these cash flows consist solely of payments of
principal and interest on the principal amount outstanding. As these securities were
entered into at commercial arm’s length terms and are managed purely to generate
financial returns, rather than to further a policy objective, discount rates specific to
the loans were used, rather than the public sector financial instrument rates set out
in the FReM8 where those differed, as approved by HM Treasury.

Expected credit losses on loans to banking customers

UKAR Group did not categorise any loans to banking customers as ‘stage 1’ (see
Note 1.12 – Accounting Policies, Assets Held for Sale). This is because ascertaining
which loans had experienced a significant increase in credit risk since inception
would be onerous and in some cases the information concerning credit quality at
inception (which would have been in 2008 or earlier) may be incomplete. IFRS 9
permits the categorisation to omit stage 1 if the assessment of change in credit risk
would involve ‘undue cost and effort’.

Collective expected credit losses on loans were calculated using a statistical model.
Forward-looking assessments are made which are dependent on economic
assumptions including interest rates, unemployment and house price inflation, as
well as other factors such as net mortgage advances and mortgage arrears.
Economic assumptions were sourced from specialist economic analysts based on an
initial management view provided by UKAR and approved by UKAR’s Board.

These key assumptions were based on historic and current observed data trends and
forward-looking information and were updated on a regular basis within agreed
methodology to ensure the impairment allowance is entirely representative of the
current portfolio. The accuracy of the impairment calculation would therefore be
affected by unanticipated changes to the economic situation and assumptions
which differed from actual outcomes.

A case was considered to be in default when it was 3 months in arrears or there

were other indicators of credit impairment e.g. bankruptcy, forbearance, possession
or for sale with a Law of Property Act receiver. In addition, all cases that were past
their term end were treated as credit impaired. Payment holidays approved under
COVID-19 forbearance were not considered as a trigger of default. Generally, a loan
remained in stage 3 until it had been up to date for 3 consecutive months.

Fair value of loans to banking customers

Under IFRS 9 the Treasury Group’s loans to customers were carried at fair value.
Consistent with IFRS 13 ‘Fair Value Measurement’ an ‘income approach’ had been
adopted to valuations. Fair value was calculated using models which discounted
expected future cash flows to present value using market interest rates, the inputs to
which require judgements. A meeting of subject matter experts reviewed the fair

8 The FReM states, “Where future cash flows are discounted to measure fair value, entities should use the higher of the rate intrinsic

to the financial instrument and the real financial instrument discount rate set by HM Treasury promulgated in PES (Public
Expenditure System) papers, as applied to the flows expressed in current prices.”

157
value modelling assumptions on a quarterly basis. Expected future cash flows took
account of estimated future losses and assumed redemptions and were consistent
with the cash flows used in the base scenario for impairment. Discount rates
represented the blended rate between the cost of debt and the cost of equity and
were determined by management incorporating the experience gained of market
structures and pricing from recent sales transactions. As these loans were entered
into at commercial arm’s length terms prior to their acquisition by the public sector,
discount rates specific to the loans were used, rather than the public sector financial
instrument rates set out in the FReM8 where those differed, as approved by HM
Treasury.

The valuation was regarded as Level 3 (see note 25 – Fair Value Hierarchy) as certain
significant inputs to the valuation were defined as ‘unobservable’, i.e. inputs for
which market data are not available; the most significant unobservable inputs were
the expected future cash flows.
Equity investments

Under IFRS 9, equity instruments have been classified as held at fair value through
other comprehensive income (FVOCI) and all changes in fair value are taken to
reserves.

Valuation of unlisted equity investments

Net asset value has been used as a proxy for fair value in the valuation of HM
Treasury’s unlisted equity investments. Net assets are considered to be a good proxy
for fair value for unlisted entities because the underlying assets of each entity are
held at fair value with reference to either the market value or, when this is not
available, discounted cashflows. Management has assessed the impact of COVID-19
on assets held at net asset value and determined that this continues to provide a
good proxy for fair value.

Provisions

Recognition and valuation of provisions rely on the application of professional

judgment, historical experience, and other factors expected to influence future
events. A provision is recognised where the likelihood of a liability crystallising is
probable and where such provision can be measured with reasonable certainty.
Provision balances which contain regular, similar transactions are often derived from
financial models. Estimates and assumptions applied in these models are routinely
evaluated and reviewed.

Provisions related to EU financial settlement

The provisions compose principally obligations in respect of EU pensions, the Joint

Sickness Insurance Scheme (JSIS) and outstanding EU Budgetary commitments (the
so-called RAL9) at the end of 2020. The UK obligation in respect of EU pensions is
estimated on the basis of information in the EU’s 2020 audited consolidated
accounts, and apply the estimated UK post 2020 financing share to end 2020 EU
pension obligations, adjusting for the difference in discount rates used in EU
accounts and those required under the HM Treasury Financial Reporting Manual.

9 The Reste à Liquider (RAL or outstanding commitments) is the sum of commitments agreed but that have not yet turned into

payments.

158
The UK’s post 2020 financing share (the average proportion of the EU Budget over
2014-20 financed by the UK) is estimated based on historical outturn
contributions as set out in article 139 of the Withdrawal Agreement, this remains
provisional until February 2022.

The obligation in respect of JSIS is estimated on the basis of the UK’s post 2020
financing share of the employer contributions to JSIS made on payment of the
pension, to the extent the pension was accrued prior to 31 December 2020. This
obligation therefore follows the same profile as estimated for the EU pensions. The
contribution rate applied to the pre-tax pension payments at 31 March 2021 was
3.4% as set out by the legislation.

The Withdrawal Agreement provides the UK with an option of early settlement on a

different valuation basis, as explained in Note 17 - Provisions. HMT has valued the
provision using the default calculation basis set out at the beginning of paragraph 6
of Article 142 of the Withdrawal Agreement, i.e. assuming that HMT will not invoke
the early settlement option, as this is considered to be HM Treasury’s best estimate
of how this obligation will be settled.

The obligation in respect of the RAL is estimated based on information in EU

Budgets adopted on or before 31 March 2021 and associated budgetary
implementation data provided to Member States and the UK. The estimated post
2020 financing share is applied to commitments in EU Budgets up to 2020 and
adjusted for forecast implementation. The estimated level of decommitments (i.e.
commitments that do not lead to payments) is based upon historical decommitment
rates for the relevant programmes at the end of a Multiannual Financial Framework
period.

The obligations of the financial settlement are principally denominated in Euros and
therefore the sterling valuations are sensitive to changes in the Sterling/Euro
exchange rate.

The accounting valuations for the pension related liabilities are sensitive to actuarial
assumptions (e.g. life expectancy, inflation) for defined benefit pension obligations.
The key assumptions are drawn from the EU’s 2020 accounts, which provide the
most recent audited estimate of the EU’s pension obligations.

The value of the RAL is sensitive to the level of implementation of EU Budget

commitments as not all commitments necessarily translate into payments.

See page 35 for further details on the financial settlement.

Receivables and payables related to EU financial operations in the financial

settlement with the EU (Article 143 and 144)

UK financial rights and obligations in respect of certain EU financial operations cover

by Articles 143 and 144 of the EU Withdrawal Agreement include rights and
obligations to future cash flows and are accounted for as financial instruments
under IFRS 9 Financial Instruments and measured at fair value. These articles cover a
range of financial instruments. Those under Article 144 can only give rise to future
cash inflows for HM Treasury. These instruments have been funded by the EU
budget, and HM Treasury will receive a share of amounts recovered by the EU.

159
Instruments within the scope of Article 143 include two broad categories: those
with associated guarantee funds to meet potential calls, and those without. Where
the associated guarantee funds exceed calls HM Treasury will receive net cash
inflows. The UK is entitled to a share of net revenue received by the EU arising from
these operations, and certain EU guarantees generate fee income. To the extent the
calls exceed the revenues generated and the associated guarantee funds, HM
Treasury will have net cash outflows. For instruments without associated guarantee
funds HM Treasury can only make cash outflows.

To measure the fair value of these instruments HM Treasury has made assumptions
about the financial performance of the underlying instruments in order to forecast
future cashflows, which are then discounted by applying the financial instrument
rate set by HM Treasury, in accordance with the Financial Reporting Manual. The
level of granular data available on the underlying operations (such as the ultimate
counterparty, terms of the investments and credit risk) is minimal, and therefore HM
Treasury make simplifying assumptions. This includes key assumptions in respect of
the repayment profiles, risk of default, rate of recovery given default, as well as the
revenue generated by the EU in relation to these underlying operations. In respect
of the European Fund for Strategic Investments (under Article 143), the European
Investment Bank collects revenue from the underlying operations which are assigned
back to the Guarantee Fund via the EUs budget, the model assumes that there will
be sufficient revenues to cover expected losses as per note 2.11.3 of the EU
accounts 2020.

All the cash inflows and outflows are denominated in Euros. The sterling value of
future net cashflows are sensitive to the Sterling/Euro exchange rate and the UK’s
post 2020 financing share (see above). The final counterparties for these operations
include both sovereign’s and corporate entities. For sovereign ratings, assumptions
are based on Rating Agency information. For corporates (in the absence of specific
data) credit quality is either assumed to be relative to the sovereign risks of the
location country or type of finance, depending on the EU programme being
modelled. Assumptions about the composition of the portfolios of corporates is
based on the policy documentation produced by the EU for the associated
programmes and information in the EU’s accounts. These sources represent the
most detailed, and in the case of the EU accounts third party assured, information
on these instruments that is available to Member States of the EU. The provisioning
rates used in the model are based on those communicated under the withdrawal
agreement to HM Treasury in March 2021. The financial modelling has been cross
checked against information reported to the UK under the terms of the Withdrawal
Agreement.

Valuation of Covid Corporate Financing Facility Limited (CCFF) derivative

The CCFF related derivative is valued on the basis of the difference between the fair
value of CCFF’s assets and liabilities. Of these, the element which represents a
significant management judgement is the fair valuation of the commercial paper
held by CCFF.

As observable market prices are not available for the commercial paper held, the fair
value is calculated using a discounted cash-flow model. The model uses market-
based spreads so that valuations are reflective of actual market conditions. The
market-based credit spreads are derived from indices which act as a proxy for the

160
credit spreads of the commercial papers held in CCFF. Credit spreads are assigned to
the commercial paper in accordance with its credit rating. Credit ratings are
assigned either on the basis of public ratings from external rating agencies whenever
they are available, or otherwise using confidential credit rating information. The
discount factor in the model is calculated by using the Libor curve, as well as the
indices’ credit spread. The model assumes no early repayment. Management
judgement has been applied in determining that the selected indices are appropriate
for the purpose of the model. The model was subject to internal review and
challenge under the Bank’s own governance for such methodologies and was also
reviewed in CCFF board meetings.

See also Note 24.4 – Financial Risk, Core Treasury and Agencies – Other.

Disposal Group

On 26 February 2021 UKAR entered into a contract which is expected to result in

the sale of its 100% shareholdings in B&B and NRAM to Davidson Kempner (DK) in
the summer of 2021. As at the Balance Sheet date it was considered that the sale
of these shareholdings was highly probable, as defined in IFRS 5, and consequently
a disposal group has been classified as held for sale. Judgement was applied as to
which assets and liabilities should form part of the disposal group, as detailed in
Note 29. The sale of the disposal group will be accounted for at the point that the
shares in B&B and NRAM are transferred to the purchaser as this is the point at
which the Treasury will cease to have any power or control over the subsidiaries.

The carrying value of the disposal group has been impaired, with the disposal group
assets which are within the scope of the measurement principles of IFRS 5 being
impaired to nil. IFRS 5 is unclear as to whether the amount of impairment of a
disposal group should be restricted to the carrying amount of the assets against
which the Treasury Group is permitted to apply the impairment. The Treasury Group
has therefore chosen a policy of recognition of the full impairment charge and the
creation of a separate balance described as ‘excess impairment of the disposal
group’ to reduce the total carrying amount of the net assets in the disposal group to
their fair value less costs to sell. It is considered appropriate to reflect the full
impairment of the carrying value of the disposal group at 31 March 2021 as
otherwise a loss on sale would be expected to be recognised in 2021-22. The
carrying value of the disposal group has been impaired to fair value less costs to sell,
in accordance with IFRS 5. The fair value was derived by reference to the agreed
sale price.

1.5 Revenue recognition

Revenue is measured based on the consideration specified in a contract with a

customer and excludes amounts collected on behalf of third parties. The Treasury
Group recognises revenue when it transfers control over a product or service to a
customer.

Performance obligations and timing of revenue recognition

The Treasury Group’s revenue is primarily derived from providing services, with
revenue recognised at a point in time when the service has transferred to the
customer. The significant income streams of the Treasury Group include levies
received by FSCS and loan commitment fees from Pool Re. The levies received by

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FSCS are not accounted for in accordance with IFRS 15 and hence the accounting
policy is detailed separately below.

For loan commitment fees, the service being provided is the commitment to provide
a loan. The performance obligation is that of standing ready to provide the loan and
is satisfied over time as the commitment is available.

Voluntary gifts to the nation are recognised when cash is received.

Levies and dormant account monies

IFRS 15 is not applicable to FSCS’ levies and RFL’s amounts received in respect of
dormant accounts represent receipts. In the absence of a standard or an
interpretation that specifically applies to a transaction, other event or condition,
management has used its judgement in developing and applying an accounting
policy that results in information that is relevant and reliable in accordance with IAS
8 ‘Accounting Policies, Changes in Accounting Estimates and Errors’.

RFL’s amounts received in respect of dormant accounts represent receipts, from

participants, of dormant account monies and are recognised where it is virtually
certain that future economic benefits will flow to the Company and these benefits
can be measured reliably.

FSCS recognises levies receivable in respect of compensation costs on an accruals

basis to match compensation costs net of recoveries recognised as income during
the period. Any excess funds are ultimately repayable to the levy payer (with
shortfalls similarly recoverable from the levy payer), by way of a return or a reduction
in next year’s levy, in accordance with the funding rules set by the Financial Conduct
Authority (FCA) and Prudential Regulation Authority (PRA).

1.6 Property, plant and equipment

Property, plant and equipment assets are initially recognised at cost. The threshold
for capitalising non-current assets is £5,000 except for antiques where no threshold
is set. Subsequent costs are included in the asset’s carrying amount or recognised as
a separate asset, as appropriate, only when it is probable that future economic
benefits associated with the item will flow to the Treasury Group and the cost of the
item can be measured reliably.

When an asset is disposed of, any gain or loss on disposal is calculated as the
difference between the disposal proceeds and the carrying value of the asset and is
recognised as profit or loss in the SoCNE.

The charge for depreciation or amortisation is calculated to write down the cost or
valuation of property, plant and equipment and intangible assets to their estimated
residual values by equal instalments over their estimated useful lives which are as
follows:

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Freehold and long leasehold buildings 40 to 50 years

Property improvements 7 to 50 years

3 to 12 years
Plant and machinery

Furniture, fixtures and fittings 5 to 20 years

IT equipment and other non-IT

3 to 10 years
equipment

Subsequent to initial recognition, land and buildings are recorded at fair value, as
interpreted by the FReM, on the basis of professional valuations, which are
conducted at least once every 5 years with an interim desktop review being done
once in-between.

1.7 Heritage Assets

The Sovereign Grant is used to maintain the land and buildings that are held by The
Queen in trust for the nation and cannot be sold without the authority of the
Department for Digital, Culture, Media and Sport. Owing to the incomparable
nature of these properties, it is considered that conventional valuation techniques
lack sufficient reliability and that, even if valuations could be obtained, the costs
would be onerous compared with the additional benefits derived by the users of the
accounts. As a result, no value is reported for these assets in the Statement of
Financial Position.

1.8 Tax

Value Added Tax (VAT)

Many activities of HM Treasury are outside the scope of VAT and, in general, output
tax does not apply and input tax on purchases is not recoverable. Irrecoverable VAT
is charged to the relevant expenditure category or included in the capitalised
purchase cost of non-current assets. Where output tax is charged or input VAT is
recoverable, the amounts are stated net of VAT.

Corporation Tax

The charge for taxation is driven by UKAR’s results for the year but includes HM
Treasury UK Sovereign Sukuk plc and other subsidiary companies that fall within the
charge to Corporation Tax.

1.9 Operating segment reporting

In accordance with the relevant reporting requirements, including IFRS 8, the SOPS
and supporting notes reflect net resource and capital outturn in line with the control
totals voted by Parliament. The figures within SOPS 1.1 provide the income and
expenditure totals associated with key business activities within the Treasury Group
and reflect the HM Treasury business plan and the management information
reported to the Board during the period.

1.10 Pensions

The Treasury Group operates several retirement benefit plans for its employees,
including defined benefit plans, defined contribution plans and post-retirement
healthcare benefits.

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Defined benefit schemes

Pension benefits are provided through Civil Service pension arrangements as detailed
in the Remuneration Report.

HM Treasury recognises the expected cost of future pension liabilities in a systematic

and rational basis over the period during which it benefits from employees’ service
by payment to Civil Service pension schemes of amounts calculated on an accruing
basis. Liability for payment of future benefits is a charge on the scheme.

The FSCS, UKAR, and the Royal Household also operate defined benefit schemes
that are separate from the Civil Service pension schemes and accounted for under
IAS 19.

Defined contribution schemes

A defined contribution plan is a pension arrangement where the employer pays

fixed contributions into a separate fund. The costs for the defined contribution
schemes are recognised as an expense in the SoCNE as incurred. For defined
contribution plans, the employer has no further payment obligations once the
contributions have been paid. The contributions are recognised as an employee
benefit expense when they are due. Prepaid contributions are recognised as an asset
to the extent that a cash refund or a reduction in the future payments is available.

FSCS, UKAR, RFL and the Royal Household operate defined contribution pension
schemes.

One of the Royal Household’s pension schemes, managed by the government, is not
a funded scheme. The Royal Household is unable to identify the share of the
underlying assets and liabilities of the scheme attributable to employees funded by
the Sovereign Grant (or its equivalent in previous years) on a consistent and
reasonable basis and therefore this scheme is treated as a defined contribution
scheme.

1.11 Cash and cash equivalents

Cash and cash equivalents include cash in hand and deposits held with financial
institutions net of bank overdrafts. Highly liquid investments that are readily
convertible to known amounts of cash and which are subject to an insignificant risk
of change in value are also included. Such investments are normally those with less
than 3 months’ maturity from the date of acquisition.

1.12 Assets held for sale

In accordance with IFRS 5 'Non-current Assets Held for Sale and Discontinued
Operations', assets and liabilities are classified as 'held for sale' if they are available
for immediate sale in their present condition, they are being actively marketed for
sale at a reasonable price and sale is considered to be 'highly probable'. Financial
assets within the scope of IFRS 9 are excluded from the measurement principles
under IFRS 5 and continue to be measured at their IFRS 9 value. Assets held for sale
are carried at the lower of their previous carrying amount and their fair value less
costs to sell, other than assets for which the IFRS 5 measurement principles do not
apply.

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1.13 Financial instruments: financial assets

Initial recognition and measurement

Regular purchases and sales of financial assets are recognised on the trade-date,
which is the date on which HM Treasury commits to purchase or sell the asset.
Financial assets are recognised initially at their fair value plus, in the case of a
financial asset not at fair value through profit & loss (FVP&L), transaction costs that
are directly attributable to the acquisition or issue of the instrument. Financial assets
carried at FVP&L are initially recognised at fair value and transaction costs are
expensed in the SoCNE. Where the transaction price differs from fair value, the value
at initial recognition is adjusted to defer the difference between the fair value at
initial recognition and the transaction price.

Subsequent measurement

After initial recognition, financial assets are measured at their fair values except for
those assets which are designated as measured at amortised cost using the effective
interest rate (EIR) method. The basis for designation as fair value or FVOCI is based
on criteria set out in IFRS 9.

Fair value measurement

The Treasury Group measures certain financial instruments at fair value at each
balance sheet date. Fair value related disclosures for financial instruments and non-
financial assets that are measured at fair value are summarised in the following
notes:

Disclosures for valuation methods, significant judgements Note 1.4

and estimates
Disclosures of fair value measurement hierarchy Note 25
Financial Instruments Note 26

Movements in fair value are recognised in the SoCNE, except in the case of
instruments categorised as FVOCI, in which the fair value movements are taken to
the Fair Value Reserve, until realised when they are reclassified to the General Fund.

Derivative financial assets – Derivatives are initially recognised at fair value and
subsequently re-measured to reflect changes in fair value. Fair values are obtained
from quoted market prices in active markets and, where these are not available,
from other valuation techniques including discounted cash flow models. See also
Note 1.4 – Significant judgements and estimates

Classification

A financial instrument is any contract that gives rise to a financial asset of one entity
and a financial liability or equity instrument of another entity. Classification of
financial assets is determined by the objectives of the business model under which
the assets are managed and the contractual cash flow characteristics of those assets.

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The business model may be considered to be one of holding the asset to collect the
cash flows arising; holding the asset to collect the cash flows arising or to sell it, or;
holding the asset to sell it. Assessment of the applicable business model was carried
out at the date of first application of IFRS 9, i.e. 1 April 2018.

The contractual cash flow characteristics of an asset may be considered to be ‘solely

payments of principal and interest’ (SPPI) or not to be SPPI.

Financial assets may be measured at amortised cost, FVP&L, or FVOCI.

The measurement classifications of financial assets are as follows:

SPPI Not SPPI

Held to collect Amortised cost FVP&L

Held to collect and sell FVOCI FVP&L

Held to sell FVP&L FVP&L

IFRS 9 permits an entity to make an irrevocable election to classify certain equity

instruments at FVOCI rather than through profit and loss. This election is considered
to be more appropriate for a group of strategic investments for which the election
has been made.

Impairment

Further disclosures relating to impairment of financial assets are also provided in the
following notes:

Loans and investment securities Note 12

Loans to banking customers Note 13

Equity Investments Note 11

Impairment identification

IFRS 9 requires that expected credit losses (ECL) are calculated using a range of
forward-looking economic scenarios, weighted by the estimated probability of each
scenario.

The Treasury Group recognises either a 12-month or lifetime ECL, depending on

whether there has been a significant increase in credit risk since initial recognition.
The ECL model applies to debt instruments accounted for at amortised cost or at
FVOCI.

Each financial asset is categorised as ‘stage 1’, ‘stage 2’ or ‘stage 3’:

• stage 1 assets are those for which there has been no significant increase
in credit risk since the asset’s origination

• stage 2 assets are those for which there has been a significant increase in
credit risk since the asset’s origination

• stage 3 assets are those which are in default

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In respect of stage 1 assets, the impairment provision reflects the next 12 months’
expected losses. In respect of stage 2 and 3 assets, the impairment provision reflects
full lifetime expected losses. In respect of stage 3 assets, interest income is
recognised only in respect of the balance net of impairment.

For trade receivables, contract receivables and lease receivables, the Treasury Group
recognises impairment losses using the simplified approach required by FReM.
Under this approach, a lifetime ECL is recognised for all assets.

Assets carried at amortised cost – For financial assets carried at amortised cost, the
Treasury Group first considers whether an impairment is required for those assets
considered significant in their own right. For those assets which are not considered
individually significant, these are assessed for evidence of impairment on a collective
basis.

Loans and investment securities – Evidence considered when assessing an

impairment loss includes the probability of future delinquency in contractual
payments of principal, interest or cash flow difficulties experienced by the borrower,
the likelihood of breach of loan covenants or conditions or any future deterioration
in the value of collateral.

Loans to banking customers – For loans to banking customers, an assessment is

made as to whether an impairment provision should be made on an individual or
collective basis. Loans where an individual assessment is made include all loans in
possession or held for sale with a Law of Property Act (‘LPA’) receiver and any others
which management consider to be individually impaired.

All loans that have been assessed as having no individual impairment are then
grouped together with those of similar characteristics and assessed collectively. For
each loan category an assessment is made of forecast cash flows against contractual
cash flows over the life of the loan. Both cash flows are discounted, using the loan’s
effective interest rate (EIR). Where there is a shortfall on the discounted forecast
cash flow compared to the discounted contractual cash flow, a provision is made.

Equity Investments – In the case of equity investments held at FVOCI, a decline in the
fair value of the asset is reflective of a reduction in the expected returns on the
investment. This reduction in fair value is shown within other comprehensive income
through the fair value reserve.

Impairment measurement

Assets carried at amortised cost – The amount of any impairment loss identified is
measured as the difference between the asset’s carrying amount and the present
value of estimated future cash flows discounted at the effective interest rate
applicable at the inception of the loan. The carrying amount of the asset is reduced
in the SoFP by the amount of this expected credit loss and the loss is recognised in
the SoCNE. The present value of estimated future cashflows is based on a
probability-weighted evaluation of a range of possible outcomes, based on historic,
current and forward-looking information.

FVOCI assets – For loans to banking customers (debt instruments held at FVOCI), any
impairment is measured as the difference between discounted contractual cash
flows and discounted forecast cash flows, assessed in accordance with the ECL
model outlined above. The amount of this expected credit loss is recognised in the

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SoCNE and does not reduce the carrying amount of the loan in the SoFP.
Impairments are not recognised for equity investments held at FVOCI as a reduction
in expected returns will be reflected in a decline in fair value, shown within other
comprehensive income through the fair value reserve.

De-recognition

Financial assets are derecognised when the rights to receive cash flows from the
financial assets have expired or the Treasury Group has transferred substantially all
the risks and rewards of ownership. The investments in FVOCI assets have been
recognised on a tranche-by-tranche basis where different lots of the same security
have been purchased at a different price level. The gain or loss on these securities
will be accounted for on a first-in-first-out basis when they are eventually disposed.

1.14 Financial Instruments: financial liabilities

Recognition

Financial liabilities are initially recognised on the date on which they originate.

Measurement

Financial liabilities are measured at amortised cost using the effective interest rate
(EIR) method or at FVP&L. The only financial liabilities at FVP&L that the Treasury
Group holds are in respect of derivatives.

Classification

Financial liabilities are classified on initial recognition as either at FVP&L, or financial

liabilities measured at amortised cost:

Financial liabilities at Financial liabilities at FVP&L are liabilities held for trading or
fair value through designated as at FVP&L.
profit or loss

Financial liabilities Financial liabilities measured at amortised cost are non-derivative

measured at amortised financial liabilities with fixed or determinable payments that are
cost not quoted in an active market. Trade and other payables,
borrowings and bank overdrafts are classified as financial
liabilities measured at amortised cost.

Derivative financial liabilities

Derivatives are measured initially at fair value and subsequently re-measured to

reflect changes in fair value. Fair values are obtained from quoted market prices in
active markets and, where these are not available, from other valuation techniques
including discounted cash flow models.

Derecognition

Financial liabilities are derecognised if the Treasury Group’s obligations specified in

the contract expire, are discharged or cancelled.

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1.15 Provisions, contingent liabilities and contingent assets

Provisions are carried in respect of certain known or forecast future expenditure.

Under IAS 37, provisions are recognised when there is a present obligation arising
from past events, it is probable that a transfer of economic benefits will be required,
and a reliable estimate can be made. Where the future payment amount is
unknown provisions are set at a level which covers the estimated number of future
payments and the estimated average payment amount. In calculating provisions,
future payments may be subject to discount rates depending on the expected timing
of cash flows. Provisions are calculated using the best available information, but the
actual outcomes of items provided for, may differ from expectations.

Contingent liabilities and contingent assets are not recognised as liabilities or assets
in the SoFP but are disclosed in the notes to the Accounts. A contingent liability is
either: a possible obligation arising from past events, the existence of which will be
confirmed by the occurrence or non-occurrence of one or more uncertain future
events, or; it is a present obligation arising from past events but is not recognised
because either an outflow of economic benefits is not probable to settle the
obligation or the amount of the obligation cannot be reliably estimated. A
contingent asset is a possible asset whose existence will be confirmed by the
occurrence or non-occurrence of one or more uncertain future events not wholly
within the control of HM Treasury. Where the time value of money is material, the
contingent liabilities and assets are stated at discounted amounts.

In addition to contingent liabilities disclosed in the accounts in accordance with IAS

37, HM Treasury discloses within its accountability report, for Parliamentary
reporting and accountability purposes certain statutory and non-statutory
contingent liabilities outside the scope of IAS 37 which have been reported to
Parliament in accordance with the requirements of Managing Public Money.

1.16 Debt and equity securities in issue

Issued securities, including capital instruments, are classified as liabilities where the
contractual arrangements result in the issuer having an obligation to deliver either
cash or another financial asset to the security holder, or to exchange financial
instruments under conditions that are potentially unfavourable to the issuer. Issued
securities include ordinary and preference share capital. Preference shares are
classified as equity instruments where dividend payments and redemptions are
discretionary.

On initial recognition, debt issued is measured at its fair value of directly attributable
issue and transaction costs. Subsequent measurements are at amortised cost using
the EIR method to amortise attributable issue and transaction costs, premium and
discounts over the life of the instrument. These costs are charged along with interest
on the debt to interest expense and similar charges. Unamortised amounts are
added to or deducted from the carrying value of the instrument.

Equity instruments (including share capital) are initially recognised at net proceeds,
after deducting transaction costs and any related Income Tax.

1.17 Financial guarantees

Financial guarantee liabilities and associated receivables are initially recognised in the
financial statements at fair value on the date the guarantee was given. The period

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over which the receivables and the associated liabilities have been recognised is over
the length of these guarantees. Guarantee arrangements are re-assessed at every
subsequent reporting date and estimates for the assets and liabilities relating to the
guarantees are adjusted if necessary.

The fair value of financial guarantee liabilities at initial recognition is estimated as

the fair value of the guarantee fee income.

Subsequent measurement of liabilities under financial guarantees is measured at the

higher of the initial measurement, less amortised fee income recognised in the
SoCNE as the service is provided; and the amount of the loss allowance for expected
credit losses at the reporting date. Any increase in the liability relating to guarantees
is taken to the SoCNE.

1.18 Off-balance sheet loan commitments

Off-balance sheet loan commitments are disclosed in Note 20 – Commitments. They

comprise commitments to advance cash sums and to allow drawdown of monies
previously overpaid (where the terms of the loan specifically allow). In respect of
monthly drawdown products, the commitment reflects an estimate of the future
drawdowns to redemption.

Under IFRS 9 an impairment provision for expected credit losses is required to be

held against undrawn loan commitments. The impairment provision for each loan
considers the expected drawdown on the loan commitment.

1.19 Foreign currencies

Transactions which are not denominated in pounds sterling are translated at the
spot rate of exchange on the date of the transaction. Monetary assets and liabilities
which are not denominated in pounds sterling are translated at the closing rate of
exchange at the reporting year-end date. Foreign exchange gains and losses
resulting from the restatement and settlement of such transactions are recognised
in the SoCNE.

2. Other operating income

Core Treasury and Agencies Group
In £m 2019-20
2020-21 2019-20 2020-21
(Restated)
Fees and charges (181) (306) (181) (297)
Levies - - (600) (576)
Dormant accounts - - (90) (147)
Gifts to the Nation (1,487) - (1,487) -
Recoveries and recharges (11) (7) (78) (47)
Other operating income (27) (21) (33) (26)
Continuing operations (1,706) (334) (2,469) (1,093)
Fees and charges - - (3) (5)
Other operating income - - (2) (11)
Discontinued operations - - (5) (16)
Total (1,706) (334) (2,474) (1,109)

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Fees and charges decreased by £116m, largely due to a reduced level of loan
commitment fee income from Pool Re, driven by a lower level of Pool Re’s insurance
premiums and reduced income from the performance of Pool Re’s investments.

In response to the COVID-19 pandemic the government introduced a relief of retail

business rates for 2020-21. Some businesses have subsequently voluntarily repaid
the relief they received to the government as a gift to the nation, and only those
that have been repaid to the Treasury rather than directly to a devolved
administration are included here. See also note 22 – Contingent Assets.

3. Staff costs and numbers

Total staff costs for continuing operations for the Treasury Group at 31 March 2021
were £241m (2019-20 Restated: £199m), comprising £196m salaries and wages
(2019-20 Restated: £163m), £20m social security (2019-20: £17m) and £25m staff
pension costs (2019-20: £19m). The staff pension costs include a reduction due to
UKAR receiving a net credit of £12m (2019-20: £12m) from their defined benefit
pension scheme, which is in surplus.10 For more information and for staff numbers
refer to the Remuneration and Staff Report.

For discontinued operations, the total staff costs for the Treasury Group at 31 March
2021 were £10m (2019-20: £13m) comprising £9m salaries and wages (2019-20:
£11m), £1m social security (2019-20: £1m) and £0m staff pension costs (2019-20:
£1m).

4. Purchase of goods and services

Core Treasury and Agencies Group
In £m 2019-20
2020-21 2019-20 2020-21
(Restated)
UK coinage: metal and manufacturing costs 10 33 10 33

Professional and office services 78 58 122 103

Other purchase of goods and services 33 29 114 102

Continuing operations 121 120 246 238

Professional and office services - - 40 107
Other purchase of goods and services - - 1 1
Discontinued operations - - 41 108
Total 121 120 287 346

10 See UKAR’s 2020-21 accounts for further information.

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5. Other operating expenditure
Core Treasury and Agencies Group
In £m 2019-20
2020-21 2019-20 2020-21
(Restated)
FSCS compensation costs - - 588 464
Movement in provisions (1,962) 39,102 (1,876) 39,315
Other operating expenditure 136 199 42 120
Continuing operations (1,826) 39,301 (1,246) 39,899
Movement in provisions - - (19) 118
Other operating expenditure - - 3 2
Discontinued operations - - (16) 120
Total (1,826) 39,301 (1,262) 40,019

Movement in provisions is detailed in Note 17.

Of the provision movement, £1.5bn relates to exchange rate movements on the EU

Financial Settlement.

6. Finance income
Core Treasury and Agencies Group
In £m 2019-20
2020-21 2019-20 2020-21
(Restated)
Interest and fee income from loans (36) (78) (40) (82)
Dividend income (781) (3,797) (212) (1,101)
Amortisation of loans - (16) - -
Continuing operations (817) (3,891) (252) (1,183)
Interest and fee income from loans - - (118) (183)
Discontinued operations - - (118) (183)
Total (817) (3,891) (370) (1,366)

During 2019-20, NatWest declared dividends of 14p per share, while during 2020-
21, dividends of 3p per share were declared, resulting in a reduction in dividend
income of £0.8bn.

Following the UKAR’s cash receipt from the sale of a tranche of mortgages in May
2019, UKAR was able to make a large dividend to HM Treasury in 2019-20. Further
to its usual dividend payments, following the mortgage sale in February 2021, no
further dividends have been received in respect of this sale receipt prior to 31 March
2021 from UKAR, resulting in a reduction in dividend income of £2.2bn.

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7. Revaluation of financial assets and liabilities in the SoCNE
Core Treasury and Agencies Group
In £m 2020-21 2019-20 2020-21 2019-20
Fair value (gain) on derivatives 44,762 (35,622) 44,762 (35,622)
Fair value (gain)/loss on financial assets and liabilities 20 (1,514) 20 (1,514)
Total 44,782 (37,136) 44,782 (37,136)

For an explanation of the change in the fair value on derivatives refer to Note 14 –
Derivative financial assets.

The fair value gain in financial assets relates to elements of the EU Financial
Settlement, see also Note 9 – Trade and other receivables and Note 16 – Trade and
other payables.

8. Property, plant and equipment

8.1 Group

Current year
In £m Land Buildings Other Total
Cost/Valuation
Balance at 1 April 62 121 59 242
Additions/transfers - 2 5 7
Impairments - - (1) (1)
Disposal - - (1) (1)
Balance at 31 March 62 123 62 247
Accumulated Depreciation
Balance at 1 April - (11) (28) (39)
Charge in year - (5) (4) (9)
Released on disposal - - 2 2
Balance at 31 March - (16) (30) (46)
Net book value at 31 March 62 107 32 201

The property at 1 Horse Guards Road is leased under a private finance initiative (PFI)
and has a net book value of £90m (2019-20: £94m). More details regarding this PFI
contract are provided in Note 21. All other assets are owned by the Treasury Group.

Full valuations of 1 Horse Guards Road are conducted at least once every 5 years
with an interim desktop review being done once in-between. The latest valuation
was performed as at 31 March 2020 by the Valuation Office Agency, an executive
agency of HM Revenue and Customs, whose services include providing valuation
and estate surveying services to government departments.

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Prior year
In £m Land Buildings Other Total
Cost/Valuation
Balance at 1 April 45 111 49 205
Additions - 1 11 12
Impairments - (1) (1) (2)
Disposal 17 10 - 27
Balance at 31 March 62 121 59 242
Accumulated Depreciation
Balance at 1 April - (19) (25) (44)
Charge in year - (3) (4) (7)
Released on disposal - 1 1 2
Revaluation - 10 - 10
Balance at 31 March - (11) (28) (39)
Net book value at 31 March 62 110 31 203

8.2 Core Treasury and Agencies

Current year
In £m Land Buildings Other Total
Cost/Valuation
Balance at 1 April 62 94 32 188
Additions/transfers - - 3 3
Disposal - - (1) (1)
Balance at 31 March 62 94 34 190
Accumulated Depreciation
Balance at 1 April - - (16) (16)
Charge in year - (4) (1) (5)
Released on disposal - - 1 1
Balance at 31 March - (4) (16) (20)
Net book value at 31 March 62 90 18 170

Prior year
In £m Land Buildings Other Total
Cost/Valuation
Balance at 1 April 45 84 31 160
Additions/transfers - - 3 3
Disposal - - (1) (1)
Revaluation 17 10 - 27
Balance at 31 March 62 94 33 189
Accumulated Depreciation
Balance at 1 April - (8) (16) (24)
Charge in year - (2) (2) (4)
Released on disposal - - 1 1
Revaluation - 10 - 10
Balance at 31 March - - (17) (17)
Net book value at 31 March 62 94 16 172

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9. Trade and other receivables
Core Treasury and Agencies Group
2019-20
In £m 2020-21 2019-20 2020-21
(Restated)
Current receivables
Trade receivables 23 17 35 39
Accrued interest and dividend income 210 62 210 65
Pool Re accrued income (note 16) 252 183 252 184
Levies receivable - - 40 60
Guarantee fees receivable 13 9 13 9
EU financial settlement 557 - 557 -
Other 25 33 59 89
1,080 304 1,166 446
Total current

Non-current receivables
Pool Re accrued income 221 304 221 304
Guarantee fees receivable 72 78 72 78
EU financial settlement 3,552 1,522 3,552 1,522
Other 126 126 49 5

Total non-current 3,971 2,030 3,894 1,909

Total receivables 5,051 2,334 5,060 2,355

EU financial settlement receivables

The EU financial settlement receivables are related to Article 136, 140, 141, 143,
144, 145, 146 and 150 of the EU Withdrawal Agreement. Receivables related to
Article 136, 140, and 141 are the new assets, which were disclosed as contingent
assets in 2019-20 and are now recognised as assets following the end of the
transition period in December 2020. The receivable related to Article 150 is also a
new asset that was transferred from the Consolidated Fund to HM Treasury on 31
March 2021. This transfer was made at no cost and was treated as a capital grant in
kind from the Consolidated Fund to HM Treasury.

Article 136 - Under Article 136 of the Withdrawal Agreement “Provisions applicable after 31 December 2020
in relation to own resources”, the UK remains party to corrections or adjustments to
Post 2020
contributions over the 2014-20 Multi-Annual Financial Framework (MFF) that are made after the
Flows end of 2020 (i.e. the UK’s final year of participation in the EU Budget). These amounts cover a
number of adjustments including those arising from statistical revisions and the return of any
surplus arising from the implement of the 2020 EU Budget. The fair value of the Article 136
instrument is estimated to be £180m.

Article 140 – Under Article 140 of the Withdrawal Agreement “Outstanding commitments”, the
Infringements UK’s liability under Article 140 will be reduced by a number of items, including the
amount of net financial corrections; the proceeds of any Member State Making
Available Resources infringements; and Traditional Own Resources adjustments. The
fair value of the Article 140 instrument is estimated to be £103m.

Article 141 – Under Article 141 of the Withdrawal Agreement “Fines decided upon before or on 31
Fine income December 2020”, the UK is entitled to a share of EU fine income that relates to
activity up to the end of 2020 (and in some cases after this period) including where
collection of the fine income arises post UK exit. The fair value of the fine income is
estimated to be £43m.

Article 143 – Under Article 143 of the Withdrawal Agreement “Contingent financial liabilities
Receivables related to loans for financial assistance, European Fund for Strategic Investments

175
arising from (EFSI), European Fund for Sustainable Development (EFSD) and the external lending
the financial mandate”, the UK is entitled to receive a return of cash provided to guarantee loans
liabilities and investments, where the guarantee is not called because the underlying
loan/investment is repaid.
related to
loans for
Included in Article 143 are four separate elements across two distinct categories:
financial
assistance, • Non-prefunded instruments specifically loans to member states. As these are
EFSI, EFSD not prefunded, any under recovery results in a loss.
• Prefunded instruments specifically:
- European Fund for Strategic Investments
- European Fund for Sustainable Development
- Other Lending

As these are prefunded with associated guarantee funds, they only result in net cash
outflows where defaults in the underlying instruments exceed the prefunded
provisioning for the instrument and associated revenue inflows. Where instruments
are expected to result in net cash inflows, we have recognised a receivable; and
where net cash outflows are expected, we recognise a payable.

HM Treasury’s best estimate of the forecast future cash flows arising from these
instruments is based on financial modelling developed with the Government Actuary
Department. This modelling considers a number of forecast activities in arriving at an
overall value for each financial instrument. HM Treasury estimate the fair value of
Article 143 instrument is £967m (2019-20: £957m).

Article 144 – Under Article 144 of the Withdrawal Agreement “Financial Instruments under direct
Financial or indirect implementation financed by the programmes of the 2014-20 MFF”, the
instruments UK is entitled to receive a return of cash provided to guarantee loans and
investments, where the guarantee is not called because the underlying
loan/investment is repaid. HM Treasury’s estimate of the fair value of potential
receipts under Article 144 is £393m (2019-20: £413m).

Article 145 – Under Article 145 “European Coal and Steel Community (ECSC)”, the UK will receive
ECSC & Article its share of the net assets of the ECSC upon liquidation at 31 December 2020. This
146 – EIF will be received from the EU in 5 equal instalments commencing 30 June 2021. The
valuation is based on amounts notified by the EU of the UK’s share of the ECSC net
assets. Under Article 146 “Union Investment in the European Investment Fund (EIF)”,
the UK will receive its share of the investment in paid-in capital of the EIF as at 31
December 2020. This will be received from the EU in 5 equal instalments
commencing 30 June 2021. The valuation is based on amounts notified by the EU of
the UK’s share of the EIF paid in capital. HM Treasury’s estimate of the fair value of
the receipts under Article 145 and 146 is £169m (2019-20: £153m).

Article 150 - Under Article 150 “Continued liability of the United Kingdom and reimbursement of
EIB the paid-in capital”, the UK is entitled to receive an amount equal to the UK’s share
of the paid-in subscribed capital of the European Investment Bank (EIB). The asset
was transferred from the Consolidated Fund to HM Treasury in 2020-21 with the
effective date of 31 March 2021. The first instalment was received in October 2020
and accounted for in the Consolidated Fund. The remaining 11 instalments will be
received by HM Treasury. HM Treasury’s estimate of the fair value of the receipts
under Article 150 is £2,254m.

All receivables are measured at fair value through profit or loss. See note 7 for the
fair value movement recognised in the SoCNE, note 1.4 – Significant judgements
and estimates for discussion on key judgements and estimates, note 24.3 for the risk
disclosure, and also note 16 Trade and other payables for the recognition of the
payables arising from Article 143.

176
Other receivables

The increase in accrued interest and dividends receivable is largely due to a final
dividend declared by NatWest of £208m. There was no year-end dividend issued for
their 2019 financial year following a formal request by the PRA to UK banks in
response the COVID-19 pandemic.

Pool Re income is receivable 3 years in arrears every March. The receivable from Pool
Re includes all income accrued since January 2019.

10. Net pension asset

Defined contribution schemes

The Financial Services Compensation Scheme (FSCS), UK Government Investments

Ltd (UKGI), Reclaim Fund Ltd and the Royal Household (RH) operate defined
contribution schemes. The RH also operates an unfunded defined benefit scheme
which is accounted for as a defined contribution scheme as the RH is unable to
identify the share of the underlying assets and liabilities of the scheme attributable
to employees funded by the Sovereign Grant (or its equivalent in previous years) on
a consistent and reasonable basis.

Defined benefit schemes

The FSCS and RH additionally operate defined benefit schemes, which are accounted
for as such. The amount recognised in the Statement of Financial Position is a net
asset of £9.9m (2019-20: net liability of £7.8m). UKAR operates several retirement
benefit plans for its current and former employees, including defined benefit
pension plans, defined contribution pension plans and post-retirement healthcare
benefits. The current service cost of the Treasury Group’s defined benefit schemes is
£0.2m, as the UKAR and FSCS schemes are now closed to future service accrual.

The amount recognised in the Statement of Financial Position relating to UKAR for
the former Bradford & Bingley (B&B) defined benefit scheme is a net asset of £425m
and a net liability for post-retirement medical benefits of £7m (2019-20: net asset of
£581m and a net liability for post-retirement medical benefits of £7m) and the
amount recognised relating to UKAR for the former Northern Rock defined benefit
scheme is a net asset of £181m and a net liability for unfunded defined benefit
obligations of £14m. (2019-20: net asset of £255m and a net liability for unfunded
defined benefit obligations of £14m).

In 2020-21 UKAR contributed £3m to address the deficit in B&B’s defined benefit
scheme (2019-20: nil). The latest formal triennial valuation of the B&B scheme,
prepared by the scheme actuaries as at 30 June 2018 and agreed in May 2019,
showed a deficit of £22.3m on a Trustee’s valuation basis. The latest formal triennial
valuation of the NRAM scheme, prepared by the scheme actuaries at 5 April 2018
and agreed in May 2019, showed a surplus of £37.2m on a Trustee’s valuation
basis.

On 20 November 2020 the High Court ruled that the trustee of a defined benefit
pension scheme is under a duty to adjust the values in respect of scheme members
who had transferred out of defined benefit pension schemes prior to 26 October

177
2018. The Directors considered that the ruling resulted in a past service cost
adjustment, which the Treasury Group’s actuaries estimated at £3.4m in respect of
the B&B scheme and £0.4m in respect of the NRAM scheme, totalling £3.8m for the
UKAR Group, which was charged to the Income Statement in the year ended 31
March 2021.

A reconciliation of the net pension asset for the UKAR, FSCS and RH pension
schemes is shown in the table below. Further details of these schemes, including
valuation assumptions for the defined benefit schemes, are included in their
respective annual report and accounts.
Group
In £m 2020-21 2019-20

Reconciliation of fair value of employer asset

Balance at 1 April 2,247 2,160
Interest income 47 52
Contributions paid by employer 8 (18)
Remeasurements:
- return on plan assets excluding interest income (53) 118
Administrative expenses (3) (2)
Benefits paid from plan (63) (63)
Balance at 31 March 2,183 2,247
Reconciliation of defined benefit obligations
Balance at 1 April (1,426) (1,509)
Interest cost (31) (36)
Remeasurements:
- effect of GMP equalisation (3) -
- effect of changes in demographic assumptions (3) (1)
- effect of changes in financial assumptions (190) 60
- effect of experience adjustments 7 (5)
Transfer payments 64 63
Benefits paid from plan (6) 2
Balance at 31 March (1,588) (1,426)
Closing net pension asset/(liability) 595 821

178
11. Equity Investments

Current year

At 1 April Additions, Fair value At 31

2020 disposals & adjustment March
In £m transfers 202111

Listed entities

NatWest ordinary shares 8,478 (1,125) 6,225 13,578

Unlisted investments

Bank of England share capital 5,952 - (124) 5,828

Asian Infrastructure Investment Bank 508 - (57) 451

European Bank for Reconstruction &

- 1,310 (4) 1,306
Development

Other shareholdings 10 - 2 12

Group entities

UK Asset Resolution Ltd 6,084 - (710) 5,374

Infrastructure Finance Unit Ltd 113 32 (3) 142

Reclaim Fund Ltd - - 74 74

IUK Investments Holdings Ltd - - 1 1

Total Core Treasury and Agencies 21,145 217 5,404 26,766

Intra-group eliminations (6,197) (32) 638 (5,591)

Other group shareholdings 112 32 (3) 141

Total Group 15,060 217 6,039 21,316

Equity Investments, where measured at FVOCI, represent the Treasury Group’s

strategic equity investments, which are not held for trading.

On 19 March 2021 HM Treasury sold back 590m of its ordinary shares to NatWest
Group plc for 190.50 pence per share in accordance with the with the Directed
Buyback Contract between HM Treasury and the NatWest Group. The price per
share was the price at close of trading on 18 March 2021 on the main market for
listed securities of London Stock Exchange plc, and the price paid represents the fair
value of the holding of £1.1bn.

As a result of this sale, the shareholding of HM Treasury has reduced from 7,509m
shares, representing approximately 61.7% of the ordinary share capital of NatWest
Group, to 6,919m shares, representing approximately 59.8% of the ordinary share
capital.

The cumulative lifetime loss on disposal of this tranche of shares of £2.7bn has been
released from the fair value reserve to the General Fund (see Statement of Changes
in Taxpayers’ Equity).

11 Other shareholdings includes £6m of Public Dividend Capital in the Royal Mint held at historical cost. All other equity investments

are held at FVOCI.

179
The increase in fair value in the NatWest shareholding is due to favourable market
moves, which saw the share price increase from 112.90p on 31 March 2020 to
196.25p on 31 March 2021. See also Note 31.5 – Events after the reporting period.

On 31 March 2021, the government’s capital shareholding of 8.52% in the

European Bank of Reconstruction and Development (EBRD), a multilateral
development bank was transferred from the Foreign, Commonwealth and
Development Office (FCDO) to HM Treasury. This transfer was made at no cost and
was treated as a capital grant in kind from FCDO to HM Treasury.

At the end of financial year 2020-21 this capital shareholding was valued at
€1,534m which translated to £1,306m at the exchange rate on 31 March 2021.

The reduction in valuation of UKAR is primarily due to the payment of dividends to

HM Treasury. See Note 6 – Finance Income for more detail.

For more information see Note 24 – Financial Risk, Note 25 – Financial Instruments
Fair Value Hierarchy, Note 30 – Prior period restatements and Note 31 – Events After
the Reporting Period.

Prior year

At 1 April 2019 Additions, Fair value At 31 March

disposals & adjustment 2020
In £m transfers

Listed entities

NatWest ordinary shares 18,548 - (10,070) 8,478

Unlisted investments

Bank of England share capital 5,544 - 408 5,952

Asian Infrastructure Investment Bank 384 94 30 508

Other shareholdings 10 - - 10

Group entities

UK Asset Resolution Ltd 8,877 - (2,793) 6,084

Infrastructure Finance Unit Ltd 69 44 - 113

Total Core Treasury and Agencies 33,432 138 (12,425) 21,145

Intra-group eliminations (8,946) (44) 2,793 (6,197)

Other group shareholdings 67 44 1 112

Total Group 24,553 138 (9,631) 15,060

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Group shareholdings

In accordance with the Government Financial Reporting Manual (FReM) additional

details of significant shareholdings are shown below:

2020-21 2019-20

Stake Total net Entity’s Stake % Total net assets Entity’s

% assets reported reported
In £m profit/(loss) profit/(loss)

Bank of England 100 5,828 57 100 5,849 117

NatWest ordinary shares 59.8 43,824 (434) 62 43,556 3,800

The reported profit/(loss) and net assets of the above entities is disclosed for the
reporting period to the end of February for the Bank of England and end of
December for NatWest.

12. Loans and investment securities

12.1 Group

Current year

At 1 April 2020 Advances & Redemptions, Impairments, At 31 March 2021

(Restated) purchases repayments & reversals,
transfers amortisation & FX
In £m adjustments

Loans 1,618 4 (1,614) (4) 4

Investment securities 365 250 (210) - 405

Statutory debt 2 - (3) 1 -

Total 1,985 254 (1,827) (3) 409

Current 1,798 186

Non-current 187 223

The loan disposal of £1.6bn relates to the loan issued to Ireland during the financial
crisis of which the remainder was fully repaid in the year.

The prior year balances are restated to include investment securities of £365m at 31
March 2020 and £279m at 1 April 2019 from Reclaim Fund Ltd following ONS
classification of the entity as a central government body to be consolidated into the
HM Treasury Group.

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Prior year (Restated)

At 1 April 2019 Advances & Redemptions, Impairments, At 31 March 2020

purchases repayments & reversals,
transfers amortisation & FX
In £m adjustments

Loans 3,259 1 (1,642) - 1,618

Investment securities 279 181 (95) - 365

Statutory debt 2 - (5) 5 2

Total 3,540 182 (1,742) 5 1,985

Current 1,664 1,798

Non-current 1,876 187

12.2 Core Treasury and Agencies

Current year

At 1 April 2020 Advances Redemptions, Impairments, At 31 March 2021

repayments & reversals,
transfers amortisation & FX
In £m adjustments

Loans 1,618 4 (1,613) (3) 6

Statutory debt 2 - (3) 1 -

Total 1,620 4 (1,616) (2) 6

Current 1,613 -

Non-current 7 6

Prior year

At 1 April 2019 Advances Redemptions, Impairments, At 31 March 2020

repayments & reversals,
transfers amortisation & FX
In £m adjustments

Loans 4,743 1 (3,126) - 1,618

Statutory debt 448 - (466) 20 2

Total 5,191 1 (3,592) 20 1,620

Current 3,571 1,613

Non-current 1,620 7

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13. Loans to banking customers

13.1 Group

Current year

At 1 April Advances Redemptions & Fair value At 31 March

2020 repayments movements (incl. 2021
In £m impairments)

Residential mortgages 4,706 - (4,949) 243 -

Commercial loans 2 - (3) 1 -

Total 4,708 - (4,952) 244 -

Current 564 -

Non-current 4,144 -

During 2020-21 there was a final sale of B&B and NRAM’s mortgage assets and
commercial loans as part of the programme aimed at returning UKAR’s B&B and
NRAM mortgage books to the private sector. The movement in the current year
consists of mortgage redemptions and repayments.

Prior year

At 1 April Advances Redemptions & Fair value At 31 March

2019 repayments movements (incl. 2020
In £m impairments)

Residential mortgages 5,523 - (600) (217) 4,706

Commercial loans 2 - - - 2

Total 5,525 - (600) (217) 4,708

Current 778 564

Non-current 4,747 4,144

13.2 Allowance for impairment - Group

Current year
At 31 March 2021 no mortgage assets and commercial loans remained within the
Treasury Group.

183
Prior year
Residential
mortgages Commercial loans Unsecured loans Total
£m £m £m £m
At 1 April 2019
Stage 2 121 - - 121
Stage 3 41 - - 41
162 - - 162
Impairments
Stage 2 (26) - - (26)
Stage 3 15 - - 15
(11) - - (11)
Write-offs
Stage 2 - - - -
Stage 3 (20) - - (20)
(20) - - (20)
At 31 March 2020
Stage 2 95 - - 95
Stage 3 36 - - 36
131 - - 131
Of the write-offs in the above table, a total of £20m was still subject to enforcement
action at 31 March 2020.

14. Derivative financial assets

Core Treasury and Agencies Group
In £m 2020-21 2019-20 2020-21 2019-20
Balance at 1 April 73,609 45,124 73,609 45,124

Cash movements (13,663) (7,137) (13,663) (7,137)

Fair value gain/(loss) (note 7) (44,762) 35,622 (44,762) 35,622

Balance at 31 March/December 15,184 73,609 15,184 73,609

All derivative financial assets are current. Of the balance at 31 March 2021, £15.2bn
is attributable to BEAPFF’s derivative asset (2019-20: £73.6bn) and £21m is
attributable to CCFF’s derivative asset (2019-20: £0m). The decrease in the balance
of £58.4bn comprises the fair value adjustment of £44.8bn and cash transfers of
£13.6bn which were surrendered to the Consolidated Fund.

The fair value adjustment is mainly driven by the decrease in the market value of the
gilt and corporate bond holdings held within BEAPFF. This loss arose due to a
significant rise in advanced economy longer-term government bond yields in January
and February, which appeared to be driven by positive news on global economic
growth, including on some vaccination programmes and vaccine effectiveness, as
well as the size of the US fiscal support package, and followed a period of record
low government bond yields during the earlier stages of the pandemic.12 This was
matched by a decrease in the amount due to HM Treasury under the indemnity. For
more information refer to Note 24 – Financial Risk.

12 For further detail please see www.bankofengland.co.uk/-/media/boe/files/monetary-policy-summary-and-minutes/2021/march-

2021.pdf

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15. Cash and cash equivalents

Core Treasury and Agencies Group

2019-20
In £m 2020-21 2019-20 2020-21
(Restated)
Balance at 1 April 66 61 1,609 1,422
Net change in cash balances (61) 5 2,487 187
Total 5 66 4,096 1,609
The following balances were held at 31 March/December
Government Banking Service 5 66 3,495 909
Bank of England - - 502 566
Commercial banks, cash in hand and cash equivalents - - 99 134
Total 5 66 4,096 1,609

Detail on the cash movements can be found in the SoCF.

16. Trade and other payables

Core Treasury and Agencies Group
2019-20
In £m 2020-21 2019-20 2020-21
(Restated)
Current payables
Trade payables 4 2 9 9
Accrued expenditure 38 34 72 102
Pool Re payable to Consolidated Fund (note 9) 252 184 252 184
Amounts due to levy payers - - 262 232
Dormant account distributions - - 90 68
PFI contract 4 3 4 3
EU Financial Settlement 310 - 310 -
Other 14 72 71 93
Total current 622 295 1,070 691

Non-current payables
Pool Re payable to Consolidated Fund 221 304 221 304
Amounts due to levy payers - - 45 2
PFI contract 103 107 103 107
Deferred tax - - 115 120
EU Financial Settlement 52 8 52 8
Other 10 9 21 17
Total non-current 386 428 557 558
Total payables 1,008 723 1,627 1,249
Pool Re payable to the Consolidated Fund reflects payments yet to be received from
the reinsurance companies (see other accrued income in Note 9 – Trade and other
receivables).

The EU financial settlement payables are related to Article 136 and 143 of the EU
Withdrawal Agreement. Payables related to Article 136 are new liabilities, which
were disclosed as contingent liabilities in 2019-20.

£354m of EU financial settlement payables relate to Article 136 of the Withdrawal

Agreement “Provisions applicable after 31 December 2020 in relation to own
resources” for corrections and adjustments to VAT and gross national income

185
contributions which were historically included in the calculation of future years’ EU
budget contributions and are now met through the withdrawal agreement and
which the EU has now notified the UK of the amounts payable.

£8m of EU financial settlement payables relates to Article 143 of the Withdrawal

Agreement “Contingent financial liabilities related to loans for financial assistance,
European Fund for Strategic Investments (EFSI), European Fund for Sustainable
Development (EFSD) and the external lending mandate”. Under Article 143, the UK
remains responsible for its share of the contingent financial liabilities that were
made during the UK’s membership of the EU. HM Treasury’s best estimate of the
forecast future cash flows arising from these instruments is based on financial
modelling developed with the Government Actuary Department. This modelling
considers a number of forecast activities in arriving at an overall value for each
financial instrument. All payables under Article 143 are measured at fair value
through profit or loss. Please see note 7 for the fair value movement recognised in
the SoCNE, note 1.4 – Significant judgements and estimates for discussion on key
judgements and estimates, and note 24.3 for the risk disclosure. In addition, the UK
is entitled to a share of receipts in relation to these instruments, see detail in note 9
– Trade and other receivables.

17. Provisions
17.1 Group

Current year
EU Financial Equitable Oil & gas Customer HTB Reclaim Other Total
Settlement Life redress ISA Fund
In £m Ltd
Balance at 1 April
38,705 369 285 88 893 537 103 40,980
(restated)
Provided during the
- - 26 4 430 90 1 551
year

Provisions not required (3,076) (7) - (22) - - (6) (3,111)

Unwinding of discount
and changes in the 671 (1) (4) - - - - 666
discount rate
Provisions utilised in
- (30) (49) (56) (151) (102) (54) (442)
year
Reclassified to liabilities
- - - (14) - - (1) (15)
held for sale
Balance at 31 March 36,300 331 258 - 1,172 525 43 38,629
Within 1 year 8,425 38 198 - 1,172 525 42 10,400
Between 1 and 5 years 19,336 106 60 - - - - 19,502
Later than 5 years 8,539 187 - - - - 1 8,727

The prior year balances are restated to include the provisions of Reclaim Fund Ltd
following ONS classification of the entity as a central government body to be
consolidated into the HM Treasury Group.

186
17.2 Core Treasury and Agencies
Current year
EU Financial Equitable Oil & gas HTB ISA Other Total
In £m Settlement Life
Balance at 1 April 38,705 369 285 893 13 40,265
Provided during the year - - 26 430 - 456
Provisions not required (3,076) (7) - - (1) (3,084)
Unwinding of discount and
671 (1) (4) - - 666
changes in the discount rate
Provisions utilised in year - (30) (49) (151) (9) (239)
Balance at 31 March 36,300 331 258 1,172 3 38,064
Within 1 year 8,425 38 198 1,172 2 9,835
Between 1 and 5 years 19,336 106 60 - - 19,502
Later than 5 years 8,539 187 - - 1 8,727

Movement in provisions in Note 5 – Other operating expenditure, is made up of:

Provided during the year, Provisions not required, and Unwinding of discount and
changes in the discount rate above. Further detail on provisions can be found
below:
EU Financial Under Article 140 of the Withdrawal Agreement “Outstanding Commitments”, the UK
Settlement: remains responsible for its share of the EU Budget commitments made during the UK’s
Article 140 – participation in the EU Budget over the 2014-20 MFF (ending December 2020).
Reste a
Liquider The RAL represents EU budgetary commitments that have been made and are expected
(RAL) to result in payments by the EU in the future. Budgetary commitments that are
subsequently decommitted, for example where the underlying programme does not go
ahead, are removed from the RAL. The UK is only liable to pay a share of RAL at the
end of 2020 to the extent it crystallises as payments by the EU.

The UK’s liability under Article 140 will be reduced by a number of items, including:
the amount of net financial corrections; the proceeds of any Member State Making
Available Resources infringements; and Traditional Own Resources adjustments. See
related asset disclosure in respect of Article 140 in Note 9 – Trade and other receivables
and Note 1.4 – Significant judgements and estimates.

EU Financial Under Article 142 of the Withdrawal Agreement “Union Liabilities at End 2020”, the
Settlement: UK will pay a share of the EU’s payments for the employment and other related
Article 142 – benefits accrued by EU employees up to the end of 2020. Specifically, these benefits
Union are materially comprised of pensions schemes and the Joint Sickness Insurance Scheme
Liabilities at (JSIS).
End 2020
The EU has always been due to pay these benefits. Expenditure to settle in-year
benefits is incurred by the EU and accordingly by all Member States as part of their
budget contributions. As the UK has left the EU, the Withdrawal Agreement in effect
created a liability for the UK and HM Treasury is required to make provisions for the
future cash outflow. See also Note 1.4 – Significant judgements and estimates.

EU Financial
Under Article 147 of the Withdrawal Agreement “Contingent liabilities related to legal
Settlement:
cases”, the UK will pay a share of costs incurred by the EU in relation to certain legal
Article 147 –
cases around the EU Budget and financial interests where the facts forming the subject
Liabilities
matter of those cases occurred before 31 December 2020. See related contingent
relating to
liability disclosure in Note 23.
legal cases

Equitable The Equitable Life Payments Scheme is for eligible policy holders who purchased an
Life Equitable Life pension policy between 1 September 1992 and 31 December 2000. In
2010 the government committed to pay in the region of £1.5bn to policy holders in

187
 the scheme; as at the reporting date £1.3bn has been paid. The scheme was closed to
new entrants from 31 December 2015 but continues to make payments to ‘with
annuities’ policyholders.

Oil and gas This provision relates to claims on Decommissioning Relief Deeds (the deeds). The
deeds were signed between members of the oil and gas industry and HM Treasury. The
deeds indemnify the industry for changes in tax codes or the default of their partners in
decommissioning North Sea oil fields, allowing them to claim relief from HM Treasury
potentially otherwise available to the field from HMRC through the tax system.

HM Treasury recognises a provision when a claim is notified, and the amount can be
measured reliably. The value of the provision of £258m represents the best estimate of
the outstanding costs to settle.

During the year, HM Treasury was required to make a further payment of £49m on an
existing claim which was paid directly to the claimant.

For more information on the scheme and other potential claims, refer to Contingent
liabilities not required to be disclosed under IAS 37 from page 116.

Customer Recognised by UKAR as an estimate of expected customer compensation claims,

redress primarily relating to Payment Protection Insurance and Consumer Credit Act non-
compliance.

Further details are available in UKAR’s Annual Report and Accounts.

Help to Buy The Help to Buy ISA scheme commenced on 1 December 2015 and offers first time
(HTB) ISA buyers government bonuses to be claimed on completion of a successful property
purchase. The government will award a 25% bonus based on an individual’s monthly
savings in an HTB ISA account. There is a minimum £400 bonus and a maximum
£3,000 bonus. The scheme closed to new entrants in November 2019, and all bonuses
must be claimed by December 2030.

The amount provided in year was £430m. At March 2021, there were 1,039k scheme
participants with savings levels making them eligible for a bonus payment, compared
to 923k in the prior year. The average value of eligible deposits held has increased from
£4.3k to £5.2k per person. The increase in the amount provided is due to the increase
in the number of scheme participants and savings levels.

There is significant variability over the timing of when the provided funds would be
drawn on by homebuyers, dependant on factors including the housing market and the
level of savings accrued prior to joining the scheme, so although homebuyers have the
ability to draw on the bonus at any point, this is likely to be spread over the lifetime of
the scheme.

Reclaim Upon transfer of dormant account monies from UK financial institutions to the Reclaim
Fund Ltd Fund Ltd, the obligation to repay dormant account holders who subsequently reclaim
their money is also transferred to the Fund. The element of the provision relating to
dormant account holders is £470m. Although accountholders have the ability to
reclaim their dormant balances at any point, in practice this is likely to be spread over a
number of years.

The Dormant Bank and Building Society Accounts Act 2008 dictates that the Reclaim
Fund Ltd is obliged to pay over the excess of dormant account monies received, after
deduction of running costs, to the National Lottery Community Fund (TNLCF) for
ongoing distribution to the benefit of the community. The element of the provision
relating to future distributions to TNLCF is £54m.

Further details on the estimates can be found in the RFL’s Annual Report and Accounts,
within the accounting policies note.13

13 https://www.reclaimfund.co.uk/annual-report-accounts/

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Other Includes provisions for funding of the Asian Infrastructure Investment Bank’s Special
Fund, UKAR restructuring, and FSCS compensation.

Sensitivity analysis: EU Financial Settlement

Sensitivity analysis for the key assumptions of the EU Financial Settlement provisions
are set out below:
Assumption Change Degree of Sensitivity of Financial
uncertainty output to impacts
changes in input In £m
Financing share – the average An increase of 1% Low Moderate An
proportion of the EU budget over 2014- increase of
20 financed by the UK 363
Exchange rate – Sterling/Euro exchange Sterling High Moderate A decrease
rate appreciation of 1% of 363
Decommitments – the proportion of EU An increase of 1 Moderate Moderate A decrease
Budgetary commitments in the RAL that percentage point of 310
are not implemented
Discount rate – the discount rate A decrease of 0.1 Moderate Moderate An
applied to future cash flows to take percentage point increase of
account of the time value of money 192
Salary changes – the assumption about Expected “salary Moderate Low An
salary changes used when calculating increases” higher increase of
the provision in respect of the Pension by 0.1 percentage 127
Scheme for European Officials point
Retirement age – the assumption about 1 year lower Low Low An
the retirement age used when increase of
calculating the provision in respect of 114
the Pension Scheme for European
Officials

The UK's post-2020 financing share is an average of its own resources share as a
contributor to the EU budget for the years 2014-20. At the time of reporting, the
financing share is still open for adjustment for revision VAT and GNI outturn for
2014-2020. The share will be determined definitively by February 2022. However, as
the majority of the financing share inputs are known and the remaining uncertainty
around this assumption is limited. The UK’s post-2020 financing share used in the
estimate of the provision is 12.36%.

An appreciation of Sterling against the Euro results in the value of the RAL and
Pension provisions decreasing. A depreciation of Sterling has the opposite effect.
This models a depreciation of 1% from the 31 March 2021 exchange rate (GBP 1:
EUR 1.17). The exchange rate exposure is unhedged and payment obligations will
be met through funds provided by Parliament through the Supply process.

Decommitments are the portion of the EU budget that is planned but ultimately
never spent. As the UK is only liable for EU obligations that actually materialise, an
increase in the estimate of decommitted spend reflects a reduction in the actual
amount spent by the EU and therefore a decrease in the RAL liability. The
decommitment assumptions used in the calculation above vary by EU programme,
however the estimated average over all commitments is c. 8.8%.

Provisions are discounted in accordance with the requirements of the Financial

Reporting Manual and the rates set centrally by HM Treasury based on the yields of
gilts issued by the government; cash flows within 5 years (-0.02%), between 6-10
years (0.18%), and more than 10 years (1.99%). The 0.1% decrease is applied to

189
each of the spot rates set for different time horizons. Changes to this discount rate
do not affect what the UK pays under the financial settlement, only the valuation of
the liability for financial reporting purposes.

An increase in assumed salary increases results in individuals receiving larger

pensions at the point of retirement for final salary schemes. The salary increase
assumption used is that used in the EU 2020 accounts (1.8%).

A decrease in retirement age results in individuals receiving pensions for a longer

period of time, resulting in an increase to the liability. The retirement age
assumptions used are those used in the EU 2020 accounts (63/64/65 for the
respective cohorts).

The timing of the liabilities is set out in the table below:

Component Gross
Time
of the discounted Note
period
provisions payments (£m)
The RAL liability represents the vast majority of the
provisioned settlement. Current forecasting estimates
that this liability will be fulfilled within seven years of
the first payment. The payment obligations will
RAL 27,866 2021-27
crystallise with the greatest amounts in the earliest years
of the time period with payments reducing sharply as
time goes on.

The pensions liability inherently has a long term

cashflow profile as the liability is underpinned by the
EU’s cash requirements for EU staff pensions. We
currently estimate that payments will last till 2065, with
the vast majority being paid later than 5 years from the
reporting date. The payment obligations will rise
gradually year on year over the short and medium term
as more scheme members retire but then begin to fall
Pensions 8,395 2021-65
gradually over the remaining decades as they are linked
to payments made to final beneficiaries.
Article 142 of the Withdrawal Agreement provides a
mechanism for early settlement of the principal
obligations based upon actuarial estimates of the
outstanding amount. The provision is based on the
payment of the obligations as they fall due.

The liability for legal cases is expected to have been paid

Legal Cases 39 2021-22
by May 2022.
Total 36,300 - -

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18. Financial guarantees

Core Treasury and

Group
Agencies
In £m 2020-21 2019-20 2020-21 2019-20
UK guarantees 94 91 94 91
Help to Buy guarantees 10 22 10 22
Total 104 113 104 113
Current 19 18 19 18
Non-current 85 95 85 95

The financial risks and management policies associated with financial guarantees are
detailed in Note 24 – Financial Risk which sets out the maximum exposure to HM
Treasury as a result of issuing these guarantees.
UK The UK Guarantees scheme was announced on 18 July 2012. The scheme aims to
guarantees support infrastructure projects that may have stalled because of adverse credit
conditions. As at 31 March 2021, ten projects were guaranteed with 5 new
guarantees issued during the reporting period.

Mortgage The Help to Buy: mortgage guarantee scheme was launched on 8 October 2013. The
guarantee scheme is designed to address the shortage of high loan-to-value mortgages, by
scheme offering lenders the option to purchase a guarantee on mortgages where a borrower
has a deposit of between 5% and 20%. The Scheme closed to new loan applications
on 31 December 2016.

See also Note 31.3 Events after the reporting period

For more information see the Contingent liabilities not required to be disclosed
under IAS 37 section from page 116.

19. Non-cash transactions

Core Treasury and Agencies Group

2019-20
In £m 2020-21 2019-20 2020-21 (Restated)
Adjustment for non-cash transactions
Net provisions provided in year (1,962) 39,102 (1,894) 39,433
(Impairments)/impairment reversals of non-financial assets (6) (34) (6) (34)
Depreciation and amortisation 5 4 9 7
Profit/(loss) on sale of unsecured loans to banking customers - - 18 (2)
Non-voted – banking and gilts registration services 2 8 2 8
Other non-cash adjustments 2 (6) (30) 24
Total (1,959) 39,074 (1,901) 39,436

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20. Commitments

Core Treasury and Agencies Group

In £m 2020-21 2019-20 2020-21 2019-20
Capital commitments
Capital commitments 204 388 211 390
Total 204 388 211 390
Financial commitments
Loan commitments 14,384 14,384 754 817
Other financial commitments - - 134 157
Total 14,384 14,384 888 974

HM Treasury has entered into the following commitments.

DIIF Capital commitments of £40m (2019-20: £201m) relate to The Digital
Infrastructure Investment Fund (DIIF). The DIIF originally made legal
commitments to provide a total of £300m worth of investment to the relevant
fund managers over a 4 year period to July 2021, of which £150m was
decommitted during 2020-21. A total of £110m had been drawn down by the
end of this financial year. As at 31 March 2021, the undrawn commitment of
£40m remains available to the fund managers. The drawn amounts as at 31
March are recognised as Equity Investments in Note 11.

CIIF Capital commitments of £164m (2019-20: £186m) relate to The Charging

Infrastructure Investment Fund (CIIF). The CIIF is legally committed to provide a
total of £200m worth of investment to the relevant fund managers from 2019-
20 to 2023-24. As at 31 March 2021, £164m is undrawn. The drawn amounts
as at 31 March are recognised as Equity Investments in Note 11.

GLA HM Treasury has provided a £0.8bn (2019-20: £0.8bn) standby refinancing

facility to Transport for London – Greater London Authority for the Northern
Line extension as part of the UK Guarantees scheme.

Pool Re HM Treasury has a commitment to provide a loan to Pool Re and Pool Re

nuclear in the event of losses following a terrorist event exceeding their available
resources. The maximum potential loan is unquantifiable and therefore not
included in the above table. See also contingent liabilities outside the scope of
IAS 37 from page 116.

Other financial Other financial commitments include £109m (2019-20: £124m) of public or
commitments contracted commitments for the reservicing of Buckingham Palace.

Other loan Loan commitments at group level includes the contractual amounts of £nil
commitments (2019-20: £67m) to which UKAR is committed for extension of credit to its
banking customers, and the loan commitment of £4m (2019-20: £nil) to a
project company covered by the UK Guarantees scheme.

Intra-group HM Treasury also provides a working capital facility to B&B and facility
commitment to NRAM. As at 31 March 2021, the total facility available for B&B
was £11.5bn (2019-20: £11.5bn (restated)) and for NRAM £2.1bn (2019-20:
£2.1bn). The amount currently drawn on these facilities are £nil (2019-20: £nil)
and £nil (2019-20: £nil) respectively. As these are intra-group, they are
eliminated at group level.

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21. PFI contract

In May 2000, HM Treasury entered into a 35-year PFI contract with Exchequer
Partnership for HM Treasury’s building at 1 Horse Guards Road. The substance of
the contract is that HM Treasury has a finance lease and that payments comprise
two elements: imputed finance lease charges and service charges.
Finance lease obligations

Core Treasury and Agencies

In £m 2020-21 2019-20

Within 1 year 11 11

Between 1 and 5 years 45 45

Later than 5 years 128 139

Gross present value of future obligations 184 195

Finance charges allocated to future periods (77) (85)

Total 107 110

Minimum service charges

Core Treasury and Agencies

In £m 2020-21 2019-20

Within 1 year 18 17

Between 1 and 5 years 80 75

Later than 5 years 323 336

Total 421 428

HM Treasury is committed to paying minimum service charges in future years as

shown above. The total amount charged in the SoCNE for the service element
(including contingent rent) was £17m (2019-20: £16m).

22. Contingent assets

IAS 37 – Provisions, contingent liabilities and contingent assets – requires the

disclosure of contingent assets, defined as:

• A possible asset that arises from past events, and

• Whose existence will be confirmed only by the occurrence or non-

occurrence of one or more uncertain future events not wholly within
control of the entity.

Contingent assets are not recognised but are disclosed where an inflow of economic
benefit is probable – once the realisation of income is certain, the asset is no longer
a contingent asset and is recognised at this time.

193
As a result of the UK’s withdrawal from the European Union, a number of items
within the Withdrawal agreement were considered by HM Treasury to meet the
definition of a contingent asset for the core Treasury as follows:
Article 141 – Under Article 141 of the Withdrawal Agreement the UK is entitled to a share of EU
Fine Income fine income that relates to activity up to the end of 2020 (and in some cases after this
period) including where collection of the fine income arises post UK exit. A
contingent asset is disclosed in relation to the fine income where the likelihood of
cash inflow is dependent on the EU successfully wining the case and this likelihood is
assessed to be probable. Following the end of the transition period the contingent
assets under this article that are not the subject of ongoing litigation are no longer
contingent and appear in note 9 – Trade and other receivables. HM Treasury’s current
best estimate of the contingent asset related to fine income is c.£1.5bn (2019-20
£1.6bn).

In 2019-20 HM Treasury held contingent assets under Article 136 (£0.1bn) and
Article 140 (£0.2bn). Following the end of the transition period these are no longer
contingent and appear in Note 9 – Trade and other receivables.

Some businesses have voluntarily repaid the business rates relief they received during
the COVID-19 pandemic to the government as a gift to the nation (See also Note 2
– Other Operating Income). At 31 March 2021 further companies had notified HM
Treasury of their intention to make a repayment as a gift to the nation and made
arrangements for those payments to happen after the end of the reporting period
totalling £261m (2019-20: nil).

23. Contingent liabilities

HM Treasury has entered into the following guarantees and indemnities. All meet
the definition of contingent liabilities under IAS 37 and are disclosed below
accordingly. Remote contingent liabilities and those within the scope of other
standards such as IFRS 9 do not require disclosure under IAS 37, however they are
required to be disclosed in accordance with Managing Public Money and the FReM.
They have been separately disclosed from page 116.

The core Treasury and its Agencies have the following contingent liabilities:
EU Financial Under Article 147 of the Withdrawal Agreement “Contingent liabilities related to
Settlement: legal cases”, the UK will pay a share of costs incurred by the EU in relation to
Article 147 – certain legal cases around the EU Budget and financial interests where the facts
Contingent forming the subject matter of those cases occurred before 31 December 2020.
liabilities relating Note 17 sets out provisions recognised by HM Treasury in respect of this article.
to legal cases The EU disclose a number of contingent liabilities related to legal cases in their
2020 accounts, including cases where a reliable estimate of the cost cannot be
made and instead the damages being sought are disclosed. If these contingent
liabilities crystallised as obligations for the EU, which depends on future events,
and were they to fall within the scope of this article they could give rise to a
liability for HM Treasury in the future. The UK share of these disclosed items is
estimated at £271m (2019-20: £293m).

LCF On 17 December 2020 the government announced that it would establish a

compensation scheme for London Capital & Finance (LCF) bondholders. The
details of the scheme were announced on 19 April 2021 and the cost is

194
 expected to be £118m. At 31 March 2021, the LCF compensation scheme had
yet to be formally announced and is disclosed as a contingent liability.

Legal action HM Treasury is currently engaged in litigation activity as the defendant. This may
result in costs or damages being ordered against HM Treasury.

HM Treasury has not disclosed all of the information that is ordinarily required
under IAS 37 on the grounds that it may be prejudicial to legal privilege and the
outcome of the litigation. This election is made in accordance with IAS 37.92.

In 2019-20 HM Treasury held a contingent liability under Article 136 of the EU

Financial settlement (at nil value) with a corresponding contingent asset. Following
the end of the transition period this is no longer contingent and appears in Note 9 –
Trade and other receivables.

In addition to the items above, HM Treasury Group also has the following
contingent liabilities:
UKAR The Treasury Group’s lending and other consumer credit business is governed by
consumer credit law and other regulations. Claims upheld in favour of
customers in relation to potential breaches of requirements could result in costs
to the Treasury Group. It is not possible to provide any meaningful estimate or
range of the possible cost.

NRAM Ltd NRAM Limited provided certain warranties and indemnities to Cerberus in
respect of the sale to Cerberus of certain loans and the shares in NRAM plc. The
sale agreement set various time limits for bringing claims under the warranties.
For most of the warranties this time limit was on or before 5 May 2019 and the
contingent liabilities have since expired, but for certain tax-related warranties the
time limit is 5 May 2023. The buyer has not made any claims under the
warranties.

Bradford & The Treasury Group holds a number of contingent liabilities in relation to B&B’s
Bingley plc operations:

HM Treasury has confirmed to the FCA its intention to take appropriate steps to
ensure that B&B will continue to operate above the minimum regulatory capital
requirements. Maximum potential liabilities under this intervention are the
minimum regulatory capital requirements as defined by the FCA which may vary
as circumstances demand. If this contingent liability crystallised, it would result
in a transaction between HM Treasury and B&B, which would be eliminated at
group level.

In addition, the B&B plc Transfer of Securities and Property etc Order 2008
requires HM Treasury to give a guarantee or to make other arrangements for the
purposes of securing that the assets of the remaining section of the B&B Pension
Scheme are sufficient to meet its liabilities. As such, HM Treasury guarantees to
pay or procure the payment of any benefit amount which falls due from the
remaining section at a time when there are insufficient assets to pay that
amount. As at 31 March 2021, there is no contingent liability to report (2019-
20: £nil). The B&B Pension Scheme is showing an accounting surplus but a
funding deficit when measured on the Trustees’ actuarial basis; however, this
deficit is currently covered by UKAR’s operational surpluses.

NRAM Ltd and HM Treasury provided certain market standard time and value capped
Bradford & warranties confirming regulatory, legislative and contractual compliance to
Bingley plc purchasers of UKAR’s NRAM and B&B assets. Each of the following sales gave
rise to a contingent liability with the following maximum values:

195
 • B&B loan book assets in April 2018: £0.1bn

• B&B and NRAM loan book assets in September 2018: £61m

• NRAM together loans in March 2019: £1bn

For information on the remote contingent liabilities related to these

transactions, see Contingent liabilities outside the scope of IAS 37 from page
116.

FSCS Compensation payments may become due as a result of claims made to the
FSCS by customers of authorised financial services firms which have failed. To
qualify for compensation customers must be eligible under FSCS rules. These
rules are outlined in the FCA Handbook and in the PRA Rulebook on Depositor
Protection and Policyholder Protection. FSCS can only pay compensation for
financial loss and there are limits to the amounts of compensation FSCS pays.
There is significant uncertainty around the number of claims FSCS will receive
from customers, the likelihood of eligible claims, the type or product of those
claims, the amount of compensation FSCS will pay, and the timing of those
payments. Therefore, it is not practicable to provide an estimate of the costs of
potential claims FSCS may receive or claims FSCS have received but not yet
decided. FSCS has a statutory duty to pursue recoveries that are reasonably
possible and cost effective to pursue which will offset some of the compensation
it will pay out.

24. Financial risk: management objectives and policies and sensitivity analysis
24.1 Introduction

HM Treasury is responsible for responding to economic risk on behalf of the

government. Economic risk can include changes in regional, national and
international economies and can be triggered by external events such as
macroeconomic events, conflict, natural disasters or by changes in government
policy and legislation. Depending on the nature of the change an economic risk can
have positive or negative impacts.

In the recent past, HM Treasury has reacted to uncertainty in the global and national
economies by creating policy solutions that contribute to the UK’s fiscal and
economic recovery. These policy solutions include the financial stability interventions,
which are designed to:

• stabilise and restore confidence in the financial system

• protect depositors’ money

• protect taxpayers’ interests

• ensure continued lending to creditworthy borrowers

HM Treasury’s Accounts include a number of financial assets and liabilities. These

financial assets and liabilities expose the Treasury to financial risks, which are:
market risk, liquidity risk and credit risk. These risks are discussed below.

The HM Treasury Board is ultimately responsible for the establishment and oversight
of the Treasury Group’s risk management programme. Risk management forms a
core part of day-to-day operations for HM Treasury’s policy teams, sub-committees
and UK Government Investments Limited (UKGI) - which manages the government’s
investments in NatWest Group and UK Asset Resolution Limited (UKAR).

196
UKGI, under the UKGI Framework Agreement, is responsible to HM Treasury for
providing oversight. For NatWest, UKGI aims to:

• engage with the board and management team of the bank to build
shareholder value

• ensure that analytical frameworks used to assess value for money and
wider policy, operational and legal implications remain robust

• maintain an ongoing dialogue and communication with existing and

prospective investors in NatWest.

For UKAR, UKGI aims to actively engage with UKAR in the ongoing orderly run-
down of its closed mortgage books with focus on maximising value for the taxpayer.
The UKAR Board has responsibility for the design and management of the risk
framework for UKAR financial instruments.

On 26 February 2021, UKAR completed the final sale of these mortgage books.
Before the sale on 26 February 2021, the largest concentration of financial risk
outside Core Treasury was in UKAR. UKAR is a wholly owned subsidiary of HM
Treasury which was set up to manage the government-owned assets of NRAM Ltd
and B&B plc. These assets represented loans to banking customers in the form of
residential, commercial and wholesale mortgages. As at 31 March 2021, these
assets were successfully sold, and are no longer held by UKAR. Further information
on the financial risks of UKAR can be found in the UKAR annual report.14

The remainder of this note covers the following:

• Group

• UKAR: market risk, liquidity risk, credit risk

• Group – credit risk

• Core Treasury and Agencies

• Market risk

• Liquidity risk

• Credit risk

24.2 Group

This section focuses on the risks that are associated with UKAR and then credit risk
for the remainder of the Treasury Group.

Market risk- UKAR

Market risk is the risk that the fair value or future cash flows of a financial
instrument will fluctuate due to changes in market prices. Market risk existed in
loans to banking customers and comprised two types of risk: interest rate risk and
other price risk. Following the sale of B&B and NRAM’s mortgage assets and

14 http://www.ukar.co.uk/about-us/financial-reports/2020

197
commercial loans on 26 February 2021, UKAR no longer faces any market risk.
Where relevant this is discussed below for the prior year comparatives.

Loans to banking customers represented residential, commercial and wholesale

mortgages attributable to the government owned businesses of NRAM and B&B.
UKAR is the holding company for both businesses.

Liquidity risk - UKAR

Liquidity risk is the risk that an entity will encounter difficulty in meeting obligations
associated with financial liabilities.

UKAR closely monitors its liquidity position against its liquidity policy. Minimum and
target liquidity levels are established through stress testing and cash flow
forecasting, taking into consideration an assessment of any emerging and
potentially extreme funding conditions.

The table below looks at UKAR’s liquidity position as used by management to

monitor its liquidity risk, evaluated by comparing its financial assets and liabilities on
a stand-alone basis, including balances with HM Treasury, into relevant maturity
groupings.

Current year
On demand Up to 3 3-12 months Over 1 year At 31 March
In £m months 2021

Total financial assets 5,094 2 - - 5,096

Total financial
- (90) - - (90)
liabilities

Net liquidity gap 5,094 (88) - - 5,006

Prior year
Up to 3 At 31 March
In £m On demand 3-12 months Over 1 year
months 2020

Total financial assets 889 31 95 4,637 5,652

Total financial
- (46) (2) (15) (63)
liabilities

Net liquidity gap 889 (15) 93 4,622 5,589

Credit risk- UKAR

Following the sale of B&B and NRAM’s mortgage assets and commercial loans on 26
February 2021, UKAR no longer faces any credit risk. Before the final sale, credit risk
was the largest risk UKAR faced. The most significant credit risk for UKAR was the
exposure to retail, commercial and wholesale counterparties failing to meet their
obligations. The below assessment considers credit risk solely for the prior year
comparatives.

As no new lending was being undertaken, UKAR’s ability to influence the structure
of their credit risk profiles, in the absence of asset sales, was largely restricted to the
degree of control which they had over risk strategy, loan redemptions and credit
collections activity. Credit risk profiles were determined by the credit quality of the
existing portfolio. Changes in credit quality will arise from: changes in the underlying

198
economic environment; assumptions about the future trends in the economy;
changes in the specific characteristics of individual loans; and the credit risk
strategies developed to add value to the book whilst mitigating credit risk.

A credit risk framework had been established as part of the overall governance
framework to measure, mitigate and manage credit risk within risk appetite. UKAR
closely monitors its credit risk against its credit policies and employs credit behaviour
scoring and fraud detection techniques to support loss minimising strategies.

The UKAR board had approved a framework for maximum wholesale credit
counterparty limits against which total wholesale credit exposures were continually
monitored and controlled. The credit limit structure adopts a risk-based matrix
whereby lower rated counterparties are afforded lower overall levels of limit.

Although publicly available ratings produced by rating agencies provide a useful

guide to the creditworthiness of counterparties, an internal evaluation is also used in
the limit assignment process. Counterparties were assigned maximum limits in
accordance with the ratings matrix, based on the lowest rating afforded to any part
of the counterparty group.

UKAR operates primarily in the UK and adverse changes to the UK economy could
impact all areas of the UKAR Group’s business. Residential loans to customers are all
secured on property in the UK. In 2019-20, 56% of residential loans to customers
were concentrated in the buy-to-let market; most of the remaining balances were
secured on residential owner-occupied properties.

In 2019-20, the residential loan book of £5.0bn was geographically spread across
the UK broadly in line with the country’s housing stock. Consequently, there was a
geographic concentration of mortgages secured on properties in London and the
South-East representing 40% of the book.

Total loans to customers At 31 March 2020

Stage 2: Stage 3:
In £m Lifetime ECL Lifetime ECL Total
Up to date 4,325 147 4,472
1-3 months in arrears 166 118 284
Greater than 3 months in arrears - 199 199
Total 4,491 464 4,955

Residential mortgages: collateral held and loan to value

For residential mortgages, UKAR held collateral in the form of mortgages over
residential properties. The fair value of this collateral, estimated by taking the most
recent valuation of the property and adjusting for house price inflation or deflation
up to the reporting date were as follows:

At 31 March 2020
Stage 2: Stage 3:
In £m Lifetime ECL Lifetime ECL Total
Up to date 7,708 259 7,967
1-3 months in arrears 277 199 476
Greater than 3 months in arrears - 305 305
Total 7,985 763 8,748

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If the collateral amount on each individual loan were capped at the amount of the
balance outstanding, and any surplus of collateral values over balances outstanding
ignored, the fair value of collateral held would be as follows:

At 31 March 2020
Stage 2: Stage 3:
In £m Lifetime ECL Lifetime ECL Total
Up to date 4,288 144 4,432
1-3 months in arrears 166 117 283
Greater than 3 months in arrears - 195 195
Total 4,454 456 4,910

The indexed loan to value (LTV) of residential mortgage balances, weighted by loan
balance, falls into the following ranges:

% At 31 March 2020
To 50% LTV 17
50% to 75% LTV 56
75% to 100% LTV 23
Over 100% LTV 4
Total 100

Residential mortgage loans: arrears and possessions

Arrears and possessions were monitored for residential loans as follows:

At 31 March 2020
Arrears 3 months and over
- Number of cases (proportion of total
No. 1,192 (3.14%)
cases)
- Asset value (proportion of book value) £m 181 (3.66%)
- Total value of payments overdue
£m 6 (0.12%)
(portion of book)
Possessions
- Number of cases (proportion of total
No. 183 (0.48%)
cases)
- Asset value (proportion of book value) £m 27 (0.55%)
- Total value of payments overdue
£m 1 (0.02%)
(portion of book)

Arrears 3 months and over and

possessions
- Number of cases (proportion of total
No. 1,375 (3.62%)
cases)
- Asset value (proportion of book value) £m 208 (4.21%)
- Total value of payments overdue
£m 7 (0.14%)
(portion of book)

Payments overdue in respect of all arrears

£m 9 (0.18%)
and possessions (portion of book)
Loan impairment provision: as % of total
%. 2.6
balances
Loan impairment provision: new
No. 422
possessions

200
Credit risk- Group

Credit risk is the risk that one party to a financial instrument will cause a financial
loss for the other party by failing to discharge an obligation.

HM Treasury Group is exposed to credit risk through loans and investment securities
provided by the government to external counterparties. Adverse changes in the
credit quality of borrowers or a general deterioration in economic conditions could
affect the recoverability or value of loans, and therefore the financial performance of
the Treasury Group. If a borrower is not able to meet its principal and interest
obligations, the loan is in default. A loan will be written off if the borrower is in a
default position and there is no restructuring or other plan that would give a
reasonable expectation of recovery.

These loans include loans to external counterparties which were made at a time
when they could not obtain financing from the financial markets and loans provided
to make payments to deposit holders in failed institutions. For example, the bilateral
loan to Ireland formed part of an international financial package to support the Irish
economy and banking system.

Where level 1 fair values cannot be obtained because they are not quoted in active
markets, fair value is estimated by discounting future cash flows receivable at
relevant market rates of a comparable maturity (Discounted Value), as shown in the
table below.
2020-21 2019-20
Carrying Discounted Carrying Discounted
In £m by counterparty Value Value15 Value Value
Loans to Ireland - - 1,613 1,653
Other loans 4 7 5 6
Loans sub-total 4 7 1,618 1,659
Statutory debt - - 2 2
Investment securities 405 405 365 365
Total 409 412 1,985 2,026

Bilateral loan Under the terms of the Loans to Ireland Act 2010 this loan forms part of the
to Ireland international finance package to support the Irish economy and banking system.
The outstanding amount advanced under this loan was repaid in 2020-21

Statutory debt Statutory debt loans are Dunfermline and Heritable. Statutory debt is managed by
specialist external administrators. The administration for both companies
concluded and final repayments were made during 2020-21.

Investment Investment securities are held by Reclaim Fund Ltd and managed by RFL’s
securities investment manager as part of the ongoing investment strategy.

15 There are no current market prices available.

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24.3 Core Treasury and Agencies – EU financial settlement

The fair value of financial instruments recognised in HM Treasury accounts in respect

the EU Withdrawal Agreement are sensitive to certain key assumptions which
include performance of the underlying financial operations (market risk), the
sterling/euro exchange (currency risk), the UK’s post 2020 financing share (see note
17) and the discount rate applied to future cash flows. The table below sets out the
sensitivity of the fair value to changes in these key assumptions. The provisioning
rates used in the Articles 143 and 144 model are not included in the list of the key
assumptions below as they are based on those communicated under the withdrawal
agreement to HM Treasury in March 2021.
Assumption16 Change Financial Financial
impact on impact on
receivables payables
Market risk – the valuation of A significant and permanent increase in A decrease of An increase of
these instruments is sensitive to the probability of default (50% increase) £436m £11m
the credit risk of the underlying and fall in the rate of recoveries (15% fall),
operations which affects their representing a long-term deterioration in
hypothetical market price economic conditions
Market risk – probability of A significant and permanent increase in A decrease of An increase of
default the probability of default of 50% £150m £3m
A 15% fall in the rate of recoveries A decrease of An increase of
Market risk – rate of recoveries
£210m £5m
Exchange rate – the Sterling/Euro Sterling appreciation of 1% A decrease of A decrease of
exchange rate £41m £4m
Financing share – the average An increase of 1% An increase of An increase of
proportion of the EU budget £6m less than £1m
2014-20 financed by the UK17
Discount rate – the discount rate An increase of 0.1 percentage point An increase of An increase of
applied to future cash flows to £8m less than £1m
take account of the time value of
money
EU Budgetary risk - the valuation EIB collected revenue is halved A decrease of No impact
Article 143 is sensitive to the £197m
revenue collected by the
European Investment Bank (EIB)
to fund the European Fund for
Strategic Investments.

The future cash flows arising from the Article 143 and 144 instruments are sensitive
to the likelihood of default in the underlying operations (probability of default) and
the extent to which defaulted payments can be subsequently recovered (the rate of
recovery). The table above applies significant changes in both assumptions. The 50%
increase in the probability of default is based on analysis of economic growth and
insolvencies, where changes in insolvencies is taken as a broad proxy for changes in
the probability of default. A 50% increase was taken as illustrative of a permanent
1% reduction in long term trend economic growth. The 15% reduction in recovery
rates is based on historical corporate recovery data and represents the upper end in
the distribution of historic movements.

The future cash flows for HM Treasury of the Withdrawal Agreement will be
denominated in Euros, and therefore the changes in the Sterling/Euro exchange rate

16 Revenue collected by the EIB is held static in all sensitivities, except EU Budgetary Risk.

17 This sensitivity does not include any change to the initial provision and thereby default provisioning rates applied to the UK’s

liability calculation.

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will affect the Sterling value of those cash flows. The table below gives an indication
of the timing of the cash flows under these instruments.

The UK's post-2020 financing share is an average of its own resources share as a
contributor to the EU budget for the years 2014-20. At the time of reporting, the
financing share is still open for adjustment for revision of VAT and gross national
income outturn for 2014-2020. The share will be determined definitively by February
2022. However, as the majority of the financing share inputs are known and the
remaining uncertainty around this assumption is limited. The UK’s post-2020
financing share used in the estimate of the fair value of these instruments is 12.36
%.

The discount rate applied to future cash flows to determine fair value is the financial
instrument rate set by the Treasury in accordance with the Financial Reporting
Manual. The interest rate intrinsic to these instruments is judged to be zero and
therefore the Treasury financial instrument rate of 3.7% is applied to future cash
flows. A change in the Treasury financial instrument discount rate does not affect
the future cash flows that will be received or paid by HM Treasury.

The timing of the assets and liabilities is set out in the table below:
Gross
Receivables/ discounted Time
Note
Payables payments period
(£m)
Article 136 covers corrections or adjustments to
contributions over the 2014-20 Multi-Annual
Article 136 - 2021- Financial Framework (MFF). The receivables are UK’s
180
Receivables 2028 share of the EU budgetary surplus in 2020 and
expected to be due from 2021.

Article 136 covers corrections or adjustments to

contributions over the 2014-20 Multi-Annual
Financial Framework (MFF). The amounts payable are
Article 136 - 2021- corrections or adjustments to Value Added Tax or
(354)
Payables 2028 Gross National Income-based contributions paid or
received after 31 March 2021 and expected to be due
from 2021.

The financial instruments in Article 140 cover

infringements that the EU will receive from the
Article 140 - 2021- member states and distribute back to UK its share.
103
Receivables 2040 Receipts under this article are expected as they are
recovered from member states up to 2040.

Article 141 covers the UK’s share of fines issued by

Article 141 - the EU. This income is expected to be received in
43 2021 2021. See also Note 22 for fines dependant on the EU
Receivables
successfully winning cases.

Article 143 includes loans and financial instruments

guaranteed by the EU budget which have
corresponding guarantee funds, and over time we
expect to receive our shares of those guarantee funds
Article 143 - 2021-
967 back, less the funds necessary to cover defaults. Those
Receivables 2047
loans covered by the European Fund for Strategic
Investments (EFSI) (the largest of the relevant funds)
and European Fund for Sustainable Development
(EFSD) guarantee funds are expected to have fully

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 matured by 2035, with only those loans covered by
the Guarantee Fund for External Actions (GFEA)
(proportionally smaller than EFSI) expected to
continue until 2047.

Article 143 also includes some loans guaranteed by

the EU budget which have no corresponding
Article 143 - 2021- guarantee fund, and so can only represent a potential
(8)
Payables 2041 net cost to the UK in future cases of default. Most of
these are scheduled to fully mature by 2041.

Article 144 covers various financial instruments wholly

provisioned for under the EU budget through
Article 144 - 2021- successive Multiannual Financial Frameworks. We
393 expect our provisioning to be returned to us on a
Receivables 2035
steady profile, with the last of the relevant
instruments expected to fully mature in 2035.

Articles 145 and 146 cover the payment of the UK’s

Article 145 & share of the assets of the ECSC and the investment in
2021-
146 – 169 the EIF. These are paid in 5 equal instalments from
2025
Receivables 2021 to 2025

Article 150 covers the repayment of the paid in capital

Article 150 – 2021- of the European Investment Bank. This will be made in
2,254 equal instalments until 2030 with the remainder paid
Receivables 203118
in 2031

Total 3,747 - -

Market risk

The fair value of financial instruments recognised in respect of Articles 143 and 144
of the EU Withdrawal Agreement is sensitive to changes in the probability of default
and the rate of recoveries of the underlying operations within the scope of the
relevant EU financial instruments. Such sensitivities would affect the price a
hypothetical market participant would pay for such instruments. The EU is
responsible for managing the financial risks associated with their exposures arising
from the underlying instruments, which determine the UK’s exposure under the
Withdrawal Agreement to financial operations approved before the UK’s
withdrawal. The EU is required to manage such risks in accordance with the
requirements of the “EU’s Financial Regulation applicable to the general budget of
the Union (2018)”.

Currency risk

Future cash flows arising from all financial instruments recognised in respect of the
EU Withdrawal Agreement are denominated in Euros. The sterling value of these
instruments is sensitive to changes in the Sterling/Euro exchange rate. Cash flows
arising from these instruments are expected over a period of more than 10 years.
Cash outflows will be funded through Parliamentary Supply and inflows will be
returned to the Exchequer. Foreign exchange needs will be managed in aggregate

18 The first repayment of EIB paid in capital to the UK was made in in 2020 to the Consolidated Fund. These receipts become

payable to HMT from 2021.

204
with the expected Euro requirements of other obligations under the financial
settlement.

In addition to currency risk on financial instruments the provision created by the EU

Financial settlement is also sensitive to currency fluctuations. Further detail is
provided in Note 17 – Provisions.

Liquidity risk and credit risk

The EU is the UK’s (HM Treasury’s) counterparty to the cash flows arising from all
financial instruments recognised in respect of the EU withdrawal agreement, and is
AAA rated. Liquidity and credit risks are immaterial.

24.4 Core Treasury and Agencies – Other

Market risk

Market risk is the risk that the fair value of cash flows of a financial instrument will
fluctuate due to changes in market price. Other price risk, liquidity risk and currency
risk are sub-sets of market risk and are discussed below.

Market risk at the Core Treasury level primarily relates to the impact of moves in
market interest rates on the Bank of England Asset Purchase Facility Fund (BEAPFF).
The BEAPFF is a wholly owned subsidiary of the Bank of England that was set up in
2009 to implement quantitative easing in the UK. The BEAPFF purchased gilts
financed by the creation of central bank reserves, initially to the sum of £200bn, and
subsequently expanded on various occasions by MPC decision to its current
maximum authorised size of £895bn.

The table below summarises the maximum authorised size of the BEAPFF. The size
of the Bank of England loan to the BEAPFF will increase gradually as asset
purchases are conducted.

In £ billion 31 March 2021 31 March 2020

Government bond purchases 875 625

Corporate bond purchases At least 20 At least 20

Total quantitative easing package 895 645

Further information can be found in BEAPFF Ltd’s Annual Report and Accounts and
the ‘Contingent liabilities not required to be disclosed under IAS 37’ disclosure from
page 116.

The portfolio of gilts and corporate bonds held by the BEAPFF is valued at market
rates and is sensitive to fluctuations in gilt yields and credit spreads. Moves in
market rates, over and above those caused by the operations of the BEAPFF itself,
are driven by multiple factors including actual or expected monetary and fiscal policy
changes, changes in the market’s risk premia assessments, and movements in
related international markets. The total gilts and corporate bonds portfolio held by
BEAPFF at 31 March was £800bn, using the quoted prices from Tradeweb and
composite quote providers, either Bloomberg or Refinitiv depending on availability in
the market. The quoted gilt and bond prices can vary depending on the data source.

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A 0.1 percentage increase in the quoted prices leads to a 0.1 percentage (£0.8bn)
increase in the fair value of the portfolio.

HM Treasury provides an indemnity to the Bank of England for any losses or profits
from operating the BEAPFF. The derivative is valued on the basis of the difference
between the fair value of BEAPFF Ltd’s assets and liabilities. The assets mainly
comprise the portfolio of financial assets but include some cash holdings. Cash
generated from coupon income and redemptions is primarily used to finance the
Bank of England loan and reinvested in portfolio assets. Surplus cash is transferred
to HM Treasury on a quarterly basis. The company’s liabilities are represented by the
Bank of England loan and accrued interest on the loan.

It is difficult to predict the movement in the BEAPFF derivative as the fair value of its
financial assets is re-priced in response to market changes. At 31 March 2021, the
BEAPFF’s assets exceeded its liabilities by £15.2bn, driven by market-value gains
within its portfolio and interest income received. When there is an excess of assets
over liabilities, the derivative value is represented by a liability on BEAPFF’s SoFP and
by a corresponding asset on HM Treasury’s SoFP (see Note 14 – Derivative Financial
Assets). Quarterly transfers of surplus cash between the BEAPFF and HM Treasury
under the indemnity agreement impact the value of the BEAPFF’s net assets and so
also the value of the derivative. However, the derivative does not mature and
become payable until the scheme is unwound, at which time the outstanding value
of the derivative would be settled.

Should the fair value of the BEAPFF’s assets fall below that of its liabilities, the
indemnity would conversely entail BEAPFF Ltd recognising a derivative asset and HM
Treasury a derivative liability. That liability would not be payable until the scheme is
unwound. If there were a shortfall of cash in this scenario, HM Treasury would fund
this by way of quarterly cash transfers, as set out in the deed of indemnity and in
line with the current quarterly arrangement with BEAPFF.

Therefore, although HM Treasury benefitted from the operations of the BEAPFF as at

31 March 2021 to the extent that gains in fair value were reflected in a derivative
asset, the indemnity may generate a liability and require payments of cash to the
BEAPFF in future periods. These would be accounted for via HM Treasury’s Supply
Estimate: quarterly cash payments would be classified as non-budget, but any
residual settlement of the derivative on wind-up would be Annually Managed
Expenditure (AME).

The Bank of England manages risk associated with BEAPFF on HM Treasury’s behalf.
Subject to the policy objectives, the aim is to minimise overall risk through the
appropriate choice of portfolio and risk management practices. A set of high-level
financial risk parameters is in place for the Company’s operations, agreed to by HM
Treasury and the Bank of England, relating to eligible asset classes, investment limits,
credit risk and counterparties. Whilst the Monetary Policy Committee (MPC) retains
independence for setting monetary policy, the Treasury can provide views to the
MPC on the design of the schemes within the BEAPFF as they may affect the
government’s broader objectives.

Market risk associated with the BEAPFF derivative arises as a natural consequence of
its policy objectives, principally through the re-pricing of its assets due to market
changes. Interest rate risk is monitored in the form of a delta, which is the decline in

206
the valuation of BEAPFF Ltd’s underlying assets from a 1 basis point increase in
market interest rates. The delta at 31 March 2021 was £0.9bn (2019-20: £0.6bn).

Credit risk for the BEAPFF is smaller in comparison to market risk, as most BEAPFF
assets are high quality gilts with a low default risk. Risk is also monitored through
value at risk. Value at risk estimates the potential loss that might arise if existing
positions were unchanged for 10 business days under normal market conditions,
given the historic volatility of the returns on different types of assets, and the
correlation between their returns. The value at risk at 31 March 2021 was £25.6bn
(2019-20: £48.2bn).

The amount due to or from HM Treasury under the indemnity does not indicate
whether the public sector as a whole made a profit or loss from the operations of
the BEAPFF. The bulk of assets held by BEAPFF Ltd are gilts and are liabilities of the
broader public sector.

Other Price Risk

Price risk is the risk of a decline in the value of a security or a portfolio. Price risk
relates to HM Treasury’s shareholding in listed entities, currently only NatWest.

HM Treasury purchased shares in NatWest as part of the financial stability

interventions. The shares in NatWest were not purchased for commercial reasons.
The purchase of the shares and the resulting injection of capital were necessary to
ensure the financial survival of the entity and to avoid a collapse of the UK banking
sector.

The fair value of the UK listed shares fluctuates due to changes in market prices.
Market prices for a particular share may fluctuate due to factors specific to the
individual share or its issuer, or factors affecting all shares traded in the market.

UKGI, under the UKGI Framework Agreement, is responsible for the development
and execution of an investment strategy for disposing of the investment in NatWest
in an orderly and active way, within the context of protecting and creating value for
the taxpayer.

The analysis below shows the impact on reserves based on a 10% and a 25%
increase/decrease in the market price of the share investment in NatWest. There is
no impact on net operating income arising from a change in market prices of the
investment.

Reserves
In £m 2020-21 2019-20
Increase +10% 1,358 848
Increase +25% 3,395 2,120
Decrease -10% (1,358) (848)
Decrease -25% (3,395) (2,120)
Investment in NatWest Group 13,578 8,478

Liquidity risk

Liquidity risk is the risk that an entity will encounter difficulty in meeting obligations
associated with financial liabilities.

207
HM Treasury’s liquidity management controls include monitoring cash flows to
ensure that daily cash requirements are met and re-assessing the net cash
requirement on a regular basis and reporting this to Parliament through Estimates.
HM Treasury is not exposed to significant liquidity risk because it can apply for
Parliamentary approval for additional cover to pay for any liquidity gap.

Due to the magnitude of the financial stability interventions, liquidity requirements

can fluctuate significantly.

HM Treasury’s liquidity risk principally relates to BEAPFF. Monthly cash inflows are
generated from gilt coupon interest and maturity proceeds which are offset by
further gilt purchases, monthly loan interest payments to the Bank of England and
HM Treasury cash payments. The Treasury will be required to make payments to the
BEAPFF if the Bank Rate rises and exceeds the coupon rate for the gilt holdings (as
the interest paid on the APF loan would exceed the interest earned from the coupon
payments) or if the losses from gilt sales exceed the cash reserves held by the BEAPFF
in an active unwind scenario.

Currency risk

The risk that the fair value or future cash flows of a financial instrument will
fluctuate because of changes in foreign exchange rates.

The only material financial instruments that are exposed to currency risk are EU
financial settlement receivables, which are discussed in note 24.3 (see also Note 9 -
Trade and Other Receivables).

Credit risk

Credit risk is the risk that one party to a financial instrument will cause a financial
loss for the other party by failing to discharge an obligation.

HM Treasury is also exposed to credit risk for guarantees provided to group entities
and external counterparties.

HM Treasury offers guarantees to support the government’s policy objective to

support significant infrastructure and lending to small and medium businesses
projects which have been affected by a shortage of financing or other risk issues.
Guarantee fees are paid to compensate Treasury for its expected losses under the
schemes. The schemes are not entered into for commercial gain however fees are
set at commercial rates where required by state aids rules. The guarantees do not
involve direct cash support, but they do expose HM Treasury to potential liabilities if
the guarantees are called.

The Infrastructure and Projects Authority (IPA) which reports to both the Cabinet
Office and HM Treasury, monitors infrastructure guarantees granted under the UK
Guarantees Scheme and assesses the likelihood of a pay out by the Treasury.
Infrastructure projects monitored by IPA are shown in the table below and exclude
Mortgage Guarantees which are monitored by HM Treasury. The IPA’s Head of
Portfolio Management undertakes day to day oversight of guarantees, including
early warning monitoring and planning mitigating action. If a pay-out is required,
HM Treasury is legally entitled to recover as much as possible from the borrower.

Maximum exposure for financial guarantees is disclosed under contingent liabilities

not required to be disclosed under IAS 37 from page 116.

208
 Maximum exposure
in £m19
March March Projected
Project Description 2021 2020 end date
Speyside Speyside is a guarantee for bonds issued by the 40 43 Jun-2028
Speyside Biomass Combined Heat and Power project in
Moray Scotland. The guarantee for the bonds was
issued in August 2014.

Countesswells Countesswells is a guarantee for up to £86m 88 82 Mar-2031

borrowing supporting a major property development in
Aberdeen that will deliver new housing, schools,
healthcare and parks over the next 11 years. The
guarantee was issued in March 2016.

Mersey Gateway Mersey Gateway is a £257m guarantee that underpins 267 267 Mar-2043
the issuance of bonds to fund the construction of a
1km long cable-stayed, dual-three lane bridge over the
River Mersey between Widnes and Runcorn plus
associated changes to approach road. The guarantee
was issued in April 2014

Uliving@ Uliving@Gloucestershire is a guarantee for debt issued 39 41 Sep-2051

Gloucestershire to finance the construction of a new student village at
the University of Gloucestershire’s Pittville Campus and
the refurbishment of existing student facilities at the
site. The guarantee was issued in January 2016

University of University of Northampton is a guarantee for public 283 284 Mar-2056

Northampton bonds and Local Authority loans raised to finance the
construction of the University’s new campus at the
Waterside site near Northampton town centre. The
guarantee was issued in November 2014

East Anglia/ There are 5 projects under the contract with Alstom 398 - Jun-2022
West Midlands 1 (previously Bombardier), which is to provide £398m of
and 2/ South guarantees that support the manufacture and supply of
Western Railway new electric carriages for use on 3 rail franchises. The
1 and 2 guarantee were issued in May and June 2020.

Total for infrastructure projects monitored by IPA 1,115 717

Mortgage The Help to Buy: mortgage guarantee scheme was 281 430 Dec-2023
guarantees launched on the 8 October 2013 to address the
shortage of high loan-to-value mortgages by offering
lenders the option to purchase a guarantee on
mortgages where the borrower has a deposit of
between 5% and 20%.

The scheme closed to new loan applications on 31

December 2016. Loans with an application date on or
before 31 December 2016 continued to be accepted
into the scheme until 30 June 2017.

HM Treasury also holds a derivative with Covid Corporate Financing Facility Ltd
(CCFF) to indemnify it against losses under the scheme and entitles HM Treasury to
any gains generated. As CCFF is wholly owned by the Bank of England and the value

19 Maximum exposure is calculated at the principal amount of the borrowing guaranteed, plus one year’s interest.

209
of the indemnity on wind up will be equal to the cash held in the company, there is
minimal credit risk arising on the indemnity itself. However, the risk of change in the
value of the derivative that is legally due which would have the largest potential
impact is the credit risk to CCFF from the purchase of commercial paper of up to
one-year maturity issued by eligible firms.

The Bank regularly monitors the credit risk profile of eligible firms in collaboration
with HM Treasury. It reviews all applications to determine whether applicants meet
the initial eligibility criteria and assigns limits based on individual issuer credit
ratings. To be eligible for the scheme, firms were initially required to demonstrate
that they made a material contribution to the UK economy and that they were in
sound financial health prior to the COVID-19 economic shock, evidenced by being
investment grade as at 1 March 2020. The criteria were updated by HM Treasury
and the Bank on 9 October 2020. An eligible firm from 9 October 2020 onwards
was required to provide evidence that its investment grade credit rating is current.
Where an issuer’s credit quality fell below investment grade after 1 March 2020,
issuers after 9 October 2020 had the option to request a credit review by HM
Treasury, based on which HM Treasury decided whether the firm remained eligible.

Since 9 October 2020, the Bank also reviews utilisation requests to determine
whether there is sufficient evidence of a current investment grade rating. Eligibility,
limit and utilisation assessments against HM Treasury’s guidelines are shared by the
Bank with HM Treasury who, as the ultimate risk owner of the company’s assets,
takes the final decision.

The Company closed to new applications with effect from 31 December 2020 and
to new purchases with effect from 23 March 2021.

The model uses market-based spreads so that valuations are reflective of actual
market conditions. The market-based spreads are derived from indices which act as
a proxy for the commercial paper held in CCFF. Management judgement has
been applied in determining that the selected indices are appropriate for the
purpose of the model. A one basis point increase in the market-based spreads
would lead to a £0.5m reduction (2019-20: £0.1m) in the valuation of the overall
commercial paper portfolio. A one basis point increase in the LIBOR curve, with
credit spreads remaining static, would also have the same impact.

Credit spreads are assigned to the commercial paper in accordance with its credit
rating. The table below represents an analysis of commercial paper by credit risk
groupings, based on public external rating agency designations at 31 March:

2020-21 2019-20
Credit risk rating £bn % £bn %

A 2.1 27% 1.1 58%

BBB 3.5 44% 0.8 42%
BB 0.3 4% 0.0 0%
B 0.0 0% 0.0 0%
Non-public 2.0 25% 0.0 0%
Total 7.9 100 1.9 100

Firms could issue to the CCFF if they met certain qualifying criteria which included
being able to demonstrate they were of investment grade credit quality (i.e. that

210
they were rated BBB-/Baa3 or better) as at 1 March 2020 and, for issuance after 9
October 2020, that they remained investment grade at that later date. Firms were
able to evidence their investment grade status in a variety of ways, most commonly
through public credit ratings from external rating agencies (whose values as at 31
March 2021 are reported in the ‘A’ to ‘B’ rows above). For ca. 25% of names
(reported above as ‘non-public’), firms evidenced their credit status by means of
private ratings derived from confidential third-party sources such as credit rating
agencies and banks. No privately or publicly rated issuer was rated lower
than ‘B’ band at 31 March 2021 and lower than ‘BBB’ band at 31 March 2020.

The table below shows the sector concentration of these assets and the maximum
exposure at 31 March:

2020-21 2019-20
In £m by counterparty £m % £m %

Consumer, cyclical 1.2 15% 0.7 37%

Consumer, non-cyclical 0.9 11% 0.6 31%
Electricity 0.1 1% 0.2 11%
Energy 1.0 13% 0.4 21%
Industrial and transport 3.0 38% 0.0 0%
Property and finance 1.7 22% 0.0 0%
Total 7.9 100 1.9 100

All the commercial paper have maturities of less than one year. The weighted
average maturity of the commercial paper as at 31 March is 211 days. As at 1 June
2021, a further £3.4bn has been repaid. The fair value movement attributed to
changes in credit rating during the year was immaterial.

See also Note 1.4 – Significant judgements and estimates.

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25. Group financial instruments - fair value hierarchy

2020-21 2019-20 (Restated)

In £m Level 1 Level 2 Level 3 Level 1 Level 2 Level 3

Financial assets: fair value through OCI

Investments – listed entities 13,578 - - 8,478 - -

Investments – unlisted entities - 7,732 - - 6,576 -

Loans to banking customers - - - - - 4,708

Derivative financial assets and liabilities

Derivative financial assets - 15,184 - - 73,609 -

Financial assets: amortised cost

Loans and investment securities - 412 - - 2,026 -

Financial assets: Disposal group

Assets held for sale 1,656 - - - - -

Financial assets: fair value through P&L

Trade and other receivables - - 4,109 - - 1,522

Financial liabilities: fair value through P&L

Trade and other payables - - 362 - - 8

Financial liabilities: Disposal group

Liabilities held for sale 55 - - - - -

Introduction All assets and liabilities for which fair value is measured or disclosed in the
financial statements are categorised within the fair value hierarchy,
described as follows, based on the lowest level input that is significant to
the fair value measurement as a whole. There were no reclassifications
between the hierarchies.

Level 1 The value is determined using quoted prices (unadjusted) in active markets
for identical assets and liabilities the entity can access at the measurement
date.

The Disposal Group held for sale is carried at its fair value less costs to sell.
The fair value was derived by reference to the agreed sale price.

Level 2 The value is determined using inputs other than quoted prices included
within Level 1 that are observable for the asset and liability, either directly
or indirectly.

Unlisted entities use net assets as a proxy for their fair value. Derivatives
are calculated by reference to underlying net asset value. Loans and
investment securities are estimated by discounting expected future cash
flows using market interest rates. Investment securities are based on prices
providers cannot guarantee are based on actual trades in the market.

Net assets are considered to be a good proxy for fair value for unlisted
entities because the underlying assets of each entity are held at fair value
with reference either to market value or, when this is not available,
discounted cashflows. The fair value of the BEAPFF and CCFF derivatives
are calculated by reference to the underlying net assets which are all in

212
 turn measured at fair value with reference to market information or
discounted cashflows.

Level 3 Values are not based on observable market data or have significant
unobservable inputs.

For loans to banking customers, fair value is estimated by discounting

expected future cash flows using market interest rates. The fair value has
been calculated using models which incorporate the experience gained of
market structures and pricing from recent sales transactions.

Receivables and payables held at fair value through profit and loss are
recognised in respect of Article 136 “Provisions applicable after 31
December 2020 in relation to own resources”, Article 140 “Outstanding
Commitments”, Article 141 “Fines decided upon before or on 31
December 2020”, Article 143 “Contingent financial liabilities related to
loans for financial assistance, European Fund for Strategic Investments
(EFSI), European Fund for Sustainable Development (EFSD) and the
external lending mandate”, Article 144 “Financial Instruments under direct
or indirect implementation financed by the programmes of the 2014-20
MFF”, Article 145 “European Coal and Steel Community in liquidation”
Article 146 “Union investment in the European Investment Fund”, and
Article 150 “Continued liability of the United Kingdom and
reimbursement of the paid-in capital” (of the European Investment Bank)”
of the EU Withdrawal Agreement. The fair value of the financials assets
and liabilities have been estimated on the basis of the value of the
instruments as reported in the EU’s annual accounts, reporting received
under the Withdrawal Agreement in March 2021 and other relevant
available information from associated EU policy documentation for the
instruments. Forecast future cash flows are discounted at the financial
instrument rate set by HM Treasury under the Financial Reporting Manual
to account for the timing of the cash flows as specified under the articles.

Other These assets cannot be classified within the fair value hierarchy because
the FReM requires them to be held at historic cost. These amounts are not
shown in the table above on the basis of materiality, 2020-21: £6m
(2019-20: £6m).

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26. Financial instruments – assets and liabilities
The accounting policies for financial instruments have been applied to the line items
below. The carrying amount below represents fair value unless stated otherwise.

26.1 Group
2019-20
2020-21 2019-20 Carrying
2020-21 Carrying Fair Value Value
In £m Fair Value Value (Restated) (Restated)
Financial assets: at amortised cost
Cash and cash equivalents - 4,096 - 1,609
Trade and other receivables20 - 925 - 803
Loans and investment securities 412 409 2,026 1,985
Financial assets: fair value through OCI
Equity Investments - 21,310 - 15,054
Loans to banking customers - - - 4,708
Financial assets: fair value through SoCNE
Trade and other receivables20 - 4,109 - 1,522
Derivative financial assets - 15,184 - 73,609
Financial assets: Disposal group
Assets held for sale - 1,656 - -
Financial liabilities and guarantees: amortised cost
Trade and other payables21 - (1,200) - (1,109)
Financial guarantees - (104) - (113)
Financial liabilities: fair value through SoCNE
Trade and other payables21 - (362) - (8)
Financial liabilities: Disposal group
Liabilities held for sale - (55) - -

Fair value is estimated by discounting expected future cash flows using market
interest rates. Expected future cash flows take account of estimated future losses.

20 Trade and other receivables are shown net of non-financial assets.

21 Trade and other payables are shown net of non-financial liabilities.

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26.2 Core Treasury and Agencies

2020-21 2019-20
2020-21 Carrying 2019-20 Carrying
In £m Fair Value Value Fair Value Value
Financial assets: at amortised cost
Cash and cash equivalents - 5 - 66
Trade and other receivables22 - 924 - 790
Loans and investment securities 7 6 1,661 1,620
Financial assets: fair value through OCI
Equity Investments - 26,760 - 21,139
Financial assets: fair value through SoCNE
Trade and other receivables22 - 4,109 - 1,522
Derivative financial assets - 15,184 - 73,609
Financial liabilities and guarantees: amortised
cost
Trade and other payables23 - (645) - (714)
Financial guarantees - (104) - (113)
Financial liabilities: fair value through SoCNE
Trade and other payables23 - (362) - (8)

27. Related party transactions

The entities listed in Note 1.2 – Basis of Consolidation, are regarded as related
parties to HM Treasury. The Treasury has had material transactions with UKAR
during the year, including material dividends (Note 6 – Finance Income).

Although the Bank of England, the Royal Mint, Local Partnerships and NatWest fall
outside the accounting boundary, their share capital is either wholly owned or
partially owned by HM Treasury. Dividends and other income received from these
bodies are material and are recorded in the SoCNE.

NatWest participates in the Help to Buy: mortgage guarantee scheme and Help to
Buy: ISA scheme and pays guarantee fees which are recognised as income in HM
Treasury’s Accounts.

NatWest also participates in the Unclaimed Assets Scheme and transfers dormant
account funds to the Reclaim Fund Ltd which are recognised as income in HM
Treasury’s Accounts.

In addition, HM Treasury and its Group entities have transactions with other
government departments and central government bodies.

No Minister, Board member, key manager or other related party has undertaken any
material transaction with HM Treasury during the year. Details of compensation for
key management personnel can be found in the Remuneration Report section of the
Accountability Report.

22 Trade and other receivables are shown net of non-financial assets.

23 Trade and other payables are shown net of non-financial liabilities.

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28. Auditor’s remuneration
Remuneration for the audit of the Treasury Group accounts was a notional cost of
£470k (2019-20: £410k). In addition, £1,057k (2019-20: £1,066k) was charged by
the NAO for other audit services, of which £136k (2019-20: £134k) was notional.
£51k (2019-20: £325k) was paid to the NAO in respect of non-audit services
relating to secondments and audits of UKAR special purpose accounts (the latter in
2019-20 only).

29. Disposal group held for sale and discontinued operations

On 26 February 2021 UKAR entered into a contract which is expected to result in
the sale of its 100% shareholdings in B&B and NRAM, along with their subsidiaries,
to Davidson Kempner. The Directors of UKAR expect that the sale will complete
later in the year. At 31 March 2021 DK had paid a deposit of £50m in respect of
this transaction. Should the sale not complete, the deposit is to be returned to the
purchaser, unless the purchaser has breached the relevant terms of the sale
contract. Under the sale contract, UKAR will provide certain warranties to Davidson
Kempner and also indemnities against certain remediation and other payments
which B&B and NRAM may make after the date of the sale.

Completion of the sale is subject to the FCA granting regularity approval, which the
Directors of UKAR consider to be highly probable. This approval is the only condition
remaining to be satisfied, following which UKAR will be legally committed to
completion of the sale.

The assets and liabilities which are to be disposed of have been classified as a
disposal group held for sale as their carrying amount will be recovered principally
through a sale transaction rather than through continuing use. At 31 March 2021
the disposal group comprises the assets and liabilities of B&B and NRAM other than
the B&B post-retirement healthcare scheme and the NRAM unfunded pension
scheme, which will be transferred to UKAR prior to the sale of B&B and NRAM, cash
balances which B&B and NRAM will use to pay UKAR to take on those obligations,
and associated deferred tax balances. The analysis of the assets and liabilities of the
disposal group and the impairments applied is as follows:

Disposal group
Gross of Net of
impairment Impairment impairment
In £m 2020-21 2020-21 2020-21
Assets
Cash and cash equivalents 1,727 - 1,727
Trade and other receivables 10 (7) 3
Excess impairment of the disposal group - (74) (74)
Assets held for sale 1,737 (81) 1,656
Liabilities
Trade and other payables (40) - (40)
Provisions (15) - (15)
Liabilities held for sale (55) - (55)
Net Assets held for sale 1,601

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In accordance with IFRS 5, as it is held for sale the carrying value of the disposal
group has been impaired to its fair value less costs to sell. The fair value was derived
by reference to the agreed sale price. The impairment charge was £88m. After
applying £7m to prepaid costs net of cost accruals, £7m has been applied to the
assets of the disposal group which are within the scope of the measurement
principles of IFRS 5. The £74m excess of the total impairment over the pre-
impairment carrying value of these assets has been carried as a separate ‘excess
impairment of the disposal group’ to reduce the total carrying amount of the assets
in the disposal group.

The analysis of the discontinued operations is as follows:

Discontinued operations
In £m Note 2020-21 2019-20
Other operating income 2 (5) (16)
Total operating income (5) (16)
Staff costs 3 10 13
Purchase of goods and services 4 41 108
Other operating expenditure 5 (16) 120
Total operating expenditure 35 241
Net operating expenditure before financing 30 225
Finance income 6 (118) (183)
Finance expense 85 (18)
Net gain on disposal of assets 18 (2)
Net (income)/expenditure before tax 15 22
Taxation 22 16
Net (income)/expenditure for the year from discontinued
37 38
operations

Cash flows from discontinued operations

In £m 2020-21 2019-20
Net cash used in operating activities 355 478
Net cash generated from investing activities 4,459 4,474
Net cash generated from financing activities - (2,174)
Net increase/(decrease) in cash and cash equivalents from
4,814 2,778
discontinued operations

30. Prior period restatements

The prior year restatements comprise of the following items:

Consolidation of a new arm’s length body

Reclaim Fund Ltd (RFL) is consolidated into HM Treasury Group for the year ended
31 March 2021 onward following ONS classification to Central Government. RFL is
responsible for the collection and management of money that has been dormant for
15 years or more in a bank or building society account. The banks or building
societies voluntarily transfer this money to RFL to invest, while RFL also transfers a
surplus proportion of this amount to the National Lottery Community Fund. The

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ONS classification applies from the date of incorporation, 13 August 2010, which
means prior period restatements are required.

Discontinued operations

UKAR is expecting to sell 100% of its shareholdings in B&B and NRAM post year
end. In accordance with IFRS 5, those related activities are to be considered as
discontinued operations, and prior year operations have been restated
distinguishing between discontinued and continuing operations. More information
on discontinued operations can be found on note 29 – Disposal group held for sale
and discontinued operations.

The total impacts of restatements on prior period balances for HM Treasury Group
are set out in the table below.

Disclosure adjustment

The Pension reserve has been merged with the General fund to ensure consistency
with arm’s length bodies’ reporting.

Consolidated Statement of Comprehensive Net Expenditure

Discontinued
HMT operation HMT Group
Group RFL adjustments 2019-20
In £m 2019-20 2019-20 2019-20 (Restated)
Income from sale of goods and services (39) - - (39)
Other operating income (962) (147) 16 (1,093)
Total operating income (1,001) (147) 16 (1,132)
Staff costs 211 1 (13) 199
Purchase of goods and services 344 2 (108) 238
Other operating expenditure 39,869 150 (120) 39,899
Total operating expenditure 40,424 153 (241) 40,336
Net operating expenditure before financing 39,423 6 (225) 39,204
Capital grant in kind - - - -
Finance income (1,360) (6) 183 (1,183)
Finance expense (10) - 18 8
Revaluation of financial assets and liabilities (37,136) - - (37,136)
Net gain on disposal of assets (2) - 2 -
Net (income)/expenditure before tax 915 - (22) 893
Taxation 16 - (16) -
Net (income)/expenditure after tax from continuing
931 - (38) 893
operations
Net (income)/expenditure after tax from discontinued
- - 38 38
operations
Total net (income)/expenditure after tax 931 - - 931

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Other comprehensive net (income)/
expenditure from continuing operations
Items that will not be reclassified to net operating
expenditure
Revaluation of property plant and equipment (3) - - (3)
Net loss on assets recognised in reserves 9,631 - - 9,631
Actuarial (gain) on pension scheme liabilities (154) - - (154)
Items that may be reclassified to net operating expenditure
when specific conditions are met
Net loss on assets recognised in reserves 186 - (186) -
Net transfer from reserves and recognised as income in year - - -
Total other comprehensive net (income)/expenditure from
continuing operations 9,660 - (186) 9,474
Other comprehensive net (income)/
expenditure from continuing operations
Items that may be reclassified to net operating expenditure
when specific conditions are met
Net loss on assets recognised in reserves - - 186 186
Total other comprehensive net (income)/expenditure from
discontinued operations - - 186 186
Total net comprehensive (income)/expenditure for the year 10,591 - - 10,591

Consolidated Statement of Financial Position

Disclosure HMT Group
HMT Group RFL adjustment 2019-20
In £m 2019-20 2019-20 2019-20 (Restated)
Non-current assets
Property, plant and equipment 203 - - 203
Intangible assets 9 - - 9
Trade and other receivables 1,909 - - 1,909
Net pension asset 821 - - 821
Equity Investments 15,060 - - 15,060
Loans and investment securities 7 180 - 187
Loans to banking customers 4,144 - - 4,144
Total non-current assets 22,153 180 - 22,333
Current assets
Inventory 23 - - 23
Trade and other receivables 442 4 - 446
Loans and investment securities 1,613 185 - 1,798
Loans to banking customers 564 - - 564
Derivative financial assets 73,609 - - 73,609
Cash and cash equivalents 1,298 311 - 1,609
Total current assets 77,549 500 - 78,049
Total assets 99,702 680 - 100,382
Current liabilities
Trade and other payables (622) (69) - (691)
Provisions (1,256) (537) - (1,793)
Financial guarantees (18) - - (18)
Total current liabilities (1,896) (606) - (2,502)

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Non-current liabilities -
Trade and other payables (558) - - (558)
Provisions (39,187) - - (39,187)
Financial guarantees (95) - - (95)
Total non-current liabilities (39,840) - - (39,840)
Total assets less liabilities 57,966 74 - 58,040
Equity
General fund 80,034 74 158 80,266
Fair value reserve (23,405) - - (23,405)
Revaluation reserve 50 - - 50
Pension reserve 158 - (158) -
Merger reserve 1,129 - - 1,129
Total equity 57,966 74 - 58,040

Consolidated Statement of Changes in Taxpayers’ Equity

HMT Group RFL HMT Group

2019-20
In £m 2019-20 2019-20 (Restated)
Total Reserves
Balance at 1 April 2019 83,473 74 83,547
Net income after tax (931) - (931)
Change in CFERs payable to the Consolidated Fund (49) - (49)
CFERs paid to the Consolidated Fund (7,361) - (7,361)
Change in excess cash payable to the Consolidated Fund (5) - (5)
Excess cash paid to the Consolidated Fund (7,507) - (7,507)
Consolidated Fund standing services 4 - 4
Other movements 2 - 2
Revaluation gains and losses (9,660) - (9,660)
Transfers - - -
Balance at 31 March 2020 57,966 74 58,040

Consolidated Statement of Cash Flow

Discontinued
HMT operation HMT Group
Group RLF adjustments 2019-20
In £m 2019-20 2019-20 2019-20 (Restated)
Cash flows from operating activities
Net operating income/(expenditure) before financing from
continuing operations (39,423) (6) 225 (39,204)
Net operating income/(expenditure) before financing from
discontinued operations - - (225) (225)
Other non-cash transactions 39,286 150 - 39,436
Changes in working capital (31) (3) - (34)
Corporation Tax paid (46) - - (46)
Use of provisions (390) (83) - (473)
Net cash flows from operating activities (604) 58 - (546)

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Cash flows from investing activities
Proceeds: derivative financial assets 7,137 - - 7,137
Proceeds: sale of shares UK listed entities - - - -
Proceeds: sale of investment securities and other assets - 95 - 95
Net cash outflows from debt securities in issue (204) - - (204)
Proceeds: interest, dividend and other finance income 2,196 6 - 2,202
Purchases: financial assets (137) (181) - (318)
Proceeds: repayment of financial assets 1,618 - - 1,618
Advances and repayments of loans to banking customers 661 - - 661
Proceeds: sale of loans to banking customers 4,474 - - 4,474
Other investing activities (65) - - (65)
Net cash flow from investing activities 15,680 (80) - 15,600
Cash flows from financing activities
Cash from the Consolidated Fund (non-supply) 4 - - 4
Advances from the Contingencies Fund 84 - - 84
Repayments to the Contingencies Fund (84) - - (84)
Capital element of the PFI contract (3) - - (3)
Net cash flows from financing activities 1 - - 1
Net increase in cash and cash equivalents before -
15,077 (22) 15,055
adjustments
Payments of amounts due to the Consolidated Fund (7,361) - - (7,361)
Excess cash paid to the Consolidated Fund – current year (7,446) - - (7,446)
Excess cash paid to the Consolidated Fund – prior year -
balance (61) - (61)
Net increase/(decrease) in cash and cash equivalents after -
adjustments 209 (22) 187
Cash and cash equivalents at the beginning of the period 1,089 333 - 1,422
Cash and cash equivalents at the end of the period 1,298 311 - 1,609

31. Events after the reporting period

31.1 UK Infrastructure Bank

On 21 May 2021, Infrastructure Finance Unit Limited changed its name to UK

Infrastructure Bank Limited. On 17 June 2021, the bank was officially launched to
catalyse private investment in projects across the UK. In total, the Bank will have £22
billion of financial capacity to deliver on its objectives, consisting of £12 billion of
equity and debt capital and the ability to issue £10 billion of guarantees. The Bank
will be able to recycle capital and reinvest returns. This will enable the Bank to scale
up its balance sheet over time.

31.2 London Capital and Finance Compensation Scheme

On 19 April 2021, the details of the London Capital & Finance (LCF) compensation
scheme was announced. The scheme compensates LCF bondholders who suffered
losses following LCF entering administration in January 2019. The scheme
compensates 80% of the bondholders’ initial investment up to a maximum of £68k.
The government expects to pay out around £120m in compensation in total and the
scheme to have paid all bondholders within 6 months of securing Royal Asset for

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the Compensation (London Capital & Finance plc and Fraud Compensation Fund)
Bill.

31.3 Mortgage Guarantee Scheme

The COVID-19 pandemic has led to a reduction in the availability of high loan-to-
value mortgage products, particularly for prospective homebuyers with only a 5%
deposit. On 3 March 2021 the Chancellor announced the launch of a new
government-backed mortgage guarantee scheme. The scheme follows on from the
successful 2013 Help to Buy: Mortgage Guarantee Scheme, which helped restore
the low deposit mortgage market after the financial crisis, giving those who could
afford mortgage repayments but not the larger deposits the chance to buy or move
home. The scheme opened on the 19 April 2021 to participating lender for new
mortgage applications and is due to close on 31 December 2022. Under the scheme
rules, the maximum contingent liability is set at £3.9bn. The level of future calls of
the scheme is currently unknown, hence the expected financial impact cannot be
quantified at this time.

31.4 HM Treasury Sovereign SUKUK plc

On 1 April 2021, the government issued a second sovereign Sukuk, the Islamic
equivalent of a bond. £500 million of Sukuk, maturing in July 2026, was sold to
investors based in the UK and in major hubs for Islamic finance around the world.

31.5 NatWest Group

On 11 May 2021, the government announced a sale of 580 million shares in

NatWest at 190p per share raising a total of £1.1 billion, bringing its level of
ownership down from 59.8% to 54.8%.

32. Date authorised for issue

The financial statements were authorised for issue on the date of the Comptroller
and Auditor General’s signature.

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Chapter 4
Trust Statement

Foreword to the Trust Statement

Introduction
The Trust Statement reports the revenue, expenditure, assets and liabilities related to
the fines collected by HM Treasury from the Financial Conduct Authority (FCA) and
the Prudential Regulation Authority (PRA) and issued by the Office of Financial
Sanctions Implementation (OFSI), and levies on the banking industry collected by the
FCA to fund financial guidance to the public for the financial year 2020-21. The
costs of running HM Treasury are reported in the Core Treasury and Agencies’
balances in the financial statements.

Section 109 of the Financial Services Act 2012 requires the FCA to pay its penalty
receipts to HM Treasury after deducting its enforcement costs and requires HM
Treasury to pay these receipts to the Consolidated Fund. Further information on
penalties applied by the FCA is available on the FCA website.1

Similarly, the PRA is required to pay any enforcement fines it levies in excess of
enforcement costs to HM Treasury, which is required to pay those receipts to the
Consolidated Fund. Further information on penalties applied by the PRA is available
on the PRA website.2

The Policing and Crime Act 2017 empowered the Treasury to impose penalties for
serious sanctions breaches on individuals and bodies. The penalty powers apply to
offences committed after 1 April 2017. This process is led and managed by OFSI,
which is part of HM Treasury. Further information on penalties applied by OFSI is
available on gov.uk.3

The Financial Guidance and Claims Act 2018 requires the FCA to pay the Financial
Guidance levies to the government after deducting its enforcement costs. The
Money and Pensions Advice Service Levy and Devolved Administrations Debt Advice
Levy were created, starting from 2019-20 following the transfer of the of the Money
Advice Service’s functions to DWP and the devolved administrations. HM Treasury
pays these receipts to the Consolidated Fund so that they can be issued via supply to
DWP and devolved administrations to fund the provision of financial guidance to

1 https://www.fca.org.uk/news/news-stories/2021-fines

2 https://www.bankofengland.co.uk/prudential-regulation/pra-statutory-powers

3 https://www.gov.uk/government/collections/enforcement-of-financial-sanctions

223
the public. Further information on levies applied by the FCA is available on the FCA
website.4

Basis for the preparation of the Trust Statement

A Trust Statement provides an account of the collection of revenues which by
statute or convention are due to the Consolidated Fund where the entity
undertaking the collection acts as agent rather than principal. The legislative
requirement for this Trust Statement is set out in section 2 of the Exchequer and
Audit Departments Act 1921. The HM Treasury accounts direction requires the Trust
Statement to give a true and fair view of the state of affairs relating to the collection
and allocations of taxes and duties and the revenue income and expenditure and
cash flows for the financial year. Regard shall be given to all relevant accounting and
disclosure requirements given in the Government Financial Reporting Manual
(FReM), Managing Public Money and other guidance issued by HM Treasury.

HM Treasury conducts an annual reconciliation of budgeted enforcement costs

against actual by reference to the published accounts of the FCA and PRA (now part
of the Bank of England and so included within its accounts) to gain assurance that
the penalty receipts and enforcement costs are accurate and accounted for correctly.

The governance statement and statement of Accounting Officer responsibilities

applicable to both the Trust Statement and the Treasury’s financial statements is
included within the main body of the report from page 54.

Auditors
The Trust Statement is audited by the Comptroller and Auditor General under the
Exchequer and Audit Departments Act 1921. The auditor’s remuneration for this is
included in HM Treasury’s Annual Accounts. No non-audit work was carried out by
the auditors for HM Treasury on the Trust Statement. Non-audit work carried out by
the auditors for the HM Treasury Group is included in HM Treasury’s Annual
Accounts.

Financial review
HM Treasury has received £140m in fine income (2019-20: £206m) and £141m in
Levy income (2019-20: £114m) from the FCA, £46m from the PRA (2019-20: £42m)
and nil from OFSI fine income (2019-20: £21m) in the period ended 31 March
2021.

4 https://www.fca.org.uk/firms/fees

224
HM Treasury Trust Statement

THE AUDIT REPORT OF THE COMPTROLLER AND AUDITOR

GENERAL TO THE HOUSE OF COMMONS
Opinion on financial statements
I have audited the financial statements of HM Treasury Trust Statement for the year
ended 31 March 2021 under the Exchequer and Audit Departments Act 1921. The
financial statements comprise the Statement of Revenue and Expenditure, the
Statement of Financial Position and the Statement of Cash Flows and the related
notes, including the significant accounting policies. These financial statements have
been prepared under the accounting policies set out within them. The financial
reporting framework that has been applied in their preparation is applicable law and
International Accounting Standards as interpreted by HM Treasury’s Government
Financial Reporting Manual.
In my opinion:
▪ the HM Treasury Trust Statement gives a true and fair view of the state of
affairs of the collection of fines and penalties net of enforcement costs paid
to HM Treasury by the Financial Conduct Authority and the Prudential
Regulatory Authority, the collection of fines and penalties without deduction
for enforcement costs by the Office of Financial Sanctions Implementation,
and levies net of collection costs paid to HM Treasury by the Financial Conduct
Authority as at 31 March 2021 and of the net revenue for the year then ended;
and
▪ the financial statements have been properly prepared in accordance with the
Exchequer and Audit Departments Act 1921 and HM Treasury directions
issued thereunder.

Opinion on regularity
In my opinion, in all material respects the income and expenditure recorded in the
financial statements have been applied to the purposes intended by Parliament and
the financial transactions recorded in the financial statements conform to the
authorities which govern them.

Basis for opinions

I conducted my audit in accordance with International Standards on Auditing (ISAs)
(UK), applicable law and Practice Note 10 ‘Audit of Financial Statements of Public
Sector Entities in the United Kingdom’. My responsibilities under those standards are
further described in the Auditor’s responsibilities for the audit of the financial
statements section of my certificate.
Those standards require me and my staff to comply with the Financial Reporting
Council’s Revised Ethical Standard 2019. I have also elected to apply the ethical

225
standards relevant to listed entities. I am independent of the HM Treasury Trust
Statement in accordance with the ethical requirements that are relevant to my audit
of the financial statements in the UK. My staff and I have fulfilled our other ethical
responsibilities in accordance with these requirements.
I believe that the audit evidence I have obtained is sufficient and appropriate to
provide a basis for my opinion.

Conclusions relating to going concern

In auditing the financial statements, I have concluded that the HM Treasury Trust
Statement’s use of the going concern basis of accounting in the preparation of the
financial statements is appropriate.
Based on the work I have performed, I have not identified any material uncertainties
relating to events or conditions that, individually or collectively, may cast significant
doubt on the HM Treasury Trust Statement 's ability to continue as a going concern
for a period of at least twelve months from when the financial statements are
authorised for issue.
My responsibilities and the responsibilities of the Accounting Officer with respect to
going concern are described in the relevant sections of this certificate.
The going concern basis of accounting for the HM Treasury Trust Statement is
adopted in consideration of the requirements set out in HM Treasury’s Government
Reporting Manual, which require entities to adopt the going concern basis of
accounting in the preparation of the financial statements where it anticipated that
the services which they provide will continue into the future.

Other Information
The other information comprises information included in the Performance Report,
Accountability Report, and Foreword to the Trust Statement, but does not include the
financial statements and my auditor’s report thereon. The Accounting Officer is
responsible for the other information. My opinion on the financial statements does
not cover the other information and I do not express any form of assurance conclusion
thereon. In connection with my audit of the financial statements, my responsibility is
to read the other information and, in doing so, consider whether the other
information is materially inconsistent with the financial statements or my knowledge
obtained in the audit or otherwise appears to be materially misstated. If I identify such
material inconsistencies or apparent material misstatements, I am required to
determine whether this gives rise to a material misstatement in the financial
statements themselves. If, based on the work I have performed, I conclude that there
is a material misstatement of this other information, I am required to report that fact.
I have nothing to report in this regard.

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Opinion on other matters
In my opinion, based on the work undertaken in the course of the audit:
▪ the information given in the Performance Report, Accountability Report, and
the Foreword to the Trust Statement for the financial year for which the
financial statements are prepared is consistent with the financial statements.

Matters on which I report by exception

I have nothing to report in respect of the following matters which I report to you if,
in my opinion:
▪ adequate accounting records have not been kept or returns adequate for my
audit have not been received from branches not visited by my staff; or
▪ the financial statements are not in agreement with the accounting records
and returns; or
▪ I have not received all of the information and explanations I require for my
audit; or
▪ the Governance Statement does not reflect compliance with HM Treasury’s
guidance.

Responsibilities of the Accounting Officer for the financial statements

As explained more fully in the Statement of Accounting Officer’s Responsibilities, the
Accounting Officer is responsible for:
• the preparation of the financial statements in accordance with the applicable
financial reporting framework and for being satisfied that they give a true and
fair view;
• internal controls as the Accounting Officer determines is necessary to enable
the preparation of financial statement to be free from material misstatement,
whether due to fraud or error.
• assessing the HM Treasury Trust Statement’s ability to continue as a going
concern, disclosing, as applicable, matters related to going concern and using
the going concern basis of accounting unless the Accounting Officer
anticipates that the services provided by HM Treasury Trust Statement will not
continue to be provided in the future.

Auditor’s responsibilities for the audit of the financial statements

My responsibility is to audit and report on the financial statements in accordance with
the Exchequer and Audit Departments Act 1921.
My objectives are to obtain reasonable assurance about whether the financial
statements as a whole are free from material misstatement, whether due to fraud or
error, and to issue a certificate that includes my opinion. Reasonable assurance is a

227
high level of assurance but is not a guarantee that an audit conducted in accordance
with ISAs (UK) will always detect a material misstatement when it exists.
Misstatements can arise from fraud or error and are considered material if, individually
or in the aggregate, they could reasonably be expected to influence the economic
decisions of users taken on the basis of these financial statements.
I design procedures in line with my responsibilities, outlined above, to detect material
misstatements in respect of non-compliance with laws and regulation, including
fraud.
My procedures included the following:
• Inquiring of management, the HM Treasury’s head of internal audit and
those charged with governance, including obtaining and reviewing
supporting documentation relating to the HM Treasury Trust Statement’s
policies and procedures relating to:
o identifying, evaluating and complying with laws and regulations and
whether they were aware of any instances of non-compliance;
o detecting and responding to the risks of fraud and whether they
have knowledge of any actual, suspected or alleged fraud; and
o the internal controls established to mitigate risks related to fraud or
non-compliance with laws and regulations including the HM
Treasury Trust Statement’s controls relating to the: Financial Services
Act 2012, Policing and Crime Act 2017, Financial Guidance and
Claims Act 2018 and the Exchequer and Audit Departments Act
1921.
• discussing among the engagement team and, including regarding how and
where fraud might occur in the financial statements and any potential
indicators of fraud. As part of this discussion, I identified potential for fraud
in the posting of unusual journals.
• obtaining an understanding of HM Treasury Trust Statement’s framework of
authority as well as other legal and regulatory frameworks that the HM
Treasury Trust Statement operates in, focusing on those laws and regulations
that had a direct effect on the financial statements or that had a fundamental
effect on the operations of the HM Treasury Trust Statement. The key laws
and regulations I considered in this context included the Financial Services Act
2012, Policing and Crime Act 2017, Financial Guidance and Claims Act 2018
and the Exchequer and Audit Departments Act 1921.
In addition to the above, my procedures to respond to identified risks included
the following:
• reviewing the financial statement disclosures and testing to supporting
documentation to assess compliance with relevant laws and regulations
discussed above;
• reading minutes of meetings of those charged with governance and the
Board;

228
 • in addressing the risk of fraud through management override of controls,
testing the appropriateness of journal entries and other adjustments;
assessing whether the judgements made in making accounting estimates are
indicative of a potential bias; and evaluating the business rationale of any
significant transactions that are unusual or outside the normal course of
business; and
• Reviewing the accounts and underlying evidence to ensure the operation of
the trust statement within the legal framework under which it was
established.
I also communicated relevant identified laws and regulations and potential fraud risks
to all engagement team members including internal specialists and significant
component audit teams and remained alert to any indications of fraud or non-
compliance with laws and regulations throughout the audit.
A further description of my responsibilities for the audit of the financial statements is
located on the Financial Reporting Council’s website at:
www.frc.org.uk/auditorsresponsibilities. This description forms part of my certificate.
I am required to obtain evidence sufficient to give reasonable assurance that the
income and expenditure reported in the financial statements have been applied to the
purposes intended by Parliament and the financial transactions conform to the
authorities which govern them.
I communicate with those charged with governance regarding, among other matters,
the planned scope and timing of the audit and significant audit findings, including
any significant deficiencies in internal control that I identify during my audit.

Report
I have no observations to make on these financial statements.

Gareth Davies 19 July 2021

Comptroller and Auditor General

National Audit Office

157-197 Buckingham Palace Road
Victoria
London
SW1W 9SP

229
Statement of Revenue and Expenditure
for the period ended 31 March 2021

In £m Note 2020-21 2019-20

Net fine income 2 186 269

Net levy income 3 141 114

Net revenue for the Consolidated Fund 4 327 383

The notes on pages 231-233 form part of this statement.

Statement of Financial Position

as at 31 March 2021

In £m Note 2020-21 2019-20

Current assets
Receivable from the FCA/PRA 10 44
Cash and cash equivalents - -
Total assets 10 44
Balance on Consolidated Fund account 4 10 44

The notes on pages 231-233 form part of this statement.

Tom Scholar
Permanent Secretary

16 July 2021

Statement of Cash Flows

for the period ended 31 March 2021

In £m Note 2020-21 2019-20

Net cash flow from operating activities A 361 397

Cash paid to the Consolidated Fund (361) (397)

Increase in cash in this period - -

A: Reconciliation of net cash flow to movement in net funds

In £m 2020-21 2019-20

Net revenue for the Consolidated Fund 327 383

(Increase)/Decrease in non-cash assets 34 14

Net cash flow from operating activities 361 397

230
Notes to the Trust Statement

1. Statement of accounting policies

Notes to the financial statements provide additional information required by statute

and accounting standards to explain a particular feature of the financial statements.

1.1 Basis of accounting

The Trust Statement is prepared in accordance with:

• the accounts direction issued by HM Treasury under the Exchequer and

Audit Departments Act 1921

• the 2020-21 FReM issued by HM Treasury

• reference to International Financial Reporting Standards as adapted or

interpreted for the public sector context

• the accounting policies detailed in subsequent notes

The financial information presented is rounded to the nearest £m.

1.2 Standards issued but not yet effective

There have been no new standards issued since 1 April 2020. A number of new
standards are effective for annual periods beginning after 1 April 2021.

Their application is not expected to have any impact on the Trust Statement financial
statements in the period of their initial application. The Trust Statement does not
intend to early-adopt any of the following standards.
IFRS 16 Leases
IFRS 16 was issued in January 2016 and applies to the public sector for annual
reporting periods beginning on, or after, 1 April 2022.
IFRS 17 Insurance contracts
IFRS 17 was issued in May 2017 and applies to annual reporting periods beginning
on, or after, 1 January 2023 (subject to endorsement by the UK).

There are no other IFRS or IFRIC interpretations not yet effective that would be
expected to have a material impact on the Trust Statement.

1.3 Accounting convention

The Trust Statement has been prepared on an accrual basis under the historical cost
convention.

1.4 Revenue recognition

Fine income is accounted for in accordance with the FReM adaptation of IFRS 15
Revenue from Contracts with Customers, net of enforcement costs where these are
deductible by legislation. It is recognised when the revenue can be measured
reliably, and it is probable that the economic benefits from the taxable event will
flow to HM Treasury. Levy income is accounted for in accordance with the FReM
adaptation of IFRS 15 Revenue from Contracts with Customers, net of enforcement

231
costs. It is recognised when all, or substantially all, of the consideration promised by
the levy payer has been received by the FCA and is non-refundable.

1.5 Receivables
Receivables are accounted for in accordance with the requirements of IFRS 9
Financial Instruments. Accrued revenue receivable represents the amount due from
the FCA and PRA, where penalties and levies have been received by the regulators,
but the cash has not been transferred to HM Treasury as at the reporting date.

2. Net fine income

In £m 2020-21 2019-20

Fine income from Financial Conduct Authority 140 206

Fine income from Prudential Regulation Authority 46 42

Fine income from sanctions penalties - 21

Net fine income 186 269

Detailed information on fines collected can be found in the audited accounts of the
FCA and the Bank of England (of which the PRA is part).

There was nil income (2019-20: £21m) in relation to penalties from sanctions
breaches issued by OFSI.

3. Net levy income

In £m 2020-21 2019-20

Levy income from FCA for financial guidance 141 114

Net levy income 141 114

The increase in levy income is attributable to increased levies in respect of one-off

additional funding for the delivery of debt advice as a result of COVID-19 partially
funded by increased levies. Detailed information on levies collected can be found in
the audited accounts of the FCA.

4. Balance on the Consolidated Fund Account

In £m 2020-21 2019-20

Balance on Consolidated Fund Account as at 1 April 44 58

Net revenue for the Consolidated Fund 327 383

Less amount paid to the Consolidated Fund (361) (397)

Balance on Consolidated Fund Account as at 31 March 10 44

232
5. Events after the reporting period

There were no events after the reporting date.

6. Date authorised for issue

The financial statements were authorised for issue on the date of the Comptroller
and Auditor General’s signature.

233
Chapter 5
Better regulation
The Treasury is committed to delivering better regulation, and the principles of
Better Regulation guide policymaking across HM Treasury. As is set out in this
chapter, the Treasury seeks to minimise unnecessary costs to business arising from
regulation. HM Treasury is adapting the UK’s financial services regulations via the
Future Regulatory Framework to reflect the UK’s position outside of the EU. More
detail on the Treasury’s financial services work can be found on pages 31 to 32.
Treasury also works with other departments to determine the government’s overall
approach to regulation and how it supports policy outcomes.

Deregulatory measures from the previous financial year

The Treasury strives for efficient regulation that minimises costs to businesses and
consumers whilst maintaining vital protections. During the previous financial period
(April 2020 to March 2021), the Treasury has delivered the following deregulatory
measure to improve the efficiency of its regulations:

• Introduced amendments to the Friendly Societies Act 1992, under the

instrument called 'The Friendly Societies Act 1992 (Accounts)
(Amendment) Order 2020'. The amendments give friendly societies a
greater degree of flexibility to change from preparing annual individual
and group accounts in accordance with International Financial Reporting
Standards to preparing individual and group accounts in accordance with
UK Generally Accepted Accounting Practice accounting standards, where
certain conditions are met. This mirrors the corresponding duty of
companies governed by the Companies Act 2006. These amendments
deliver £1.84m of annual savings to businesses.

• The Small Business, Enterprise and Employment (SBEE) Act 2015 requires
transparency on all regulatory provisions introduced during the Parliament
and for the government of the day to publish a Business Impact Target in
respect of qualifying regulatory provisions that come into force or cease to
be in force during the Parliament. The Treasury duly sets out the
department’s recent regulatory provisions – both regulatory and
deregulatory – in the periodic government statements on the Business
Impact Target.

Financial services Future Regulatory Framework Review

In October 2020, the Government published a consultation on the Future
Regulatory Framework Review. Given our new position outside the EU the

234
government is considering how the regulatory framework for financial services
needs to adapt to be fit for the future. The Government’s proposal is to build on the
strengths of the UK’s existing framework as set out in FSMA, and consider: whether
changes are required to the regulators’ statutory objectives and principles; how we
ensure that accountability and scrutiny arrangements with the Treasury, Parliament
and stakeholders are appropriate given the regulators’ new responsibilities; and how
we transfer responsibility for designing and implementing the specific requirements
that apply to firms in certain areas of retained EU law to the regulators. We are
considering responses to the consultation ahead of a second consultation later this
year.

Working with other departments on government’s approach to regulation

The Chancellor, as chair of the Better Regulation Committee, is leading efforts across
government to deliver better regulation. The Treasury works closely with the Better
Regulation Executive within the Department for Business, Energy and Industrial
Strategy (BEIS), ensuring that the government’s approach to regulation supports the
delivery of its objectives.

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Chapter 6
Sustainability report
The Treasury is committed to promoting and embedding sustainability through its
policy development, its work with other Whitehall Departments and also its own
operations.

The Treasury’s objectives include:

• place the public finances on a sustainable footing, ensuring value for money
and improved outcomes in public service; and
• ensure the stability of the macro economic environment and financial
system, enabling strong, sustainable and balanced growth as we leave the
EU

Sustainable economic growth

The Treasury is committed to sustainable economic growth. For growth to be
sustainable in the long-term, it must support wellbeing and opportunity for all, and
be achieved alongside the objectives of transitioning to a Net Zero economy,
protecting and enhancing biodiversity, and the sustainable use of natural resources.

As part of its role as the UK’s economics and finance ministry, the Treasury is central
to ensuring these aims are accounted for in policy appraisal across HMG and
pursued through policies that deliver value for money and are affordable.

The UK has faced substantial challenges over the past 12 months – including the
significant economic effects of the COVID-19 pandemic. However, these challenges
would have been more severe without the unprecedented steps the government has
taken throughout the pandemic to protect jobs and livelihoods, support businesses
and boost public services across the UK. The Budget also built on the government’s
existing support, to help lay the foundations for a strong recovery and greener
economy.

HM Treasury has substantially increased its focus and resourcing in support of

climate, environmental and biodiversity goals.

For example, the Economics of Biodiversity: The Dasgupta Review – an independent,

global review – was published in February. The Dasgupta Review provides a
framework for economic and finance ministries to act on an important
environmental issue with clear – but often overlooked – economic consequences,
and the Treasury will examine the review’s findings and respond in due course.

The Net Zero Review was established to consider how the transition to a net zero
economy could be funded, and where the costs and opportunities could fall.

236
And HM Treasury is supporting biodiversity and climate goals through the
government’s international agenda. In particular, at COP26 the Treasury will ensure
the natural world stays right at the top of the global agenda, engaging with Finance
Ministers and financial institutions internationally to mainstream climate and nature
into economic and financial decision-making.

In the last year, HM Treasury created a new role for a Director for Climate,
Environment and Energy, in recognition of the scope and importance of these areas.

The Treasury also requires all departments to adhere to the Green Book1 guidance
when providing a business case for a policy, programme or project – not only those
departments or proposals whose primary focus is climate and environmental policy.
The supplementary guidance to the Green Book covers the practical application of
techniques for valuing both positive and negative environmental impacts in policy
appraisal, including greenhouse gas emissions or abatement.

The Green Book also directs users to the Climate Change Risk Assessment (CCRA) to
consider current and potential future climate risks and vulnerability to risks of an
intervention. This is of particular relevance when a policy has long term implications,
for example, new infrastructure investment. The CCRA provides a framework that
quantifies interactions with climate risk and enables consideration of the role of
climate in altering the scale and distribution of costs and benefits over the lifetime
of the proposal. Supplementary guidance, Accounting for the effects of Climate
Change, provides steps to determine whether climate risks are relevant in relation to
the appraisal of an intervention.

In addition, in the 25 Year Environment Plan, the government committed to ensure

that all policies, programmes and investment decisions consider the possible extent
of climate change this century. As part of ensuring this approach is embedded in
policy and programme decisions, the government has revised the Green Book
Supplementary Guidance on Accounting for the Effects of Climate Change to
include updated information on climate evidence and assessments.

The Treasury continues to refine and update the Green Book in line with emerging
evidence and best practice. For example, the Government has launched a review into
the application of the discount rate for environmental impacts.

At fiscal events, all measures are assessed for consistency with the government’s
legally binding environmental targets including carbon budgets, air quality, and fuel
poverty. HM Treasury fulfils its responsibilities under equalities legislation to consider
the impacts of all measures on protected characteristics, including with regards to
gender, race, age and disability. HM Treasury has an important role to play in
driving the government’s levelling-up agenda, and actively considers the regional
impacts of policies and spending decisions, including rural proofing. This includes
ensuring that public spending is focused on priority outcomes to enable everyone to
benefit from levelling up. Changes to the Green Book will also better link projects
and programmes to policy priorities - including levelling up. Furthermore, the
establishment of an economic campus in Darlington will be the next stage in our
plans to ensure civil servants reflect the communities they serve.

1 https://assets.publishing.service.gov.uk/government/uploads/system/uploads/attachment_data/file/685903/The_Green_Book.pdf

237
The Treasury has identified where its commitments, policies and programmes
contribute to the delivery of the UN Sustainable Development Goals (SDGs). As an
economics and finance ministry HM Treasury has particular responsibility for SDG 8
(decent work and economic growth). However, its work directly and indirectly
influences and supports the UK’s approach across government to all 17 of the SDGs.
The examples below are, by necessity, not exhaustive, but illustrate the depth and
breadth of HM Treasury’s contribution.

Commitment Principal Sustainable Development Goal

Budget 2021 continues to lay the Contributes to SDG 7: Ensure access

foundation for the transition to Net Zero. to affordable, reliable, sustainable
This includes: and modern energy for all; SDG 9:
• Announcing further details on the Build resilient infrastructure,
new UK Infrastructure Bank, promote inclusive and sustainable
which will provide financing industrialisation and foster
support to local authority and innovation; SDG 12: Ensure
private sector infrastructure sustainable consumption and
projects, to help meet production patterns; SDG 13: Take
Government objectives on climate urgent action to combat climate
change and regional and local change and its impacts
economic growth.
• Announcing further details on the
timings and size of the UK’s
inaugural green gilts, as well as
plans for a linked green retail
product to be offered by NS&I.
These will play an important role
in financing critical expenditure to
tackle climate change and help
generate green jobs.
• Announcing the launch of floating
offshore wind, energy storage and
biomass programmes, as part of
the £1 billion+ Net Zero
Innovation Portfolio.
• Ensuring the remits of the Bank of
England’s Monetary Policy
Committee and the Financial
Policy Committee (as well as the
Financial Conduct Authority and
Prudential Regulation Committee,
independently of Budget) reflect
the Government’s economic
strategy for delivering an
environmentally sustainable Net
Zero economy.
The Net Zero Review was established to Contributes to SDG 8: Promote
consider how the transition to a net zero sustained, inclusive and sustainable
economy could be funded, and where the economic growth, full and
costs and opportunities could fall. productive employment and decent

238
 work for all; and SDG 13: Take
urgent action to combat climate
change and its impacts
The Economics of Biodiversity: The Contributes to SDG 8: Promote
Dasgupta Review – an independent, sustained, inclusive and sustainable
global review – was published in economic growth, full and
February. The Dasgupta Review provides a productive employment and decent
framework for economic and finance work for all; SDG 12: Ensure
ministries to act on an important sustainable consumption and
environmental issue with clear – but often production patterns; SDG 14:
overlooked – economic consequences, Conserve and sustainably use the
and the Treasury will examine the review’s oceans, seas and marine resources
findings and respond in due course. for sustainable development; and
SDG 15: Protect, restore and
promote sustainable use of
terrestrial ecosystems, sustainably
manage forests, combat
desertification, and halt and reverse
land degradation, and halt
biodiversity loss
Support industry-led efforts to improve Contributes to SDG 5: Achieve
the gender balance in financial services gender equality and empower all
through the Women in Finance Charter, women and girls
which has over 400 signatories across the
sector
Deliver the Prime Minister’s ambitious Ten Contributes to SDG 7: Ensure access
Point Plan for a Green Industrial to affordable, reliable, sustainable
Revolution for 250,000 jobs, which is and modern energy for all; SDG 9:
supported by £12 billion committed at Build resilient infrastructure,
the recent Spending Review and boosts promote inclusive and sustainable
the UK’s global leadership on green industrialisation and foster
infrastructure and technologies. innovation; SDG 13: Take urgent
action to combat climate change
and its impacts
Ensure protecting the environment is at Contributes to SDG 12: Ensure
the top of the global agenda this year, sustainable consumption and
through our COP26 and G7 Presidencies. production patterns; SDG 13: Take
urgent action to combat climate
change and its impacts; SDG 14:
Conserve and sustainably use the
oceans, seas and marine resources
for sustainable development; and
SDG 15: Protect, restore and
promote sustainable use of
terrestrial ecosystems, sustainably
manage forests, combat
desertification, and halt and reverse

239
 land degradation, and halt
biodiversity loss
The Budget announced an additional £65 Contributes to SDG 8: Promote
billion of further measures to support the sustained, inclusive and sustainable
economy from unparalleled economic economic growth, full and
shock created by COVID-19 this year and productive employment and decent
next year. The support since the start of work for all
the pandemic, with a cumulative cost of
£352 billion, has helped to limit lasting
damage while strengthening the
economy in the longer term.
The pandemic and the government’s Contributes to SDG 8: Promote
policy response have led to an sustained, inclusive and sustainable
unprecedented increase in government economic growth, full and
borrowing and debt. The Budget takes productive employment and decent
action to ensure the public finances are work for all
put on a sustainable path once a durable
recovery has taken hold.
The National Infrastructure Strategy was Contributes to SDG 9: Build resilient
published in November 2020 and sets out infrastructure, promote inclusive
the government’s plans to transform UK and sustainable industrialisation
infrastructure based around three central and foster innovation; and SDG 13:
objectives: economic recovery from Take urgent action to combat
COVID-19; levelling up and unleashing climate change and its impacts.
the power of the Union; meeting the UK’s
Net Zero Emissions target by 2050.
The Budget announced further details on
the new UK Infrastructure Bank which will
provide financing support to private
sector and local authority infrastructure
projects across the UK, to help meet
government objectives on climate change
and regional economic growth. The Bank
will be able to deploy £12 billion of equity
and debt capital and be able to issue up
to £10 billion of guarantees.
Develop and deliver on the Government’s Contributes to SDG 8: Promote
Green Finance Strategy and its ambition sustained, inclusive and sustainable
to align private sector financial flows with economic growth, full and
clean, environmentally sustainable and productive employment and decent
resilient growth, and strengthen the work for all
competitiveness of the UK financial sector.

240
Treasury Green Champions Network
The Treasury Green Champions Network brings together staff from across HM
Treasury to identify ways of making the HM Treasury estate more environmentally
sustainable, and to support wider staff understanding and engagement with issues
relating to environmental sustainability.

A particular interest of the Network in the past year has been how HM Treasury can
embed environmental sustainability as we look to the months and years ahead.

Biodiversity and the Treasury estate

During 2020-21 the Treasury continued with its planting scheme in the courtyards
of the Horse Guards Road building, designed to improve local biodiversity and
attract more pollinators to the environment. The plants have a low carbon footprint
as they are obtained from British growers. Biological pest controls have also been
introduced, which has reduced the need for chemical controls.

Department Sustainability Plan

The Treasury has developed a Sustainability Plan to improve how HM Treasury
reports against the Greening Government Commitments 2021-25 covering our
offices in Horse Guards Road, Rosebery Court and the new office in Darlington.

Sustainable procurement
We are committed to sustainability in the way we procure goods and services and
working with existing and prospective suppliers to improve their performance.
Examples include:

• using Crown Commercial Service (CCS) commercial agreements which

offer sustainable solutions that comply with all relevant and appropriate
standards and include sustainability factors as a key criterion for award

• working with CCS to ensure our procurement policies and operations are
fully aligned with the cross-government Greening Government
Commitment targets

• evaluation criteria include social and economic factors in addition to

environmental factors

• highlighting contract opportunities suitable for SMEs on Contracts Finder

Sustainable construction
We have had no new builds in the last year. We work with the Government Property
Agency to ensure any construction work prioritises sustainability and reaches the
government’s buying standard.

241
Performance against the Greening Government Commitments2
The table below shows how the Treasury performed against the 2009-15 Greening
Government commitments and includes the updated GGC targets for the period
2016-2020.

Target 2009-10 2015 Target (% Performance in 2020 Target (%

Baseline reduction) 2015 (% reduction)
reduction)

Greenhouse Gas Emissions 4,216 25% 62% 69%

Domestic Flights 411 20% 5% 30%

Waste 485 25% 74% Reduce amount

of waste going
to landfill3

Paper usage 27,030 10% 42% 50%

Across all our Greening Government targets, the performance data for 2020-21 is
not a true comparison against previous years due to restrictions and changes to
ways of working because of COVID-19. However, in 2019-20 we were already
ahead of the 2020 deadlines which showed we had reduced greenhouse gas
emissions by 76% and paper consumption by 64%. Throughout 2021-22, where
possible, we will aim to embed and sustain beneficial changes and work towards
delivery of our new targets.

2 Data is included for the Treasury which is defined for sustainability reporting purposes as core Treasury in 1HGR and travel data for

Debt Management Office (DMO) and Treasury in Rosebery Court. Space in 1HGR is leased by Cabinet Office, Northern Ireland
Office and UK Export Finance, for reporting purposes this space is excluded from the Treasury data. For 2020-21, any shared costs
for 1HGR are apportioned between the Treasury and other government departments, with Treasury having a 47% share over both
the current and prior years..
3 Reduce amount of waste going to landfill to less than 10%; reduce the overall amount of waste generated and increase the

proportion recycled

242
Summary of performance against GGC targets in 2020-21

Target 1: Reduce greenhouse gas emissions by 69% 4

Cut carbon emissions from central government offices

The Treasury has reduced greenhouse gas emissions by 82% from its 2009-10
baseline figure of 4,216 tCO2e, exceeding the updated target of reducing
greenhouse gas emissions by 69% by 2020. Due to COVID-19 restrictions there
have been fewer staff present in the buildings and less travel occurred during 2020-
21.

Energy and CO2 emissions (restated)5

2015-16 2016-17 2017-18 2018-19 2019-20 2020-216

Electricity (mWh) 2,642 2,988 2,544 2,736 2,765 2,214

Gas (mWh) 31 29 25 27 27 12

Whitehall District Heating System

710 768 742 689 625 763
(mWh)

Total CO2 emissions (tCO2e)7 1,517 1,245 1,180 1,028 945 765

Energy costs (£000s) (restated)8

2015-16 2016-17 2017-18 2018-19 2019-20 2020-219

Electricity 322 358 327 381 425 376

Gas 2 1 1 1 2 1

Whitehall District Heating System 166 153 144 167 130 126

Total 490 512 472 549 557 502

Cut domestic business travel flights by 30%

Domestic flight figures are down 98% in 2020-21 (2019-20: 65%) from the 2009-
10 baseline continuing to exceed the updated target of reducing domestic flights by
30%. Reductions in travel in 2020-21 were largely as a result of COVID-19
restrictions. Any travel that took place during 2020-21 was limited and was made
within the government guidelines.

4 Our reported greenhouse gas emissions only include emissions from our estate operations (gas, electricity and heating) and

domestic travel as required by GGC. Costs shown relate to the Treasury’s 1HGR building with the exception of travel costs which
include both core Treasury and DMO
5 The figures reported in the 2018-19 Annual Report and Accounts for 2018-19 were incorrect and have been updated following an

internal review.
6 The 2020-21 emission figures relate to 1Horse Guards and Rosebery Court buildings except for WDHS which is only for 1HGR.

7 In line with DEFRA guidelines the Treasury has not weather-corrected its building data and has applied the recommended
conversion factors which were revised for 2015-16.

8 The figures have been restated to consistently include the Treasury’s share of the 1HGR building only rather than incorrectly include

the whole building.

9 The 2020-21 utility costs (electricity, gas and water) are for 1HGR building only as the Rosebery Court figures are not available

243
Travel and CO2 emissions (restated)10
2015-16 2016-17 2017-18 2018-19 2019-20 2020-21

Fleet11 (km) 34,813 43,428 29,014 35,994 27,001 15,932

Domestic rail (km) 636,084 601,652 619,842 874,664 805,241 45,491

Domestic flights (km) 255,425 142,095 147,935 197,302 122,035 4,973

Standard taxis12 (km) 19,745 10,441 11,558 10,913 6,733 1,047

Hybrid taxis (km) 12,401 12,261 14,411 12,076 10,161 2,515

Electric (km) - - - - - 10

No. of domestic flights 389 229 175 260 143 8

Total CO2 emissions 79 50 57 76 53 5

(tCO2e)

Travel Costs £000

2015-16 2016-17 2017-18 2018-19 2019-20 2020-21

Fleet (including Government

309 252 221 229 187 100
Car Service)

Rail 339 310 324 401 282 11

Domestic flights 63 63 30 47 24 2

Taxis 74 57 75 55 41 13

Total 785 682 650 732 534 125

Target 2: Reduce the amount of waste going to landfill to less than 10%
By continuing to recycle all waste where facilities exist and otherwise sending waste
for energy-recovered incineration, over the period the Treasury has reduced its waste
significantly from its 2009-10 baseline figure of 485 tonnes to 15 tonnes in 2020-
2113. This has been achieved with no waste being sent to landfill. The particular
decrease in 2020-21 is due to COVID-19 restrictions where fewer staff were present
in the buildings.

10 The figure reported in the 2019-20 Annual Report for hybrid taxis and electric (km) was incorrect and has been updated

following an internal review.

11 Fleet emissions relate to private individuals’ cars used for business purposes. Emissions do not include the government car service.

In 2016-17 the C02 conversion factor changed and there was increased travel to Norwich due to a one-off project.
12 Standard taxis include private hire, petrol or diesel and include people carriers or saloon cars. This does not include black cabs.

13 The costs for waste disposal are not available and are part of a monthly unitary payment.

244
Waste (tonnes) (restated)8
2015-16 2016-17 2017-18 2018-19 2019-20 2020-21

Waste incinerated with energy 72 78 56 53 49 6

recovery

Waste recycled 51 75 73 67 62 8

Waste sent for anaerobic digestion 5 6 11 9 10 1

ICT waste recycled - - - - - -

ICT waste reused - - - - - -

Total 128 159 140 129 121 15

Ensure that redundant ICT equipment is re-used or responsibly recycled

Treasury ICT waste is re-used or disposed of responsibly in line with government
standards. The Treasury uses an ICT contract take back scheme and when required, a
‘call-off’ disposal contract which meets the ISO 14001:2004 environmental
management standard.

Reduce paper use by 50%

HM Treasury has made a commitment to try to reduce print volumes by 33% by

2021. As well as this, HM Treasury moved to a closed loop paper contract in June
2012. Under this contract, used printer paper is recycled and returned to the
department for reuse. Furthermore, in 2018-19, a behavioural change programme
was launched to encourage staff to reduce paper consumption, and this continued
throughout 2019-20 including with the implementation of paperless governance
boards. No paper was ordered during 2020-21, due to COVID-19 restrictions fewer
staff were present in the buildings.

Paper consumption (reams) (restated)5

Reams 2015-16 2016-17 2017-18 2018-19 2019-20 2020-21

A4 15,358 15,794 12,696 13,044 9,591 0

A3 218 560 110 273 83 0

Total (A4 Equivalent) 15,794 16,914 12,916 13,590 9,757 0

Target 3: Reduce water consumption

In 2020-21 the Treasury’s water consumption in 1HGR and Rosebery Court,
calculated per FTE equivalent, was 3m³/FTE. The installation of further water meters
across the estate in 2017-18 as part of a review of water consumption allowed the
introduction of focused improvement measures, including the installation of push
button (timed flow) showers in 2018-19 and the installation of push button taps in
2019-20. The spike in costs in 2017-18 was due to being undercharged in the
previous year.

245
Water consumption (m3) (restated)5
2015-16 2016-17 2017-18 2018-19 2019-20 2020-21

Total consumption 9,498 11,577 11,541 13,030 12,222 4,682

Per FTE 8 10 9 9 8 3

Water cost (£000s) (restated)7

2015-16 2016-17 2017-18 2018-19 2019-20 2020-21

Total cost 19 27 33 31 32 12

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Chapter 7
The Treasury Group

Treasury Group Executive Agencies

Name Function Accounting Officer
UK Debt Established as an Executive Agency of the Sir Robert Stheeman
Management Treasury in 1998, the DMO’s is the Accounting
Office (DMO) responsibilities include debt and cash Officer and Chief
management for the UK Government, Executive.
lending to local authorities and managing
certain public sector funds.
Government Established as an Executive Agency of the Elizabeth Honer is
Internal Audit Treasury on 1 April 2015, this body the Accounting
Agency (GIAA) provides internal audit services to Officer and Chief
government departments. Executive.
National The Commissioners provide expert, James Heath is the
Infrastructure impartial advice to the government on Accounting Officer
Commission (NIC) infrastructure, develop the national and Chief Executive.
infrastructure assessment as well as
specific studies and engage with the
public and private sectors to consult on
future infrastructure needs and solutions.

Treasury Group Non-Departmental Public Bodies

Name Function Accounting Officer
Office for Budget Created in 2010, the OBR provides Richard Hughes is
Responsibility independent and authoritative analysis of the Accounting
(OBR) the UK’s public finances. Officer and
Chairman.

247
Treasury Group Levy Funded Bodies
Name Function Accounting Officer

Financial Services A single scheme to provide compensation in the Caroline Rainbird is the
Compensation event of authorised financial services firms Accounting Officer
Scheme (FSCS) being unable or likely to be unable to meet and Chief Executive.
claims against it. The FSCS is operationally
independent from the Treasury.

Treasury Group companies

Name Function Accounting Officer
UK Government UKGI began operating on 1 April 2016 as Charles Donald is the
Investments a government company and is wholly Accounting Officer
Limited (UKGI) owned by HM Treasury. UKGI is and Chief Executive.
responsible for managing the
government's financial interest in a range
of state-owned businesses.
UK Asset UKAR is the holding company established Ian Hares is the
Resolution Ltd in October 2010 to bring together the Accounting Officer
(UKAR) business of Bradford & Bingley and and Chief Executive.
NRAM. Following the sale of the NRAM
and Bradford & Bingley companies, UKAR
will service the residual pension schemes
and contingent liabilities related to the
sales.

Reclaim Fund Ltd Established in 2011 following the Adrian Smith is the
enactment of the Dormant Bank and Accounting Officer
Building Society Accounts Act 2008 and and Chief Executive.
the completion of the regulatory regime,
Reclaim Fund Ltd makes it possible for
money in dormant bank and building
society accounts to be used to help good
causes.
Infrastructure Incorporated in February 2009, the Charles Roxburgh is
Finance Unit Ltd principal activity of the company was to the Accounting
provide loan finance to PFI projects. In Officer. The
2017-18 outstanding PFI loans were company’s directors
repaid and it has since been used as the are directors of the
vehicle for operating the Digital Infrastructure Project
Infrastructure Investment Fund and Authority (IPA).
Charging Infrastructure Investment Fund.
In May 2021 IFUL changed its name to
UK Infrastructure Bank Ltd, and in this
form, will partner with the private sector
and local government to increase
infrastructure investment to help tackle

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 climate change and promote economic
growth across the regions and nations of
the United Kingdom.
IUK Investments The IUK Investments group, comprising Charles Roxburgh is
Holdings Ltd IUK Investments Holdings Ltd and its the Accounting
subsidiary IUK Investments Ltd, was Officer. The
established in March 2013 to hold PF2 company’s directors
investments in major infrastructure are directors of the
projects. IPA.
Help to Buy (HMT) Incorporated in September 2013, the Anna Caffyn is the
Ltd company’s sole activity is to operate the Accounting Officer
Mortgage Guarantee Schemes. and a director.
HM Treasury UK Incorporated in May 2014, the company’s Mario Pisani is the
Sovereign Sukuk sole activity has been to issue and service Accounting Officer
plc Sukuk certificates. and a director.

Treasury Group additional bodies

Name Function Accounting Officer
Sovereign Grant The Treasury is responsible for the upkeep The keeper of the
of the Sovereign Grant payments which Privy Purse and the
support HM The Queen in her official Treasurer’s Office
duties. Introduced in 2012 this funding has overall
replaced the Civil List and the three grants responsibility for the
in aid for travel, communications and the Sovereign’s financial
maintenance of the Royal Palaces. affairs. This post is
currently held by Sir
Michael Stevens
KCVO who is also
the accounting
officer for the
Sovereign Grant.
The Royal Mint RMAC was established in 1922 by King As Chief Executive of
Advisory George V to raise the standard of the Royal Mint, Anne
Committee on the numismatic art and this remains its Jessop is also the
Design of Coins, primary concern, it is responsible for Accounting Officer
Medals, Seals and recommendations on all new designs for for the RMAC.
Decorations. UK coins and official medals.
(RMAC)
Office of Tax As an independent office of the Treasury, As Director General
Simplification (OTS) the OTS provides the government with Tax and Welfare in
independent advice on simplifying the tax the Treasury, Beth
system. Russell is Accounting
Officer for the OTS.

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Office of Financial The Office of Financial Sanctions As Accounting
Sanctions Implementation helps to ensure that Officer for the
Implementation financial sanctions are properly Treasury, Tom
(OFSI) understood, implemented and enforced Scholar is also
in the United Kingdom. Accounting Officer
for OFSI.

Financial Reporting Originally set up in 1996 following the Vicky Rock

Advisory Board publication of the July 1995 White Paper represents HM
(FRAB) ‘Better Accounting for Taxpayer’s Money’, Treasury on the
the role of the Financial Reporting Board as a Relevant
Advisory Board, or FRAB, is to ensure that Authority.
government financial reporting meets the
best possible standards of financial
reporting. In 2000 the Government
Resources and Accounts Act set out that
the Treasury shall consult a group of
appropriate people to advise on financial
reporting and standards. This role is
fulfilled by FRAB as an independent body
and put the existence of the board on to
a more formal footing.

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HM Treasury contacts

This document can be downloaded from www.gov.uk

If you require this information in an alternative format or have general

enquiries about HM Treasury and its work, contact:

Correspondence Team
HM Treasury
1 Horse Guards Road
London
SW1A 2HQ

Tel: 020 7270 5000

Email: [email protected]

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