Corporate report

DLUHC annual report and accounts 2021 to 2022: 4. Financial statements

Updated 8 August 2022

Annual report and accounts 2021 to 2022 - links to all sections

1. Foreword and overview
2. Performance analysis
3. Accountability report
4. Financial statements

Consolidated Statement of Comprehensive Net Expenditure

For the year ended 31 March 2022

All activities are continuing

This account summarises the expenditure and income generated and consumed on an accruals basis. It also includes other comprehensive income and expenditure, which include changes to the values of non-current assets and other financial instruments that cannot yet be recognised as income or expenditure.

The 2020-21 financial year comparatives are restated with reference to the published financial statements for that year. The restatement is a result of the transfer of functions from Cabinet Office on the establishment of the Department for Levelling Up, Housing and Communities. A breakdown of the movements is included in Annex A.

					£’000
			2021-22		2020-21 restated
	Note	Core Department & Agency	Departmental Group	Core Department & Agency	Departmental Group
Staff Costs	3	244,067	395,645	216,672	355,633
Operating Expenditure	4	44,522,037	45,969,026	46,468,915	48,390,099
Operating Income	5	(9,919,623)	(10,978,397)	(3,218,196)	(3,904,797)
Grant-in-aid to ALBs		2,065,136	-	4,770,372	-
Net Operating Expenditure for the year ended 31 March		36,911,617	35,386,274	48,237,763	44,840,935
Total Expenditure		46,831,240	46,364,671	51,455,959	48,745,732
Total Income		(9,919,623)	(10,978,397)	(3,218,196)	(3,904,797)
Net Operating Expenditure for the year ended 31 March		36,911,617	35,386,274	48,237,763	44,840,935
Other Comprehensive Net Expenditure:
Items that will not be reclassified to net operating expenditure:
Net (Gain) / Loss on:
Pension Schemes	16	(153,984)	(256,074)	132,063	132,020
Revaluation of property, plant and equipment		(430)	(430)	-	-
Income tax on items in other comprehensive expenditure		-	16,006	-	4,932
Total comprehensive expenditure for the year ended 31 March		36,757,203	35,145,776	48,369,826	44,977,887

Consolidated Statement of Financial Position as at 31 March 2022

This statement presents the financial position of the Departmental Group. It comprises three main components: assets owned or controlled by the Group; liabilities owed to other bodies; and equity, the remaining value of the Group.

							£’000
		31 March 2022		31 March 2021 restated			1 April 2020 restated
	Note	Core Department & Agency	Departmental Group	Core Department & Agency	Departmental Group	Core Department & Agency	Departmental Group
Non-current assets
Property, plant and equipment		22,671	27,866	19,488	26,643	24,005	35,782
Intangible assets		26,534	33,478	17,328	20,485	12,129	15,495
Investments in associates and joint ventures	6	5,000	60,123	5,000	50,732	5,000	75,936
Financial assets at fair value	7	121,905	19,682,334	145,762	18,035,588	148,675	14,976,942
Financial assets at amortised cost	9	206,655	1,133,193	280,327	1,304,456	278,386	1,103,780
Investment properties		71,000	71,000	66,800	66,800	67,656	67,656
Trade and other receivables	12	205,910	293,227	184,279	376,461	118,517	195,781
Total non-current assets		659,675	21,301,221	718,984	19,881,165	654,368	16,471,372
Current assets
Inventories	11	343,159	1,511,816	323,147	1,434,033	177,594	1,175,666
Assets held for sale		-	2,450	-	2,250	-	-
Financial assets at fair value	8	6,226	90,246	4,319	233,327	-	183,954
Financial assets at amortised cost	10	104,062	589,131	50,997	536,065	114,000	664,946
Trade and other receivables	12	539,120	675,957	339,385	492,194	370,799	429,099
Cash and cash equivalents	13	3,630,224	3,849,067	4,988,685	5,272,515	-	-
Total current assets		4,622,791	6,718,667	5,706,533	7,970,384	662,393	2,453,665
Total Assets		5,282,466	28,019,888	6,425,517	27,851,549	1,316,761	18,925,037
Current liabilities
Cash and cash equivalents	13	-	-	-	-	2,801,930	2,564,992
Trade and other payables	14	5,854,640	6,267,546	6,751,978	7,301,718	967,719	1,405,482
Provisions	15	20,549	26,022	33,267	34,749	30,429	30,753
Total current liabilities		5,875,189	6,293,568	6,785,245	7,336,467	3,800,078	4,001,227
Non-current assets plus/less net current assets/liabilities		(592,723)	21,726,320	(359,728)	20,515,082	(2,483,318)	14,923,810
Non-current liabilities
Trade and other payables	14	304,195	419,307	337,032	528,177	260,650	376,478
Provisions	15	103,974	114,328	56,977	76,247	72,279	84,734
Pensions	16	62,532	(64,010)	209,429	165,228	74,325	36,503
Financial guarantees		112,398	112,398	117,388	117,388	94,804	94,804
Total Non-current liabilities		583,099	582,023	720,826	887,040	502,058	592,519
Assets less liabilities		(1,175,822)	21,144,297	(1,080,554)	19,628,042	(2,985,376)	14,331,291
Taxpayers’ equity
General fund		(1,144,549)	21,024,737	(894,867)	19,762,254	(2,931,650)	14,334,146
Revaluation reserve		728	728	298	298	196	196
Pension reserve		(32,001)	118,832	(185,985)	(134,509)	(53,922)	(3,051)
Total taxpayers’ equity		(1,175,822)	21,144,297	(1,080,554)	19,628,043	(2,985,376)	14,331,291

Jeremy Pocklington CB 15 July 2022

Accounting Officer

Department for Levelling Up, Housing and Communities

Consolidated Statement of Cash Flows

For the year ended 31 March 2022

The Statement of Cash Flows shows the changes in cash and cash equivalents of the Departmental Group during the reporting period. The statement shows how the department generates and uses cash and cash equivalents by classifying cash flows as operating, investing and financing activities. The amount of net cash flows arising from operating activities is a key indicator of service costs and the extent to which these operations are funded by way of income from the recipients of services provided by the Group. Investing activities represent the extent to which cash inflows and outflows have been made for resources which are intended to contribute to the department’s future public service delivery.

					£’000
	Note		2021-22		2020-21 restated
		Core Department & Agency	Departmental Group	Core Department & Agency	Departmental Group
Cash Flows from Operating Activities
Net Operating Expenditure	SoCNE	(36,911,617)	(35,386,274)	(48,237,763)	(44,840,935)
Adjusted for:
Finance (income)/ costs	4,5	14,708	(836,879)	(3,018)	(515,695)
(Profit) / loss on disposal of non-current assets	4,5	-	(25,163)	-	7,010
Depreciation and amortisation	4	12,984	17,770	9,898	14,446
Revaluation of non-current assets passing through the SoCNE	4	(4,200)	(4,200)	856	856
Impairment of non-current assets	4	6,631	(159,620)	(5,012)	262,007
Other non cash transactions	4,5	217	16,669	2,877	6,081
(Increase) / decrease in inventories	11	(20,012)	(77,783)	(145,553)	(258,367)
(Increase) / decrease in trade & other receivables		(229,926)	(134,413)	(22,068)	(222,693)
Increase / (decrease) in trade & other payables		447,553	234,686	943,737	1,124,889
Movement in provisions	4	60,455	56,643	9,656	17,803
Utilisation of provision	15	(26,178)	(27,291)	(22,117)	(22,291)
Pension fund adjustments	16	-	20,865	81	(838)
Local share (business rates retained by local authorities)	4	7,482,007	7,482,007	16,345,279	16,345,279
Adjustments for Corporation Tax		-	(16,006)	-	1,303
Adjustments for net operating (gains)/losses - asset transfers	4,5	-	-	1,039	1,039
Other adjustments - operating activities		-	-	23,814	23,814
Net Cash outflow from operating activities		(29,167,378)	(28,838,989)	(31,098,294)	(28,056,292)
Cash Flows from Investing Activities
Purchase of property, plant and equipment		(10,995)	(12,680)	(2,972)	(6,010)
Purchase of intangible assets		(15,391)	(21,308)	(8,616)	(10,405)
Financial assets issued		-	(3,057,822)	-	(4,689,697)
Proceeds from disposal of joint ventures		-	2,699	-	30,987
Proceeds on disposal of financial assets		-	2,076,809	834	1,275,033
Proceeds of disposal of property, plant and equipment		-	2,250	-	-
Repayment of financial assets	7,8,9,10	35,256	538,842	66,331	399,523
Interest received	5	(1,125)	59,500	5,655	70,612
Other adjustments - investing activities		-	26,481	13	(3,587)
Net Cash inflow / (outflow) from investing activities		7,745	(385,229)	61,245	(2,933,523)
Cash Flows from Financing Activities
From the consolidated fund (supply) - current year		29,750,000	29,750,000	37,189,488	37,189,488
From the consolidated fund (non-supply) - current year		58,616	58,616	20,500	20,500
From the consolidated fund - Excess Vote 2019-20		-	-	2,867,896	2,867,896
Advances from the contingencies fund		-	-	4,974,984	4,974,984
Repayments of advances from the contingencies fund		-	-	(4,974,984)	(4,974,984)
Capital element of payments in respect of finance leases		(4,954)	(4,954)	(4,705)	(4,705)
Interest paid	4	(4,897)	(5,299)	(5,146)	(5,488)
Foreign exchange movements		(8,863)	(8,863)	2,053	2,053
Net Cash inflow / (outflow) from financing activities		29,789,902	29,789,500	40,070,086	40,069,744
Net increase/(decrease) in cash and cash equivalents in the period before adjustment for receipts and payments to the Consolidated Fund		630,269	565,282	9,033,037	9,079,937
Payments due to the Consolidated Fund		(1,988,730)	(1,988,730)	(1,242,422)	(1,242,422)
Net increase/(decrease) in cash and cash equivalents in the period after adjustment for receipts and payments to the Consolidated Fund		(1,358,461)	(1,423,448)	7,790,615	7,837,507
Cash and cash equivalents at the beginning of the period	13	4,988,685	5,272,515	(2,801,930)	(2,564,992)
Cash and cash equivalents at the end of the period	13	3,630,224	3,849,067	4,988,685	5,272,515

Consolidated Statement of Changes in Taxpayers’ Equity

For the year ended 31 March 2022

This statement shows the movement in the year on the different reserves held by the Departmental Group, analysed into three reserves. The General Fund reflects contributions from the Consolidated Fund, which represents the total assets less liabilities of the Departmental Group, to the extent that the total is not represented by other reserves and financing items. Revaluation Reserve reflects the change in asset values that have not been recognised as income or expenditure. The Pension Reserve reflects actuarial gains/losses on pension schemes.

									£’000
	Note		General Fund		Revaluation Reserve		Pension Reserve		Total Reserves
Balance at 31 March 2020			14,362,872		196		(3,661)		14,359,407
Machinery of Government Change restatement			(4,242)		-		-		(4,242)
Balance at 31 March 2020			14,358,630		196		(3,661)		14,355,165
Comprehensive Net Expenditure (restated)	SOCNE		(44,845,867)		-		(132,020)		(44,977,887)
Non cash charges - auditor’s remuneration	4		425		-		-		425
Local share (business rates retained by local authorities)	4		16,345,279		-		-		16,345,279
Other adjustments to reserves			(10)		93		-		83
Transfers between reserves (restated)			(1,181)		9		1,172		-
Total recognised income and expenses for 2020-21			(28,501,354)		102		(130,848)		(28,632,100)
Net Parliamentary Funding - drawn down			37,189,488		-		-		37,189,488
Net Parliamentary Funding - excess vote			2,867,896		-		-		2,867,896
Consolidated Fund Standing Services -non supply - drawn down:			20,500		-		-		20,500
Supply (payable)/receivable			(4,923,587)		-		-		(4,923,587)
CFERs payable to the Consolidated Fund (restated)	SoPS4.1		(1,249,319)		-		-		(1,249,319)
Sub Total			33,904,978		-		-		33,904,978
Balance at 1 April 2021			19,762,254		298		(134,509)		19,628,043
Comprehensive Net Expenditure	SOCNE		(35,402,280)		-		256,074		(35,146,206)
Non cash charges - auditor’s remuneration	4		460		-		-		460
Local share (business rates retained by local authorities)	4		7,482,007		-		-		7,482,007
Other adjustments to reserves			(59)		430		-		371
Transfers between reserves			2,733		-		(2,733)
Total recognised income and expenses for 2021-22			(27,917,139)		430		253,341		(27,663,368)
Net Parliamentary Funding - drawn down			29,750,000		-		-		29,750,000
Net Parliamentary Funding - deemed supply			4,923,588		-		-		4,923,588
Consolidated Fund Standing Services -non supply - drawn down:			58,616		-		-		58,616
Supply (payable)/receivable			(3,602,697)		-		-		(3,602,697)
CFERs payable to the consolidated fund	SoPS4.1		(1,949,885)		-		-		(1,949,885)
Sub Total of Net Parliamentary Funding and CFERs payable			29,179,622		-		-		29,179,622
Balance at 31 March 2022			21,024,737		728		118,832		21,144,297

Core Department and Agency Statement of Changes in Taxpayers’ Equity

For the year ended 31 March 2022

									£’000
	Note		General Fund		Revaluation Reserve		Pension Reserve		Total Reserves
Balance at 31 March 2020			(2,903,534)		257		(53,922)		(2,957,199)
Machinery of Government Change restatement			(4,242)		-		-		(4,242)
Balance at 1 April 2020			(2,907,776)		257		(53,922)		(2,961,441)
Comprehensive Net Expenditure (restated)	SOCNE		(48,237,763)		-		(132,063)		(48,369,826)
Non cash charges - auditor’s remuneration			425		-		-		425
Local share (business rates retained by local authorities)	4		16,345,279		-		-		16,345,279
Other adjustments to reserves (restated)			(10)		41		-		31
Total recognised income and expenses for 2020-21			(31,892,069)		41		(132,063)		(32,024,091)
Net Parlimentary Funding - drawn down			37,189,488		-		-		37,189,488
Net Parliamentary Funding - excess vote			2,867,896		-		-		2,867,896
Consolidated Fund Standing Services -non supply - drawn down:			20,500		-		-		20,500
Supply (payable)/receivable			(4,923,588)		-		-		(4,923,588)
CFERs payable to the Consolidated Fund (restated)	SoPS4.1		(1,249,319)		-		-		(1,249,319)
Sub Total			33,904,977		-		-		33,904,977
Balance at 1 April 2021			(894,868)		298		(185,985)		(1,080,555)
Comprehensive Net Expenditure	SOCNE		(36,911,617)				153,984		(36,757,633)
Non cash charges - auditor’s remuneration			460		-		-		460
Local share (business rates retained by local authorities)	4		7,482,007		-		-		7,482,007
Other adjustments to reserves			(153)		430		-		277
Total recognised income and expenses for 2021-22			(29,429,303)		430		153,984		(29,274,889)
Net Parliamentary Funding - drawn down			29,750,000		-		-		29,750,000
Net Parliamentary Funding - deemed supply			4,923,588		-		-		4,923,588
Consolidated Fund Standing Services -non supply - drawn down:			58,616		-		-		58,616
Supply (payable)/receivable			(3,602,697)		-		-		(3,602,697)
CFERs payable to the consolidated fund	SoPS4.1		(1,949,885)		-		-		(1,949,885)
Transfers between reserves
Sub Total			29,179,622		-		-		29,179,622
Balance at 31 March 2022			(1,144,549)		728		(32,001)		(1,175,822)

Notes to the Departmental Accounts

Note 1. Statement of Accounting Policies

1. General

These consolidated financial statements have been prepared in accordance with the Accounts Direction issued by HM Treasury under section 5 (2) of the Government Resources and Accounts Act 2000.

The accounting policies adopted are in accordance with the 2021-22 Financial Reporting Manual (FReM) issued by HM Treasury and apply International Financial Reporting Standards (IFRS) as adapted or interpreted for the public sector context. Where the FReM permits a choice of accounting policy, the accounting policy which has been judged to be most appropriate to the particular circumstances of the Departmental Group for the purpose of giving a true and fair view has been selected.

2. Basis of consolidation

These Financial Statements consolidate those of the core department, the department’s executive agency and those arm’s length bodies (ALBs) which fall within the departmental boundary as defined by the FReM; these bodies make up the ‘Departmental Group’. The Department for Levelling Up, Housing and Communities is the ultimate parent of the Departmental Group and its results, along with those of the department’s executive agency, are presented in columns labelled ‘Core Department & Agency’. Transactions between, and balances with, entities included in the Departmental Group are eliminated. A list of all those entities within the departmental boundary is given in Note 24.

3. Impact of standards and interpretations in issue but not yet effective

The department has adopted all IFRS, International Accounting Standards (IAS), International Financial Reporting Interpretations Committee (IFRIC) interpretations and amendments to published standards that were effective at 31 March 2022. The department has taken into account the specific interpretations and adaptations included in the FReM.

The department has assessed the following standards and amendments that have been issued but are not yet effective and determined not to adopt them before the effective date:

• IFRS 16 (Leases) has been effective since 1 January 2019 for the private sector and has been introduced in the 2022-23 FReM to replace IAS 17 (Leases). The new standard amends the accounting for lessees, removing the distinction between recognising an operating lease (off balance sheet) and a finance lease (on balance sheet). The new standard requires recognition of all qualifying leases on balance sheet. The result will be recognition of a right to use asset, measured at the present value of future lease payments, with a matching liability. The value of the Right of Use Asset on transition to IFRS16 is estimated to be £65m, resulting in depreciation for the financial year of £7m. A financial liability of the same value as the right of use assets will also be recognised.
• The International Accounting Standards Board (IASB) has issued IFRS 17 (Insurance Contracts) which replaces IFRS 4 (Insurance Contracts). It is expected to be effective for accounting periods beginning on or after 1 January 2023, following IASB decisions to defer the effective date. Guidance to departments for how to apply the standard is expected in December 2022.

4. Segmental reporting

In accordance with IFRS 8: Operating Segments (IFRS 8), the department has considered the need to analyse its income and expenditure relating to operating segments. The department’s operating costs are analysed into four operating segments. Activities in respect of Finance and Corporate Services, Strategy, Communications and Private Office are not reported as a segment as these are all administrative functions. They do not meet the specified criteria of a reportable segment in line with IFRS 8 because they do not directly impact on performance. The department does not consider that assets and liabilities can be meaningfully allocated to segments and manages and reports on assets and liabilities as a single block. Therefore, in accordance with IFRS 8, no breakdown of assets and liabilities by segment is given. See Note 2 for operational disclosures.

5. Significant estimates and judgements

The preparation of the financial statements requires management to make estimates and judgements that affect amounts reported. Estimates and judgements are based on knowledge of current facts and circumstances, historic experience and other relevant factors. Where significant estimates and judgements have been made, the relevant accounting policy or note to the accounts will provide further details. Note 17 sets out significant estimates and judgements in relation to Financial Instruments.

Expected Credit Losses

International Financial Reporting Standard 9: Financial Instruments (IFRS 9) requires an Expected Credit Loss allowance calculation to be performed with reference to the level of credit risk and performance of each investment. The determination of the risk associated with each asset is a key judgement by management as the result determines whether a 12-month loss allowance or a lifetime loss allowance is calculated for that asset. The Expected Credit Losses are calculated by comparing the estimated balance at the time of default against moderated security values (calculated by applying Modified Security Value percentages (MSVs) to gross security values to estimate the likely value which might be realised from a sale of security in distressed circumstances).

In addition to calculating either 12-month or lifetime loss allowances, IFRS 9 also requires consideration of how the calculation would vary under alternative economic scenarios. This has been achieved by varying the application of PD assumptions to the same base loan data for each scenario modelled. The results calculated for each scenario are then used to calculate an unbiased, weighted-average loss allowance. This is done by using the relative likelihood of each scenario, based on an internal view of their relative probability. Changes in assumptions can have a significant impact on the Expected Credit Loss Allowance calculation. A sensitivity analysis demonstrating how changes in assumption change the allowance is included in Note 17.

Valuation of land and property assets classified as inventory

Valuations for land and property assets are performed by internal and external valuers when there is evidence of a change in value but in all cases where the net realisable value of the asset was more than or equal to £5m in the preceding year. However, during the year and in light of the potential for uncertainty arising from the COVID-19 pandemic, a decision was made at the outset of the valuation process that all assets with a net realisable value of £150,000 or more would require a valuation. Valuations are required to adhere to the current edition of RICS Valuation – Professional Standards, i.e. Red Book valuations. The valuation methodology reflects the objectives and conditions for each asset.

Defined benefit pensions

The value of the defined benefit pension assets and liabilities have been assessed by qualified independent actuaries. In making these assessments, it is necessary for actuarial assumptions to be used which include future rates of inflation, salary growth, discount rates and mortality rates. Differences between those estimates used and the actual outcomes will be reflected in taxpayers’ equity in future years.

Because assets managed under the pension schemes are mainly in quoted investments, the pension assets stated at year-end are less susceptible to valuation uncertainty than other balances disclosed in the Financial Statements. Of the £2.5 billion employer assets at 31 March 2022 disclosed in Note 16, only £176.8 million was investment in property and is subject to the uncertainty outlined above in relation to the land and property assets.

6. Inventories

The Departmental Group property and development assets, consisting of land and buildings, are valued in accordance with IAS2.

A valuation of the whole portfolio is carried out as at each reporting date by both internal and external qualified valuers, with independent external valuers appointed for the majority of the portfolio’s value and also to value complex properties. The determination of the portfolio value, by its nature, involves a significant amount of estimation uncertainty and accordingly, is a significant estimate within the accounts. In all cases valuations are in accordance with the ‘RICS Valuation – Global Standards 2017’ Red Book published by the RICS.

A receivable (net of VAT) from the disposal of development property assets is recognised when there is a legally binding sale agreement, which has become unconditional and irrevocable by the end of the reporting period, subject to any provisions necessary to cover residual commitments relating to the property. This receivable is classed as a fair value through profit or loss financial asset under IFRS 9.

Claims for payment to 2014-20 European Regional Development Fund (ERDF) projects are initially charged against work in progress and only recognised as an expense once certified as compliant with the ERDF Regulations, such that the related ERDF income can be recognised. Where any amounts charged to work in progress subsequently fail certification, recovery of the cost is sought from projects. Further details about the ERDF balances included in these accounts can be found in Annex C.

7. Financial Assets

Classification of financial assets

Two criteria are used to determine how financial assets should be classified and measured under IFRS 9:

• The business model for managing the asset; and
• The contractual cash flow characteristics of the financial asset

The measurement categories reflect the nature of the cash flow and the way they are managed. The three categories are:

• financial assets measured at amortised cost;
• financial assets measured at fair value through other comprehensive income (FVOCI); and
• financial assets measured at fair value through profit or loss (FVTPL).

The contractual cash flow characteristics are either:

• financial assets held to collect cash flows only; or
• the assets are held to collect cash flows and to sell.

The department’s financial assets are initially measured at fair value but are classified into those subsequently measured at either amortised cost or fair value through profit and loss, in accordance with IFRS 9. Financial assets are measured at Amortised Cost if they are held within a business model whose objective is to hold financial assets in order to collect contractual cash flows, and their contractual cash flows represent solely payments of principal and interest (SPPI). Other financial assets are measured at fair value through profit or loss.

Amortised cost assets

Amortised cost assets comprise loans to public and private sectors and the QEII public dividend capital (PDC) balance. These loans meet the SPPI test because they are solely payments of principal and interest and are not linked to other valuation movements such as property prices. The FReM specifies that PDC is held at amortised cost. The department holds these assets to collect cashflows with no intention of selling.

For amortised cost assets, an expected credit loss allowance is calculated based on the probability of a loss (or default) occurring, and the estimated value of the loss, taking into account the value of any collateral available to the department. The probability of loss is calculated based on credit ratings. The loan exposure is calculated based on projecting contractual cashflows into the future which are adjusted based on assumptions of potential arrears and wider economic factors. The value of collateral available to the department is calculated based on the expected value of properties constructed under the loans, which is adjusted for distressed sale conditions and wider economic assumptions. The impairment calculation is set at 12 months of expected credit losses unless there has been a significant increase in credit risk, when it increases to the lifetime expected credit loss. The simplified approach of recognising the lifetime expected credit loss is applied to trade receivables.

The methodologies used to determine the expected credit loss are considered to be an area of estimation and judgment within the accounts. The assumptions which can have a significant impact on the Expected Credit Loss Allowance calculation are as follows:

• Probability of Default: Probability of Default values are determined with reference to current economic conditions. The Probability of Default values are applied to each Investment in relation to their Credit Risk Rating.
• Economic Scenarios and relative Weightings: The Standard requires the department to consider alternative economic scenarios in the calculation of the Expected Credit Loss Allowance. For each identified scenario, variations are made to the Probability of Default values applied based on an individual investment’s Credit Risk Rating. The amount of change applied is dependent on the scenario. Weightings are applied to the Expected Credit Loss calculations for each scenario, determined in relation to the probability of each scenario occurring, with reference to current market and credit risk expectations.
• Loss Given Default (LGD) Floor: A minimum percentage value has been applied to the LGD calculation with reference to individual investments. This is in line with the requirements of IFRS 9, where historic data is insufficient to provide an evidence base for anticipated losses on default. At 31 March 2021 and at 31 March 2022 the LGD floor applied was 35%.
• Moderated Security Values (MSVs): To reflect the expected value which might reasonably be realised from the sale of security in the event of default, MSV percentages are applied to gross security values to determine a measure of Loss Given Default (when compared against the estimated exposure on default). The MSVs are varied depending on the type of security held. A lower MSV percentage results in a higher discount applied to the determined security values.

Fair value through profit or loss

Fair value through profit or loss assets comprise the Help to Buy asset portfolio, property investments and other financial assets that are not SPPI. The department expects to hold these assets until they are derecognised when the underlying property assets are sold by the owners. The department therefore does not hold them for collection of contractual cashflows or for sale. The cashflows due to the department from these assets are variable subject to movements in the housing market, so do not consist of solely payments of principal and interest.

Where assets are to be measured at fair value, this is performed with reference to the requirements of International Financial Reporting Standard 13 Fair Value Measurement (IFRS 13), applying considerations which follow the three hierarchies set out under the standard for determining fair value. Note 17 provides further detail on how the department measures fair values.

The department holds no financial assets measured at fair value through other comprehensive income.

8. Financial Liabilities

The department’s financial liabilities including trade and other payables are measured at amortised cost. The valuation of provisions is an area of estimate and judgement.

9. Financial Guarantees

The department provides Affordable Housing Guarantees (AHG) over borrowing to Private Registered Providers to facilitate access to borrowing at competitive interest rates to fund the building of affordable housing. The guarantees are recognised in line with IFRS 9 at the higher of initial fair value and expected loss, with a probability-weighted model used as the basis of the accounting valuation. The department provides Private Rented Sector guarantees over borrowing to incentivise institutional investment in the supply of new, purpose built and professionally managed private rented sector homes. The guarantees are recognised in line with IFRS 9 at the higher of initial fair value and expected loss, with the accounting valuation based on the lifetime fee that will be paid by the borrower in return for the guaranteed funds. This fee includes the cost of risk, administration costs and a fee to the department based on appropriate remuneration.

The department provides ENABLE Build guarantees over borrowing by smaller housebuilders The guarantees are recognised in line with IFRS 9 at the higher of initial fair value and expected loss, with the accounting valuation based on the lifetime fee that will be paid by the borrower in return for the guaranteed funds. The methodology used to determine the fair value of the guarantees is considered to be an area of estimation and judgment within the accounts.

10. Principal Civil Service Pension Scheme

Past and present employees of the core department and agency are covered by the provisions of the Principal Civil Service Pension Scheme (PCSPS). This comprises several schemes which are unfunded defined benefit schemes with varying contribution rules and rates. The department recognises the expected cost of employers’ contributions over the period during which it benefits from employees’ services by payments to the PCSPS of amounts calculated on an accruing basis. Liability for payment of future benefits is a charge on the PCSPS and not recognised in these accounts.

For details of other pension schemes the department holds, please see Note 16. Employees of arm’s length bodies (ALBs) are generally members of funded defined benefit schemes. More details of individual schemes are available in the annual accounts of the bodies concerned.

The valuation of pension liabilities is an area of estimate and judgement. The value of the department’s and ALB’s defined benefit pension assets and liabilities have been assessed by qualified independent actuaries. In making these assessments, it is necessary for actuarial assumptions to be used which include future rates of inflation, salary growth, discount rates and mortality rates. Differences between those estimates used and the actual outcomes will be reflected in taxpayers’ equity in future years.

11. Income

Operating income relates directly to the operating activities of the department.

Business Rates income represents the tariff retention by the department and is accounted for in accordance with IFRS 15, as adapted by the FReM for taxation revenue. As there are no performance obligations and the revenue is non-refundable, revenue is recognised when an equivalent to a taxable event has occurred, the revenue can be measured reliably and it is probable that the assisted economic benefits from the taxable event will flow to the collecting entity. All these elements must be satisfied. Revenue is determined via NNDR1 claim forms submitted by local authorities. The amounts recognised also include final adjustments to prior years’ figures where eligibility has been confirmed by inclusion of audited figures in local authority NNDR3 (National Non-Domestic Rates Return - a submission whereby local authorities calculate their non-domestic rating income).

Income from financial instruments is accounted for in line with IFRS 9.

12. Grants

Grants made or received by the department are recorded as expenditure or income respectively in the period that the underlying event or activity giving entitlement to the grant occurs, such as milestones within the grant agreement being reached. Unringfenced grants are recognised on the occurrence of such other event giving rise to entitlement, such as a signed agreement creating an unconditional expectation to the grant funding.

Grants to local authorities include the Revenue Support Grant which finances revenue expenditure and capital grants which finance non-current assets. These are agreed through the local government finance settlement. In addition, specific grants are distributed outside the settlement. Grants to Local Authorities may be paid out under section 31 of the Local Government Act 2003, and are generally unringfenced. Unringfenced grants are provided for a specific programme, but can be used against other Local Authority spending if required. Where ringfenced for a specific purpose, unspent funding will be subject to clawback. Local Authorities are provided with a Grant Determination letter, outlining the amounts due, when they should be spent by, whether they are intended for resource or capital projects, and whether subject to any clawback.

Grants to charities and voluntary organisations can be paid under section 70 of the Charities Act 2006. Details of grants paid under these powers are included in Annex C. Grants to other organisations must be directly applied for, and evidence provided to demonstrate that they meet the programme eligibility. New grant schemes are developed in accordance with Cabinet Office framework on grants.
Grant-in-Aid payments from the core department to ALBs are paid only when the need for cash has been demonstrated by the body concerned. ALBs treat receipts of Grant in Aid as financing in accordance with the FReM. These transactions are eliminated on consolidation.

Grant payments may need to be recovered from recipients for a variety of reasons depending on the grant conditions. Where recoveries are made income is recognised at the point that the invoice, or other notice requiring repayment, has been issued.

Grant expenditure in respect of Business Rates is also recognised at the point at which eligibility is determined. Local Authorities provide a declaration of the non-domestic business rates collected, signed by the Officer responsible for proper administration under section 151 of the Local Government Act 1972. The submission of returns enables calculation of business rate top-up grants, and the “local share”. The local share refers to the business rates that local authorities retain under Business Rates Retention. The department records notional income to reflect the rates due to the department and a notional grant to local authorities for the amount that they are permitted to retain. This notional expenditure is reversed by a credit to General Fund.

Grant expenditure and income in respect of ERDF is also recognised at the point at which eligibility is determined. Further details about the ERDF balances included in these accounts can be found in Annex E.

13. Going concern

The financial statements of the department have been prepared on the basis that the department is a going concern. Financial provision for its activities is included in the 2021 Spending Review which set out budgets for 2022-25 and parliament has authorised spending for 2022-23 in the Central Government Main Supply Estimates 2022-23.

Legislation requires that election expenses of Returning Officers are met directly from HM Treasury’s Consolidated Fund as a Consolidated Fund Standing Service without the need for further annual authorisation from parliament.

Note 2. Operating costs by operating segment

The department’s operating costs are analysed into four operating segments. Activities in respect of Finance and Corporate Services, Strategy, Communications and Private Office are not reported as a segment as these are all administrative functions. They do not meet the specified criteria of a reportable segment in line with IFRS 8 because they do not directly impact on performance.

Net programme expenditure against the four operating segments is shown in the following table. Programme expenditure on ‘Research, Data and Trading Funds’ and ‘DLUHC staff, buildings and infrastructure’ (Estimate Rows E and F in the Estimate) and administration expenditure is not allocated to segments and these form the reconciling items in Note 2.1.

											£’000
						2021-22					2020-21 restated
	Note	Local Government and Public Services	Troubled Families	Housing and Planning	Decentralisation and Growth	Total	Local Government and Public Services	Troubled Families	Housing and Planning	Decentralisation and Growth	Total
Gross Expenditure	SoPS1.1	38,835,277	168,209	4,686,745	2,218,835	45,909,066	39,729,120	160,475	5,318,080	3,113,874	48,321,549
Income	SoPS1.1	(3,062,757)		(1,478,576)	(582,819)	(5,124,152)	(1,843,555)		(1,176,479)	(567,512)	(3,587,546)
Net Expenditure		35,772,520	168,209	3,208,169	1,636,016	40,784,914	37,885,565	160,475	4,141,601	2,546,362	44,734,003

The department does not consider that assets and liabilities can be meaningfully allocated to segments and manages and reports on assets and liabilities as a single block. Therefore, in accordance with IFRS 8, no breakdown of assets and liabilities by segment is given.

2.1 Reconciliation between operating segments and CSoCNE

The table below shows the small difference between expenditure analysed in Note 2 and total expenditure in our Consolidated Statement of Comprehensive Net Expenditure. It relates to the income and expenditure of the activities not included in Note 2 as operating segments along with non-budget income the department passes to HM Treasury.

						£’000
					2021-22	2020-21
				Note	Total	Total
Total net expenditure reported for operating segments				2	40,784,914	44,734,003
Reconciling items:
Income					(229,553)	(317,251)
Expenditure					233,048	561,135
Total net expenditure per Statement of Comprehensive Net Expenditure				SoCNE	40,788,409	44,977,887

Note 3. Staff Costs

					£’000
			2021-22		2020-21 restated
	Notes	Core Department & Agency	Departmental Group	Core Department & Agency	Departmental Group
Staff Costs		244,067	395,645	216,672	355,633

Note 4: Operating Expenditure

					£’000
			2021-22		2020-21 restated
	Notes	Core Department & Agency	Departmental Group	Core Department & Agency	Departmental Group
Non-Cash Items
Asset transfers: capital grant in kind expenditure		-	-	1,039	1,039
Depreciation and amortisation		12,984	17,770	9,898	14,446
Impairment/(revaluation) of Property, Plant and Equipment		-	(1,460)	126	2,968
Impairment/(revaluation) of other financial assets		6,631	(158,160)	(5,138)	259,039
Impairment of inventory		-	18,985	-	67,013
Impairment/(revaluation) of assets		(4,200)	(4,200)	856	856
ERDF write-offs and disallowances		(4)	(4)	1,148	1,148
Auditors remuneration (1)		460	460	425	425
Increase/Decrease in provisions (Provisions provided for in year less any release)	15	60,455	56,643	9,656	17,803
Write-off of bad debt		(239)	16,213	1,304	4,516
Net interest on pension scheme liabilities	16	4,112	2,726	1,685	(4,098)
Admin charge on pension assets	16	2,975	3,246	1,275	1,545
Share of Loss of Joint Ventures and Associates	6	-	-	-	1,673
Notional costs		146	146	132	132
Local share (business rates retained by local authorities)		7,482,007	7,482,007	16,345,279	16,345,279
Other non cash costs		(6,992)	(6,992)	3,896	3,896
Total Non Cash Items		7,558,335	7,427,380	16,371,581	16,717,680
Cash Items
Rentals under operating leases		471	1,198	406	1,205
Accommodation including rentals under operating leases		16,462	24,771	8,529	18,106
Research and development		16,711	16,711	9,743	9,743
Legal and professional services		72,411	132,573	74,357	138,170
Consultancy		6,514	6,562	16,034	16,093
Marketing and communications		11,017	13,800	834	6,287
Training and development		3,807	4,989	2,145	3,301
Auditors remuneration1		52	797	47	739
IT expenditure		30,789	38,548	34,764	42,896
Travel and subsistence		1,817	3,210	699	1,253
Returning Officer Expenses (2)		54,930	54,930	(5,485)	(5,485)
ERDF exchange rate losses (realised)		8,863	8,863	-	-
Interest payable		4,897	5,299	5,146	5,488
Taxation		896	(3,333)	454	7,123
ERDF grants		540,626	540,626	564,724	564,724
Revenue support grant and PFI grant		1,831,617	1,831,617	1,822,692	1,822,692
Business rates retention (top ups)		3,072,370	3,072,370	1,834,559	1,834,559
Other capital grants to local authorities		2,844,454	3,252,294	3,863,978	4,199,449
Other current grants to local authorities (3)		28,386,472	28,391,164	21,806,955	21,807,573
Other grants		44,654	1,115,118	50,752	1,176,831
Other cash costs		13,872	29,539	6,001	21,672
Total Cash Items		36,963,702	38,541,646	30,097,334	31,672,419
Total		44,522,037	45,969,026	46,468,915	48,390,099

Footnotes:

(1) The external auditors total group fees (notional and cash) for all statutory audit work were £1.10 million. Of the £0.79 million cash charge for auditor’s remuneration, £0.64 million relates to external audit fees and the remaining relates to other assurance work not performed by external audit.

(2) Returning Officer Expenditure is the reimbursement of costs incurred by Returning Officers in the course of organising and holding national elections. A breakdown of costs by election is in Annex C.

(3) Other current grants to local authorities include payments under the grants programmes in the table below.

Grant Programme	Amount £000
Expanded Retail Discount	5,827,605
Business Rate Collection Deficit funding	4,243,477
Council Tax Rebate Scheme	3,069,445
Better Care Fund contribution	1,979,389
Social Care Support Grant	1,710,000
Covid-19 Local Authority Expenditure support	1,550,000
Business Rate Relief Top up funding	1,535,309
Covid 19 Additional Relief Fund	1,500,000
Small Business Rate relief	917,229
National Non-Domestic Rate Collection Deficit funding	820,057
Covid 20-21 Tax Income Guarantee Scheme	799,627
Business Rate inflation cap	679,359
Covid Local Council Tax Support	670,000
New Homes Bonus	622,274
Homelessness Prevention Grant	374,943
Sales fees & charges support grant	208,539
Rough Sleeping Initiative	193,700
Independent Living Fund	160,600
Local Authority funding for statutory duties under Domestic Abuse	124,500
UK Community Renewal Fund	118,011
Fire Pensions Grant	115,000
Lower Tier Services Grant	111,000
Other current grants under £100m	1,061,100
Total other current grants to local authorities	28,391,164

Note 5. Operating Income

					£’000
			2021-22		2020-21 restated
	Notes	Core Department & Agency	Departmental Group	Core Department & Agency	Departmental Group
Non Cash Items
Gain on sale of non current assets and assets held for sale		-	109,366	-	97,397
Increase in fair value - FVTPL assets		-	790,020	2,368	446,590
ERDF exchange rate gains (unrealised)		272	272	4,944	4,944
Notional income		146	146	132	132
Share of profit of joint ventures and associates	6	-	229	-	-
Total Non Cash Items		418	900,033	7,444	549,063
Cash Items
CFER income		48,155	48,155	180,827	180,827
Grant income		583,583	610,880	602,083	621,759
Business rate relief returns		5,624,692	5,624,692	-	-
ERDF grant income		582,171	582,171	574,418	574,418
Business rates retention (tariff)		3,059,760	3,059,760	1,822,292	1,822,292
Goods and services		4,816	4,871	5,715	5,742
Accommodation		19	4,280	(47)	4,398
Fees		13,760	26,266	14,155	26,657
ERDF exchange rate gains (realised)		-	-	2,053	2,053
Interest and dividends		(1,125)	59,500	5,655	70,612
Miscellaneous		3,374	57,789	3,601	46,976
Total Cash Items		9,919,205	10,078,364	3,210,752	3,355,734
Total		9,919,623	10,978,397	3,218,196	3,904,797

Note 6. Investments in associates and joint ventures

	£’000
	Investment in Associates & Joint Ventures
Opening balance at 1 April 2020	75,936
Additions	4,110
Revaluation	(30,987)
Profit / (loss) on JV or Associate	1,673
Balance at 31 March 2021	50,732
Additions	11,861
Disposal	(2,699)
Profit / (loss) on JV or Associate	229
Balance at 31 March 2022	60,123
Of which:
Core Department	5,000
Agencies	-
Designated bodies	55,123

Investments in associates and joint ventures are accounted for in accordance with IAS 28 via the Equity method.

Investments of the core department relate to a 50% share in the Nottingham joint venture between the department and Alliance Boots Holdings Limited whose principal activity is site preparation works. Investments of designated bodies at 31 March 2022 include:

Name of undertaking	Interest	Nature of business
English Cities Fund Limited Partnership	46%	Property development
Countryside Maritime Limited	50%	Development of land
Kier Community Living LLP	26%	Property development
Temple Quay Management Limited	24%	Property management company
Kings Waterfront (Estates) Limited	50%	Property management company
Pride in Camp Hill	33%	Regeneration of Camp Hill area of Nuneaton

Note 7: Financial assets at fair value through profit or loss: due after one year

				£’000
	Investments in Help to Buy Programme	Other investments and equity schemes	Due from disposal of land and property	Total non current financial assets
Balance at 1 April 2020	14,016,310	702,263	258,368	14,976,941
Additions	4,059,942	149,343	29,977	4,239,262
Write down / Impairments	(242,505)	(42,468)	(277)	(285,250)
Fair value gains/(losses)	401,421	38,402	2,368	442,191
Disposal	(1,181,623)	(99,333)	(834)	(1,281,790)
Transfer to receivables < 1year	-	(51,446)	-	(51,446)
Transfers in / (out)	-	-	(4,319)	(4,319)
Balance at 31 March 2021	17,053,545	696,761	285,283	18,035,589
Additions	2,383,702	169,012	34,154	2,586,868
Write down/ Impairments	144,308	19,283	(7,312)	156,279
Fair value gains/(losses)	707,565	70,066	-	777,631
Disposal	(1,860,919)	(204,334)	-	(2,065,253)
Transfers in / (out)	-	-	(669)	(669)
Transfer to receivables < 1year	-	193,796	(1,907)	191,889
Balance at 31 March 2022	18,428,201	944,584	309,549	19,682,334
Of which:
Core Department	-	2	121,903	121,905
Agencies	-	-	-	-
Designated bodies	18,428,201	944,582	187,646	19,560,429

Investments in Help to Buy represent the entitlement to future income arising from financial assistance provided to homebuyers to enable them to buy houses, the majority of which arises from the Help to Buy scheme.

In 2021-22, the core department disposed of its investment in the Coalfields Enterprise Fund and the Coalfields Growth Fund. Other investments of designated bodies include an investment in PRS REIT PLC (a quoted Real Estate Investment Trust) loans which did not meet the criteria for a basic lending arrangement (2021-22: £467.8 million, 2020-21: £434.4 million.), investments in development and infrastructure projects with variable returns, the Housing Growth Partnership managed fund and overage, where future receipts are due on the disposal of land to third parties.

Amounts due from disposal of land and property are measured with reference to the underlying agreement. In the majority of cases the inclusion of an overage clause within the land sale agreement requires the receivable to be measured at fair value through profit or loss (FVTPL).

The valuation of Homes England’s equity loan mortgage portfolio is highly sensitive to changes in assumptions, in particular about market prices. Analysis showing the sensitivity of the portfolio valuation of these assets to market prices is shown in Note 17.

Homes England is exposed to credit risk in relation to loans classified to Fair Value through Profit or Loss (FVTPL). The credit risk exposure at 31 March 2022 in relation to these investments was £483.4 million.

Note 7.2 Financial Instruments – Recognised fair value measurements

Level 1, 2 and 3 are explained in Note 17.

	2021-22
£’000	Level 1	Level 2	Level 3	Total
Financial assets held at fair value through profit or loss (FVTPL)
Financial assets
Investment in Help to Buy Programme	-	18,428,201	-	18,428,201
Other property investments		-	1,254,133	1,254,133
Investments	60,123	-	-	60,123
Total financial assets	60,123	18,428,201	1,254,133	19,742,457
of which
Core Department	5,000	-	121,905	126,905
Agencies	-	-	-	-
Designated bodies	55,123	18,428,201	1,132,228	19,615,552
Total financial assets	60,123	18,428,201	1,254,133	19,742,457
Financial liabilities at fair value through profit or loss
Financial guarantees	-	-	(112,398)	(112,398)
Other financial liabilities	-	-	(6,763,193)	(6,763,193)
Total financial liabilities	-	-	(6,875,591)	(6,875,591)
of which
Core Department	-	-	(6,458,288)	(6,458,288)
Agencies	-	-	-	-
Designated bodies	-	-	(417,303)	(417,303)
Total financial liabilities	-	-	(6,875,591)	(6,875,591)

	2020-21
£’000	Level 1	Level 2	Level 3	Total
Financial assets held at fair value through profit or loss (FVTPL)
Financial assets
Investment in Help to Buy Programme	-	17,053,545	-	17,053,545
Other property investments		-	982,044	982,044
Investments	50,732	-	-	50,732
Total financial assets	50,732	17,053,545	982,044	18,086,321
of which
Core Department	5,000	-	145,762	150,762
Agencies	-	-	-	-
Designated bodies	45,732	17,053,545	836,282	17,935,559
Total financial assets	50,732	17,053,545	982,044	18,086,321
Financial liabilities at fair value through profit or loss
Financial guarantees		-	(117,388)	(117,388)
Other financial liabilities		-	(8,106,119)	(8,106,119)
Total financial liabilities	-	-	(8,223,507)	(8,223,507)
of which
Core Department	-	-	(7,506,071)	(7,506,071)
Agencies	-	-	-	-
Designated bodies	-	-	(717,436)	(717,436)
Total financial liabilities	-	-	(8,223,507)	(8,223,507)

Changes in level 3 Instruments Financial assets £’000	Other property investments
	2021-22	2020-21
Balance 1 April	982,044	960,631
Additions	203,166	179,320
Repayments/disposals	(204,334)	(100,167)
Reclassifications	191,220	(55,765)
Gains/losses recognised in SOCNE	82,037	(1,975)
Balance 31 March	1,254,133	982,044
of which
Core Department	121,905	145,762
Agencies	-	-
Designated bodies	1,132,228	836,282
Balance 31 March	1,254,133	982,044

Changes in level 3 Instruments Financial liabilities £’000	Financial guarantees
	2021-22	2020-21
Balance 1 April	(117,388)	(94,804)
Additions	4,990	(22,584)
Balance 31 March	(112,398)	(117,388)
of which
Core Department	(112,398)	(117,388)
Agencies	-	-
Designated bodies	-	-
Balance 31 March	(112,398)	(117,388)

Note 8: Financial assets at fair value through profit or loss: due within one year

		£’000
	Current financial assets at fair value through profit or loss
	2021-22	2020-21
Balance at 1 April	233,327	183,954
Reclassifications (to)/from >1 year	(143,081)	49,373
Balance at 31 March	90,246	233,327
Of which:
Core Department	6,226	4,319
Agencies	-	-
Designated bodies	84,020	229,008

Note 9: Financial Assets held at amortised cost: due after one year

				£’000
	Private Sector Loans	Public Sector Loans	Public Dividend Capital	Total Financial Assets held at amortised cost
Opening balance at 1 April 2020	818,677	284,282	821	1,103,780
Additions	433,166	2,944	-	436,110
Write down / Impairments	(2,686)	-	-	(2,686)
Expected loss allowance	21,122	5,269	-	26,391
Repayments	(328,714)	(70,809)	-	(399,523)
Transfers in / (out)	11,503	-	-	11,503
Transfer to receivables < 1year	65,878	63,003	-	128,881
Balance at 1 April 2021	1,018,946	284,689	821	1,304,456
Additions	396,341	25,019	-	421,360
Write down/ Impairments	(15,829)	-	-	(15,829)
Expected loss allowance	464	1,044	-	1,508
Repayments	(501,142)	(24,095)	-	(525,237)
Transfer to receivables < 1year	-	(53,065)	-	(53,065)
Balance at 31 March 2022	898,780	233,592	821	1,133,193
Of which:
Core Department	-	205,834	821	206,655
Agencies	-	-	-	-
Designated bodies	898,780	27,758	-	926,538

Public Sector Loans in the core department relate to loan facilities held with Greater London Authority and Manchester City Council. Private Sector Loans primarily relate to development loans and infrastructure loans. Public Dividend Capital relates to the financing of the QEII conference centre. Debt instruments that are held within a business model whose objective is to collect the contractual cash flows, and that have contractual cash flows that are solely payments of principal and interest on the principal amount outstanding, are measured subsequently at amortised cost.

Sensitivity of Expected Credit Losses to modelling assumptions

IFRS 9 requires an Expected Credit Loss allowance calculation to be performed with reference to the level of credit risk and performance of each investment. The determination of the risk associated with each asset is a key judgement by management as the result determines whether a 12-month loss allowance or a lifetime loss allowance is calculated for that asset. The Expected Credit Losses are calculated by comparing the estimated balance at the time of default against moderated security values (applying Modified Security Value percentages (MSVs) to gross security values to estimate the likely value which might be realised from a sale of security in distressed circumstances). This is then multiplied against an associated Probability of Default percentage value (PD) for the relevant loss calculation period. The PD value applied is determined based on the Credit Risk Rating of the associated asset using industry metrics for default.

In addition to calculating either 12-month or lifetime loss allowances, IFRS 9 also requires consideration of how the calculation would vary under alternative economic scenarios. This is achieved by varying the application of PD assumptions to the same base loan data. In addition, by varying the MSVs applied to the ECL allowance calculation performed under each economic scenario, to reflect the relative expected discount on gross security values in a distressed situation for each economic scenario. The results calculated for each scenario are then used to calculate an unbiased, weighted-average loss allowance. This is done by using the relative likelihood of each scenario, based on a view of their relative probability.

The Expected Credit Loss model is highly sensitive to the modelling assumptions noted above, which are therefore considered to be a key judgement of management. To analyse the impact of the key assumptions applied at 31 March 2022, a sensitivity analysis has been performed in Note 17, which also provides an overview of the key modelling assumptions and how they are applied.

Note 10: Financial Assets held at amortised cost: due within one year

			£’000
	Private Sector Loans	Public Sector Loans	Total current Financial Assets held at amortised cost
Opening balance at 1 April 2020	550,946	114,000	664,946
Transfer from receivables > 1year	(65,878)	(63,003)	(128,881)
Balance at 1 April 2021	485,068	50,997	536,065
Transfer from receivables > 1year	-	53,065	53,065
Balance at 31 March 2022	485,068	104,062	589,130
Of which:
Core Department	-	104,062	104,062
Agencies	-	-	-
Designated bodies	485,068	-	485,068

Note 11: Inventories

Inventories in respect of land and buildings relate to property and development land assets.

				£’000
		2021-22		2020-21
	Core Department & Agency	Departmental Group	Core Department & Agency	Departmental Group
Opening balance at 1 April	-	1,110,886	-	998,072
Additions	-	230,174	-	317,730
Disposals	-	(153,418)	-	(137,903)
Transfers	-	-	-	-
Impairments	-	(18,985)	-	(67,013)
Closing balance Land and buildings as at 31 March	-	1,168,657	-	1,110,886
ERDF Work in Progress
Opening balance as at 1 April	323,147	323,147	177,594	177,594
Payments to Projects	341,939	341,939	433,778	433,778
Disposals	(321,927)	(321,927)	(288,225)	(288,225)
Closing balance ERDF as at 31 March	343,159	343,159	323,147	323,147
Total inventory closing balance as at 31 March	343,159	1,511,816	323,147	1,434,033

Land and property assets had a combined net realisable value of £1,576m (2020/21 £1,419m). As described in Note 1 the estimated valuation at the reporting period of the portfolio of land and property assets is obtained in accordance with the current edition of RICS Valuation – Professional Standards published by the Royal Institution of Chartered Surveyors. The information provided to the valuers, and the assumptions and valuation models used by the valuers are reviewed internally in accordance with the Agency’s ALVVE (Annual Land Validation and Valuation Exercise) guidance.

The valuation models used by the external valuers will vary depending on Homes Engalnd’s objectives and conditions for each asset. However, they will typically include a mixture of the following:

• Residual method - the residual method is based on the concept that the value of land or property with development potential is derived from the value of the land or property after development minus the cost of undertaking that development, including a profit for the developer.
• Market approach - the market approach uses comparable evidence of similar assets, normally in a similar type of location or geographical area.
• Where disposal processes are well advanced e.g. bids received, preferred bidder identified or conditional agreements entered into, the valuer would be expected to have regard to these. The valuer will make a judgement as to the appropriate weight to apply on a case by case basis depending on how advanced the process is and the considered likelihood of the transaction completing as currently structured.

Note 12. Trade and other receivables

						£’000
		2021-22		2020-21 restated		1 April 2020 restated
	Core Department & Agency	Departmental Group	Core Department & Agency	Departmental Group	Core Department & Agency	Departmental Group
Amount falling due within one year:
Trade receivables	2,390	3,744	2,292	6,436	1,555	4,195
Deposits and advances	-	7	-	6	-	19
VAT receivables	2,680	2,721	3,195	3,240	2,981	3,027
Other receivables	254,010	388,850	46,013	193,862	111,781	166,548
ERDF accrued income	(5,014)	(5,014)	44,885	44,885	49,899	49,899
Prepayments and accrued income	177,431	178,026	159,714	160,479	43,064	43,064
Elections Advances	107,623	107,623	83,286	83,286	161,519	161,519
Sub Total	539,120	675,957	339,385	492,194	370,799	428,271
Amounts falling due after more than one year:
Trade receivables	-	2,425	-	6,352	42,333	119,636
Other receivables	55,940	140,832	56,468	242,298	75,894	75,894
ERDF advances	149,657	149,657	127,530	127,530	-	-
Prepayments and accrued income	313	313	281	281	290	290
Sub Total	205,910	293,227	184,279	376,461	118,517	195,820
Total	745,030	969,184	523,664	868,655	489,316	624,091

Note 13. Cash and cash equivalents

				£’000
	2021-22		2020-21 Restated
	Core Department & Agency	Departmental Group	Core Department & Agency	Departmental Group
Balance at 1 April	4,988,685	5,272,515	(2,801,930)	(2,564,992)
Net change in cash and cash equivalent balances	(1,358,461)	(1,423,448)	7,790,615	7,837,507
Cash Balance at 31 March	3,630,224	3,849,067	4,988,685	5,272,515
The following balances at 31 March were held at:
Other bank and cash	-	56,022	-	40,655
Commercial banks and cash in hand	-	9,591	-	8,774
Government Banking Service	3,603,397	3,756,627	4,963,130	5,197,531
Government Banking Service (Elections)	26,827	26,827	25,555	25,555
Balance at 31 March	3,630,224	3,849,067	4,988,685	5,272,515

Note 14. Trade and other payables

						£’000
		2021-22		2020-21 restated		1 April 2020 restated
	Core Department & Agency	Departmental Group	Core Department & Agency	Departmental Group	Core Department & Agency	Departmental Group
Amounts falling due within one year:
Taxation and social security	5,231	8,613	4,162	9,069	3,613	17,575
Trade payables	(46)	377,602	418	514,710	1,372	394,343
Other payables	21,088	39,119	150,738	168,454	83,659	103,457
Accruals	1,413,168	1,416,230	948,370	951,338	260,917	264,104
Accruals - Elections	142,884	142,884	115,447	115,447	220,371	220,371
Finance lease	10,000	10,000	9,851	9,851	9,851	9,851
Deferred income	53,857	64,640	53,391	63,248	496	8,341
ERDF deferred income	605,061	605,061	506,468	506,468	239,049	239,049
Amount issued from the Consolidated Fund for supply but not spent	3,602,697	3,602,697	4,923,587	4,923,587	115,725	115,725
Consolidated fund extra receipts to be paid to the Consolidated Fund
-received	700	700	39,546	39,546	32,666	32,666
Sub Total	5,854,640	6,267,546	6,751,978	7,301,718	967,719	1,405,482
Amounts falling due after more than one year:
Finance lease	71,352	71,352	76,455	76,455	81,160	81,160
ERDF deposits held	231,438	231,438	258,817	258,817	177,730	177,730
Other payables	-	115,112	-	179,012	-	107,579
Deferred income	1,405	1,405	1,760	13,893	1,760	10,009
Sub Total	304,195	419,307	337,032	528,177	260,650	376,478
Total	6,158,835	6,686,853	7,089,010	7,829,895	1,228,369	1,781,960

1) The ‘Amount issued from the Consolidated Fund for supply but not spent’ represents the balance of the cash held in the department’s bank account at year end that will be available for use on voted activities next year when it becomes ‘Deemed Supply’.

Note 15. Provisions for liabilities and charges

				£’000
	2021-22		2020-21
	Core Department & Agency	Departmental Group	Core Department & Agency	Departmental Group
Opening balance at 1 April	90,244	110,996	102,708	115,487
Increase	68,285	68,285	12,340	20,295
Utilisation	(26,178)	(27,291)	(22,117)	(22,291)
Reversal	(7,923)	(11,784)	(2,687)	(2,687)
Unwinding of discount	-	49	-	192
Transfer	95	95	-	-
Balance at 31 March	124,523	140,350	90,244	110,996
Of which:
Current liabilities	20,549	26,022	33,267	34,749
Non-current liabilities	103,974	114,328	56,977	76,247
Balance at 31 March	124,523	140,350	90,244	110,996

Core department provisions comprise:

(i) The department’s responsibility for the Grenfell Tower site

The department took ownership of the Grenfell Tower site in July 2019 and is responsible for, and committed to, keeping it safe and secure until a decision is reached both about its future, and until the community has determined a fitting memorial to honour those who lost their lives in the tragedy. Until then the department is responsible for any significant operational decisions on site, including but not limited to the future of the Tower. No value has been recognised in property, plant and equipment, in relation to the site, due to a legal restriction put in place which prevents the land being used for any future purpose other than that determined by the community-led memorial process. The nil value reflects the accounting treatment for this restriction.

The community-led Grenfell Tower Memorial Commission, which is supported by HM Government, will seek views from the bereaved families, survivors and the community to develop a proposal for a fitting memorial and decide how the memorial will be owned and managed. The Commission have started their work to engage the community on proposals for a memorial. The provision relates to the department’s responsibilities for keeping the site safe and secure and preparing the site for future use.

(ii) Other provisions

In the core department, these provisions include claims made by staff and third parties against the department. The provision is calculated based on general experience of expected claim values. Provisions are also made for dilapidations to comply with lease clauses for buildings which are occupied by the department. The department’s dilapidation provisions are calculated based on the estimated cost of meeting future expenditure, in order to settle obligations in respect of lease clauses.

The rest of the Departmental Group provisions relate to Homes England. The Homes England Annual Report and Accounts provides further details.

Analysis of expected timing of discounted cashflows by type

			£’000
	Grenfell Tower Site	Other	Total
Not later than one year	24,364	10,385	34,749
Later than one year and not later than five years	52,867	23,380	76,247
Later than five years	-	-	-
Balance at 31 March 2021	77,231	33,765	110,996
Not later than one year	19,093	6,929	26,022
Later than one year and not later than five years	99,766	14,562	114,328
Later than five years	-	-	-
Balance at 31 March 2022	118,859	21,491	140,350

Note 16. Pensions

The core department is responsible for the Audit Commission Pension Scheme, a funded defined benefit scheme. The liabilities of this scheme are represented below in the Core Department & Agencies column. The staff of arm’s length bodies are members of a number of different pension schemes; full details are available in the accounts of the bodies concerned. The assets and liabilities for these schemes are included in the Departmental Group column below.

					£’000
	2021-22			2020-21
		Core Department & Agency	Departmental Group	Core Department & Agency	Departmental Group
Reconciliation of defined benefit obligation
Opening balance		1,441,029	2,609,466	1,187,725	2,141,702
Current service cost		-	45,381	-	31,770
Interest charges		27,809	51,299	26,385	47,965
Admin charge on pension liabilities		-	(92)	-	(66)
Contribution by members		-	6,305	-	5,614
Remeasurement of (gains) /losses on liability		(86,916)	(163,249)	257,111	439,850
Past service cost/(gains)		-	-	90	263
Benefits paid
Funded benefits paid		(29,890)	(53,386)	(30,273)	(56,978)
Unfunded benefits paid		-	(307)	(9)	(654)
Closing defined benefit obligation		1,352,032	2,495,417	1,441,029	2,609,466
Reconciliation of fair value of employer asset
Opening balance		(1,231,600)	(2,444,238)	(1,113,400)	(2,105,199)
Interest income on scheme asset		(23,697)	(48,573)	(24,700)	(52,063)
Admin charge on pension assets		2,975	3,246	1,275	1,529
Contributions by members		-	(6,305)	-	(5,614)
Contributions by employer		-	(26,239)	-	(34,140)
Remeasurement of (gains)/losses on asset		(67,068)	(92,826)	(125,048)	(307,831)
(Losses)/gains on curtailment		-	2,028	-	2,005
Assets distributed on settlement		29,890	53,480	30,273	57,075
Closing fair value of employer asset		(1,289,500)	(2,559,427)	(1,231,600)	(2,444,238)
Closing net pension liability		62,532	(64,010)	209,429	165,228
of which:
Funded		62,475	(67,999)	209,372	156,901
Unfunded		57	3,989	57	8,327

Audit Commission Pension Scheme (ACPS)

The ACPS is a defined benefit scheme. The scheme is a Registered Pension Scheme under the provisions of Schedule 36 of the Finance Act 2004. The provision of a Crown Guarantee takes the pension scheme out of certain regulatory provisions that would otherwise apply. This is a closed scheme. The weighted average scheme duration is 22 years.

The valuation of the scheme liabilities as at 31 March 2022 was completed by the department’s independent actuaries using the projected unit method.

Financial overview of the ACPS

The pension scheme assets are held in a separate trustee-administered fund to meet long-term pension liabilities to past employees. The Scheme’s assets have been invested as follows:

Fair Value Scheme Assets	2021-22	2020-21
Diversified Growth Fund	672	699
Liability Driven Investments	366	347
Infrastructure	102	95
Property	106	85
Cash	44	5
Total	1,290	1,232

The Scheme invests in a Liability Driven Investment portfolio to mitigate the risks relating to interest rate and inflation rate changes.

Overall, the Scheme’s assets have increased in value over the year to 31 March 2022. This is mainly due to an increase in the value of property and of cash holdings. The net liability has decreased due to better than expected investment returns and the increase in the discount rate of inflation.

Principal assumptions

The financial assumptions used for purposes of the IAS 19 calculations for the five years to 2022 are shown in the table below.

	2022	2021	2020	2019	2018	2017
Principal assumption	%pa	%pa	%pa	%pa	%pa	%pa
Rate of inflation	3.90	3.40	2.70	3.35	3.25	3.30
Rate of salary increase	n/a	n/a	n/a	n/a	n/a	n/a
Discount rate for liabilities	2.70	1.95	2.25	2.50	2.65	2.70
Rate if increase of pensions in payment	3.90	3.40	2.70	3.35	3.25	3.30
Rate of increase of deferred pensions	3.90	3.40	2.70	3.35	3.25	3.30

The assumed life expectations on retirement at age 60 were: for males retiring today, 29 years (2020-21: 28 years), for females retiring today, 30 years (2020-21: 30 years) and for males retiring in 20 years, 30 years (2020-21: 30 years), for females retiring in 20 years, 32 years (2020-21: 32 years).

The following table shows the impact of a change in each of the principal assumptions used to value the scheme’s liabilities.

Assumption	Change in assumption	Impact on scheme liabilities %	Impact on scheme liabilities (£m)
Discounts rate	Decrease by 0.5%	Increase by 12%	162
Rate of inflation	Increase by 0.5%	Increase by 11%	149
Rate of mortality	Mortality rated down by one year	Increase by 4%	54

Note 17. a. Financial Instruments: Risk Management and Fair Value

The department oversees a portfolio of financial instruments (including loans, guarantees and Help to Buy) much of which is outside the appetite of other market investors and lenders. The portfolio is continuing to increase in size and is largely concentrated in a single sector, housing.

Liquidity risk

Liquidity risk is the risk that an entity will encounter difficulty in meeting obligations associated with financial liabilities. As the cash requirements of the group are largely met through the Estimates process and central government’s ability to borrow to raise funds, there is minimal liquidity risk.

Currency risk

The department has risks arising from foreign exchange in relation to the European Regional Development Fund (ERDF) programme. Further details about the ERDF balances included in these accounts can be found in Annex E. The following table shows the balances held by the department as at 31 March 2022 that are subject to exchange rate risk. (Exchange rate at 31 March 2022 £1 = €1.1835^{[footnote 1]})

Currency Risks	Floating rate financial liabilities
	£’000	€’000
Total assets at 31 March 2022	144,643	171,185
Total assets at 31 March 2021	172,416	202,399
Total liabilities at 31 March 2022	(231,438)	(273,907)
Total liabilities at 31 March 2021	(264,534)	(310,537)

The liabilities balance represents advance payments from the EU for the 2014-20 ERDF Programme.

The asset balance represents ERDF grant payments made but yet to be reimbursed from the EU. These balances are fixed in Euros being the Euro equivalent of the Sterling expenditure at the time the expenditure was certified using the ‘Europa’ rate.

To an extent, these balances act as a natural hedge whereby the loss that would arise on the liability balance from a weakening of Sterling would be offset by the gain on the asset balance and vice versa. This reduces but does not eliminate the risks.

The following table illustrates the impact of changes in the Sterling to Euro exchange rate and assumes the level of balances remains constant.

Category	Balance at 31 March 2022	Euro Rate at 31 March 2022	Impact of rate change to
	£’000		1:1.00	1:1.10	1:1.30	1:1.40
Assets	£144,643	1.1835	£27m gain	£11m gain	£13m loss	£22m loss
Liabilities	-£231,438	1.1835	£43m loss	£18m loss	£21m gain	£36m gain
Net gain/loss	-£86,795		£16m loss	£7m loss	£8m gain	£13m gain

Market risk

Results and equity are dependent upon the prevailing conditions of the UK economy, especially UK house prices, which significantly affect the valuation of assets.

In particular, there is exposure to significant market price risk in the equity-loan mortgage portfolio and land portfolio. Any market price movements are reflected in net expenditure for the period.

Market price risk is an inherent feature of the operation of Help to Buy and other home equity schemes. The Departmental Group does not attempt to directly mitigate this risk, for example via hedging, but monitors the exposure.

Sensitivity analysis is performed to measure the change in fair value of the financial assets held for hypothetical changes in market prices. The sensitivity analysis is based on a proportional change to all prices applied to the relevant financial instrument balances existing at the year end. Stress-testing is performed which looks at exposure to adverse scenarios to ensure that the financial risks are understood.

Home Equity Portfolio (including Help to Buy) – market risk

The table below shows the effect on net expenditure arising from movements in the fair value of these portfolios at 31 March 2022, before the effects of tax, if UK house prices had varied by the amounts shown and all other variables were held constant. This illustrates the impact of the mortgage providers’ first charge, which disproportionately affects the estimated fair value when house prices reduce.

Modelled change in house prices (%)	Estimated portfolio value (£m)	Incremental change in fair value recognised in net expenditure (£m)	% Incremental change in fair value (recognised in net expenditure)
20.0%	22,370.2	3,730.1	20.0%
10.0%	20,506.6	1,865.5	10.0%
0%	18,640.1	-	0.0%
-5%	17,705.2	(934.9)	-5.0%
-10.0%	16,741.2	(1,898.9)	-10.2%
-20.0%	14,362.8	(4,277.3)	-22.9%
-30.0%	11,023.4	(7,616.7)	-40.9%

Private sector developments, overage and infrastructure – market risk

Homes England also holds assets in relation to private sector developments, land sale overages and infrastructure. At 31 March 2022, if development returns had been 10% higher and all other variables were held constant, the effect on net expenditure arising from movements in investments in private sector developments and infrastructure projects, before the effects of tax, would have been an increase of £26.1 million from that stated. A 10% lower development return would have led to a decrease of £26.1 million.

Further market risk analysis is available in Homes England’s Annual Report and Accounts.

Land portfolio – market risk

The table below shows the effect on net expenditure at 31 March 2022, before the effects of tax, if at 31 March 2022 average land and property prices had varied by the amounts shown and all other variables were held constant. This illustrates the lower of cost and net realisable value principle whereby impairments will only be recognised when an asset falls below its cost base and impairment reversals will only be recognised to the extent the asset has previously been impaired.

Modelled change in land and property values (%)	Estimated portfolio value (£m)	Incremental change in land and property impairments recognised in net expenditure (£m)	% Incremental change in land and property value (recognised in net expenditure)
20.0%	1,286.7	(118.0)	10.1%
10.0%	1,234.0	(65.3)	5.6%
0.0%	1,168.7	-	0.0%
-5.0%	1,129.3	39.4	-3.4%
-10.0%	1,088.6	80.1	-6.9%
-20.0%	995.4	173.3	-14.8%
-30.0%	899.0	269.7	-23.1%

Financial guarantees – market risk

The department is also exposed to market risk via the financial guarantees it provides over borrowing for affordable housing and private rented sector homes. Changes in the housing market may cause rental arrears or void properties which may have an impact on the borrower’s ability to repay the loans issued under the guarantees programme.

Financial risk

Some of the department’s housing programmes are underpinned by the use of financial instruments such as loans, equity investments and financial guarantees which expose the department to credit and investment risk. The portfolio continues to grow but remains relatively immature: it has not yet been through a market cycle; it is concentrated in a single sector that is susceptible to economic shocks, and its investments are typically outside the appetite of other market investors and lenders. Many of the financial risks that the department has exposure to sit with Homes England, and the department continues to work in partnership with Homes England to manage these risks. A regular stress testing exercise has been in place since 2015 to help the department measure and manage the risk of loss associated with a stress event, based on Bank of England cyclical stress test scenarios. The outcomes of the stress tests are used for contingency planning and policy development.

Credit Risk

Credit risk is the risk of default on a debt that may arise from a borrower failing to make required payments.

The maximum exposure to credit risk, without taking into account any security held, is the same as the carrying amount of financial assets recorded in the Financial Statements. This is summarised in Note 7.2.

Amortised cost assets – credit risk

For assets measured at amortised cost, including loans, Homes England has performed a sensitivity analysis that considers how expected credit losses would vary under alternative future economic scenarios. Refer to the Homes England Annual Report and Accounts for more detailed analysis. The Expected Credit Loss model is highly sensitive to its modelling assumptions, which are therefore considered to be a key judgement of management.

The impact of expected credit loss allowances and write offs in the Departmental Group is summarised below. The net impact is positive in 2021-22 because expected credit losses have increased compared to 2020-21 due to the model reflecting the current economic conditions.

Expected credit loss allowances	2022	2021
	£000s	£000s
Opening balance	46,013	72,404
Net movements in Expected Credit Loss Allowances	1,508	(26,391)
Closing balance	47,521	46,013

Credit impairment loss charges to Net Expenditure in relation to assets held at Amortised Cost	2021-22	2020-21
	£000s	£000s
Net movements in Expected Credit Loss Allowances	(1,508)	26,391
Amounts written-off loan balances as irrecoverable under IFRS 9	(15,829)	(2,686)
Total credit impairment loss charge	(17,337)	23,705

Total expected credit loss is calculated based on modelling assumptions linked to future economic scenarios and the weighting assumptions given to those scenarios. Three scenarios are used, taking the Office of Budget Responsibilities (OBR) outlook and upside and downside scenarios from Oxford Economics. Individual assets and asset holders are assed for risk of default based on the scenarios. The outcome of expected losses are combined on a weighting basis, on a 75%/20%/5% base case/downside/upside.

The sensitivity to the different scenario weighting can be found in the table below.

Scenario weighting	Expected Credit Loss Allowance (£m)	Incremental change in ECLA (£m)	Incremental change in ECLA (%)
Weighting of 70% : 20% : 10% applied	46,200	(1,321)	-2.8%
Weighting of 80% : 15% : 5% applied	46,621	(900)	-1.9%
Base assumption of 75% : 20% : 5% applied	47,521	-	0%
Weighting of 60% : 30% : 10% applied	48,000	479	1.0%
Weighting of 70% : 25% : 5% applied	48,421	900	1.9%

Financial Guarantees – credit risk

The potential liabilities arising from the provision of financial guarantees will be subject to credit risk, particularly increases in rental arrears and void properties which may have an impact on a borrower’s ability to repay a loan issued under the guarantees programme. The department has set up a number of risk mitigations to minimise the risk arising from the guarantees, including a rigorous eligibility criteria and credit assessment process.

Affordable Housing Guarantees - credit risk

The department has provided guarantees to strongly rated (low risk) Private Registered Providers to facilitate access to borrowing at competitive interest rates. This funding is then used by the borrowers to build affordable housing.

As at 31st March 2022, the department had approved £3.2 billion worth of debt finance raised by Affordable Housing Finance (2013 scheme) and £320 million (2020 scheme) on behalf of Private Registered Providers, of which all but £55 million of the 2020 scheme has been drawn down and is covered by a financial guarantee issued by the department. The accounting valuation for the guarantee as at 31 March 2022 is £28.2 million for the 2013 scheme and £2.1 million for the 2020 scheme. This valuation takes account of the liquidity reserve, comprising one year’s worth of interest held in account to cover a shortfall in income and protect bond coupon payments in the event of default.

A probability-weighted expected loss model is used as the basis of the accounting valuation of the guarantee. The model incorporates an estimated Probability of Default (PD) for each borrower, based on their credit rating.

Sensitivity analysis was conducted on the valuation by changing both the credit rating and the assumed Loss Given Default (LGD). The sensitivity testing adjusted the credit grade down by five Standard & Poor’s (S&P) equivalent grades (considered to be conservative as the Registered Provider industry has a zero-default history) and increased the LGD around the central estimate. Although there might be some relationship between the PD and the LGD, the analysis and the underlying probability-weighted loss model treats the PD and LGD as two independent variables that are multiplied together in arriving at the financial guarantee liability. The result is a valuation range from £8.7 million (5% LGD, Low PD) to £196 million (25% LGD, High PD). When liquidity reserves are accounted for in the sensitivity analysis, the valuation ranges from £4 million (5% LGD, Low PD) to £175 million (25% LGD, High PD).

Private Rented Sector Guarantees - credit risk

The department has also provided Private Rented Sector guarantees to private rented sector operators and Private Registered Providers to incentivise institutional investment into the supply of new, purpose built and professionally managed private rented sector homes. Guaranteed debt is generally available once units are completed and generate a stable income.

As at 31 March 2022, the department had approved circa £1.8 billion worth of debt finance to be raised by PRS Finance plc. to finance long term loans to private sector operators and Private Registered Providers. Of the circa £1.8 billion, £1.5 billion has been drawn and is covered by the Private Rented Sector financial guarantees issued by the department. The valuation of the liability arising as a result is £78.3 million.

The accounting valuation is based on the appropriate elements of the lifetime fee that will be paid by the borrower in return for the guaranteed funds. Specifically, the cost of risk, administration costs and a fee to the department based on appropriate remuneration of capital.

Private Rented Sector Guarantees concentration risk

The overall PRS exposure is measured at £78.3 million and the top five counterparties represent 65% (based on guaranteed loan exposure). There are 14 counterparties for the 28 loans guaranteed.

Homes England concentration risk

The nature and concentration of the credit risk arising from Homes England’s most significant financial assets can be summarised as follows:

• Financial asset investments measured at fair value relate mainly to amounts receivable individually from proceeds generated when the equity-loan mortgage portfolio properties are sold or staircased, or amounts receivable from various private sector developers, resulting in a broad spread of credit risk for these assets. Amounts receivable from the owners of homes are secured by a second charge over their property.
• For loans, the top ten counterparties at 31 March 2022 accounted for £1.02 billion of the total exposure (53.1%). The balance includes both loans measured at amortised cost and loans measured on a fair value basis. The exposures are before the application of the expected credit loss allowance.
• Receivables arise largely from disposals of land and property assets, generally to major developers and housebuilders in the private sector. These receivables are always secured by a right to retake possession of the disposed property in the event of a default by the buyer, and in appropriate cases are backed by financial guarantees. Ten counterparties account for 86.4% of the £265.3 million receivables balances due from disposal of land and property assets.
• Cash is generally held with the Government Banking Service, except where commercial reasons necessitate otherwise, for example when cash is held by solicitors around completion of property sales or purchases or by a mortgage administrator pending allocation to accounts.
• Further information can be found in Homes England’s Annual Report and Accounts.

There are no other significant concentrations of credit risk in other financial instruments in the Departmental Group.

Interest rate risk

The Departmental Group has no material interest rate risk on its financial assets.

Fair values

The estimated fair values of the financial instruments held by the department approximate to their book values at 31 March 2021 and 31 March 2022. The table shows how fair value of the department’s financial assets and liabilities has been estimated.

For a reconciliation of the movements in the value of Level 1, 2 and 3 fair value financial instruments, as defined by IFRS 13, and detail on the sensitivities of the fair values, see Homes England Annual Report and Accounts.

Financial Instrument	Basis of fair value estimation
Current payables and receivables (Note 14 and 12) and Public Dividend Capital (Note 9)	Nominal value. The fair value is categorised as level 3 in the fair value hierarchy as defined by IFRS 13.
Non-current payables and receivables (Note 14 and 12)	Discounted cost (where materially different from nominal value). The fair value is categorised as level 3 in the fair value hierarchy as defined by IFRS 13.
Investments in the Coalfields Enterprise Fund and the Coalfields Growth Fund (Note 7)	The fair value of the funds is identified with reference to the fund manager revaluation. The fair value is categorised as level 3 in the fair value hierarchy as defined by IFRS 13.
Homes England’s shareholding in the PRS REIT plc (Note 7)	The fair value of Homes England’s shareholding in the PRS REIT plc is calculated with reference to prices quoted on the London Stock Exchange and is therefore categorised as level 1 in the fair value hierarchy as defined by IFRS 13.
Financial assets relating to housing units (Note 7)	The fair values of Homes England’s equity-loan mortgage portfolio are calculated with reference to movements in the ONS house price index (UK HPI) at a regional level, being the most relevant available observable market data. This is supplemented by adjustments for experience of actual disposals since the inception of the schemes, also at a regional level. Therefore these fair values are categorised as level 2 in the fair value hierarchy as defined by IFRS 13.
Equity investments in private sector developments and infrastructure projects (Note 7)	The fair values of financial assets relating to equity investments in development and infrastructure projects are calculated using cashflow forecasts for the projects concerned, discounted at rates set by HM Treasury. These fair values are therefore categorised as level 3 in the fair value hierarchy as defined by IFRS 13.
Managed funds (Note 7)	The fair value of managed funds is equal to the net assets of those funds at the reporting date, and are therefore categorised as level 3 in the fair value hierarchy as defined by IFRS 13.
Other financial instruments	Discounted future cash flows using discount rates set by HM Treasury or the rate intrinsic to the financial instrument if higher.
Affordable Housing financial guarantees liabilities	For initial recognition, fair value is based on probability weighted expected losses. For subsequent recognition, at the higher of initial fair value and expected loss. The fair value is categorised as level 3 in the fair value hierarchy as defined by IFRS 13.
Private Rented Sector financial guarantees liabilities	For initial recognition, fair value is based on the fee charged for the guarantee. For subsequent recognition, at the higher of initial fair value and expected loss. The fair value is categorised as level 3 in the fair value hierarchy as defined by IFRS 13.

Note 17. b. Sensitivity of Significant Help to Buy Modelling Assumptions

Homes England models the fair value of Help to Buy on the basis of the estimated proceeds that would be achieved were all homeowners to redeem their equity loans on the reporting date. Homes England considers these estimated proceeds to be a significant accounting estimate, because the fair value of the portfolio is highly sensitive to market price risk as set out in Note 17a. In addition, the estimate is sensitive to significant assumptions that Homes England makes within the valuation model. Full details of the sensitivity analysis can be found in the Homes England Annual Report and Accounts.

Impact of assumptions

The significant assumptions in Help to Buy valuation are:

• assumptions for market adjustments, Homes England’s assessment of house price inflation over time derived from the Office for National Statistics’ House Price Index; and
• timing of redemption, being the earlier of the sale of the property or when the homeowner staircases the equity loan payment equivalent to Home England’s share of the estimated value of the property.

The assumptions interact with each other in different economic scenarios. For example, a 15% point fall in house prices might lead to both a 10% point increase in staircasing transactions (relative to sales) and a 7.5% increase in accounts in arrears (of which 1.5% might be an increase in accounts likely to be repossessed). In this situation Homes England would model a fair value of £15.16 billion: a reduction of £3.26 billion or 17.7% on the base assumption.

The below graph illustrates a potential spread of fair value from the combined impact of assumptions at different market prices. The upper and lower bounds correspond to assumptions within the following ranges:

• market adjustments between 2% lower and 2% higher than the base assumptions
• proportion of transaction types between 100% sales and 100% staircasing
• mortgage arrears rates ranging from no arrears to a 7.5% increase on the base assumption
• discounts on repossession between 15% lower and 15% higher than the base assumption

The combined impact of assumptions generates a spread in estimated fair value of £1.82 billion at current market prices. This spread would increase in a falling market, reaching approximately £5.4 billion should market prices fall by 30%. The combined impact of assumptions is therefore more sensitive in a falling market. This is primarily due to the impact of the mortgage providers’ first charge, which disproportionately affects the estimated fair value when house prices reduce.

Note 18. Commitments under operating leases

Total future minimum lease payments under operating leases are given in the table below for each of the following periods.

				£’000
Obligations under operating leases comprise:	2021-22		2020-21
	Core Department & Agency	Departmental Group	Core Department & Agency	Departmental Group
Buildings:
Payment due within 1 year	7,567	8,572	15,675	16,441
Payment due after 1 year but not more than 5 years	28,114	28,710	60,599	61,223
Payment due thereafter	26,999	26,999	79,482	79,482
Total value of obligations	62,680	64,281	155,756	157,146
Other:
Payment due within 1 year	-	7	-	9
Payment due after 1 year but not more than 5 years	-	-	-	4
Payment due thereafter	-	-	-	-
Total value of obligations	-	7	-	13

Note 19. Other Commitments

Homes England has made financial commitments in relation to programmes for investments in loan and equity assets, which had become unconditional at the reporting date, but which had yet to be drawn down by that date. The value of these commitments, excluding those recognised on the Statement of Financial Position, was £4,328 million at 31 March 2022 (31 March 2021: £4,657 million).

Homes England has entered into financial commitments in relation to affordable housing grant programmes totalling £5,197 million at 31 March 2022 (31 March 2020: £751 million). The increase is due to the launch of the Affordable Homes 2021-26 programme.

Homes England has given outline approval to investments under the Help to Buy scheme which, while still conditional, are likely to result in the drawdown of investments in the coming year. The value of these outstanding approvals at 31 March 2022 plus contractual commitments to third-party suppliers who administer individual transactions on behalf of Homes England was £993 million (31 March 2021: £1,083 million).

Homes England has entered into financial commitments in relation to land development and building leases totalling £262 million and £23 million respectively at 31 March 2022 (31 March 2021: £289 million and £25 million).

Note 20. Contingent liabilities disclosed under IAS 37

In accordance with government policy, properties included in non-current assets in the Statement of Financial Position are not insured. Other contingent liabilities are set out below.

£’000
		2021-22	2020-21
a	The Government Legal Department (GLD) manages litigation cases on behalf of the department. Litigation costs may be incurred following unsuccessful attempts to resist some of those challenges.	118	397
b	Claim for repair or repurchase of defective Right to Buy homes sold by local authorities between 1980 and 1985.	250 to 750	250 to 750
c	Potential liabilities to the EC arising from current European legislation	Unquantifiable	Unquantifiable
d	Potential losses arising from inability to recove any ineligbile expenditure from individual projects in the 2014-20 programme	Unquantifiable	Unquantifiable
e	Commitment to fund potential shortfalls of land sale receipts of a Housing Association	Up to 4,000	Up to 4,000
f	Potential liabilities arising following the tragic events at Grenfell Tower in June 2017. At this time, the nature and value of the liabilities arising cannot be determined with sufficient reliability and consequently, are considered to be unquantifiable.	Unquantifiable	Unquantifiable
g	Homes England: The freeholds of several hundred properties on two estates in Washington were transferred to Sunderland City Council on 1 April 1997. The transfer was subject to a Homes England indemnity valid for a period of 30 years against costs which may be incurred in remedying shale related defects. This indemnity was issued with the approval of the department. The extent of the potential liability will only be known once any defects are identified. No claims have yet been notified under this indemnity.	Unquantifiable	Unquantifiable
h	Homes England: At 31 March 2021, the West Sussex Pension Scheme had 11 active members. When the last active member leaves the scheme, the obligation to pay an exit debt will be crystallised. The timing and value of any exit debt due in the future is not yet known.	Unquantifiable	Unquantifiable
i	Homes England: Homes England is potentially liable for miscellaneous claims by developers, contractors and individuals in respect of costs and claims not allowed for in development agreements, construction contracts, grants and claims such as Compulsory Purchase Orders. Payment, if any, against these claims may depend on lengthy and complex litigation and potential final settlements cannot be determined with any certainty at this time. As claims reach a more advanced stage they are considered in detail and specific provisions are made in respect of those liabilities to the extent that payment is considered probable.	Unquantifiable	Unquantifiable
j	Planning Inspectorate: Litigation costs may be incurred following unsuccessful attempts to resist a High Court challenge to an Inspector’s decision. The timing and value of such awards are difficult to predict	64	70
k	Planning Inspectorate: Ex-gratia payments which may possibly be made to appellants or other appeal parties who have incurred abortive appeal costs following an error made by a member of the Inspectorate’s staff.	243	188
l	Following the European Commission audit of the European Regional Development Fund, one project in the sample has been identified as ineligible. Because of this, the process is to extrapolate the percentage level of error (100% in this case) to the full audit sample, estimated at £15.4million. Once the £15.4million is added to the ERDF programme error rate this will result in the Total Error rate being above 2%. This may result in a fine, but both whether the fine will arise, and its value, are not yet certain. To reduce the Total Error rate below the 2%, we may be able to make a “self-correction”, estimated at £15.4million. Should this “self-correction” not be made in future years then the Department may need to recognise the cost of a fine.	15,400	0

Note 21. Contingent assets disclosed under IAS 37

		2021-22	2020-21
a	Homes England has in certain instances disposed of land or made grant payments with certain conditions attached, which if no longer fulfilled will result in a payment to them. Examples include where there is a subsequent change in use of land sold which materially increases the return to the purchaser, or if the conditions of a grant payment are no longer met. The normal term during which this arrangement remains in force is 21 years. For affordable housing and other community related schemes the term is more usually 35 years. By its nature this income is variable and the timing of receipt is uncertain, therefore it is not possible to quantify the likely income which may ultimately be received.	Unquantifiable	Unquantifiable

Note 22. Related party transactions

The department is the parent of a number of sponsored bodies listed in Note 24. These bodies are regarded as related parties with which the department had various material transactions during the year. In addition, the department has made a number of material transactions with other government departments, central government bodies and local government organisations.

Non-executive and executive Board members must declare to the Permanent Secretary any personal or business interest which may, or may be perceived to, influence their judgement as a board member.

As well as the disclosures in the Remuneration and Staff Report, the following relationships are also considered as related parties and have therefore been disclosed in line with IAS 24. Transactions are classified as related party transactions if they occurred during the period the board member named held office. Departmental Ministers make specific disclosure of financial interests as required by the Ministerial Code of Conduct.

During the year no Board member, key manager or other related parties, other than those mentioned above, have undertaken any material transactions with the department

Note 23. Events after the reporting period

The department’s financial statements are laid before the Houses of Commons by HM Treasury. In accordance with the requirements of IAS 10 ‘Events After the Reporting Period’, post Statement of Financial Position events are considered up to the date on which the Accounts are authorised for issue. This is interpreted as the same date as the date of the Certificate and Report of the Comptroller and Auditor General.

There are no significant events after the reporting period that require disclosure.

Note 24. Entities within the Departmental Boundary

The department has one executive agency and 13 designated bodies. All bodies apart from the Queen Elizabeth II Conference Centre, Ebbsfleet Development Corporation and the Architects Registration Board are consolidated into the departmental accounts. (Note Advisory Bodies do not produce accounts).

Executive Agencies

Planning Inspectorate

---

Advisory Bodies

Building Regulations Advisory Committee
Parliamentary Boundary Commission for England
Parliamentary Boundary Commission for Wales

---

Tribunals

Valuation Tribunal for England

---

Executive Non Departmental Public Bodies (NDPBs)

Homes England (trading name of the Homes and Communities Agency)
The Housing Ombudsman
Valuation Tribunal Service
Regulator of Social Housing
Ebbsfleet Development Corporation
The Leasehold Advisory Service

---

Other Bodies Not Classed as NDPBs

Commission for Local Administration in England

---

Trading Funds

Queen Elizabeth II Conference Centre

---

Public Corporations

Architects Registration Board
Subsidiaries of designated bodies are disclosed in the relevant entity’s accounts.

---

Business rates retention and non-domestic rates Trust Statement

Foreword

Introduction

A Trust Statement provides an account of the collection of revenues which by statute or convention are due to HM Treasury’s Consolidated Fund where the entity undertaking the collection acts as agent rather than principal. Trust Statements are required to be prepared under section 2(3) of the Exchequer and Audit Departments Act 1921.

The department acts as an agent responsible for collecting Business Rate income under the Business Rate Retention system from local authorities, central list businesses and the Ministry of Defence.

The Business Rates Retention and Non-Domestic Rates Trust Statement is prepared in accordance with the accounts direction issued by HM Treasury under section 7(2) of the Government Resources and Accounts Act 2000.

Scope

The department operates the system of Business Rates Retention which came into force on 1 April 2013 and replaced the previous collection and redistribution National Non-Domestic Rating system. Under the retention system, local authorities retain at least 50% of the rates collectable as their ‘local share’. The Trust Statement reports the remaining portion of the rates collectable retained by central government. This includes the Central Share. Separate to this, Central List and Visiting Forces income is accounted for alongside Business Rates Retention but these National Non-Domestic Rates otherwise operate in the same way as before the introduction of Business Rate Retention. Central List income relates to hereditaments that go beyond one local authority area, such as gas, electricity, railways and communication networks. Visiting Forces Income relates to rates paid by the Ministry of Defence in respect of properties occupied by Visiting Forces, these typically include Royal Air Force bases.

The results presented in this Trust Statement are separate to those presented in the department’s Resource Accounts although they flow through the department’s accounting system.

Auditors

The Trust Statement is audited by the Comptroller and Auditor General under Section 7 of the Government Resources and Accounts Act 2000. The auditor’s notional fee of £20,500 (2020-21: £20,500) is included in the department’s Resource Accounts. There were no fees in respect of non-audit work.

Statement of the Accounting Officer’s Responsibilities in Respect of the Trust Statement

Under section 7 of the Government Resources and Accounts Act 2000, HM Treasury has directed the Department for Levelling Up, Housing and Communities to prepare for each financial year a Trust Statement in the form and on the basis set out in the Accounts Direction.

HM Treasury appointed me, Jeremy Pocklington CB, the Permanent Head of the Department, as the Accounting Officer for the Business Rates Retention and Non-Domestic Rates Trust Statement.

The responsibilities of an Accounting Officer, including responsibility for the propriety and regularity of the public finances for which an Accounting Officer is answerable, for keeping proper records and for safeguarding the department’s assets, are set out in Managing Public Money published by the Treasury.

The Trust Statement is prepared on an accruals basis and must give a true and fair view of the state of affairs of Business Rates collected by the department, together with the net amounts surrendered to the Consolidated Fund.

In preparing the Trust Statement, the Accounting Officer is required to comply with the requirements of the Government Financial Reporting Manual (FReM) prepared by the Treasury and, in particular, to:

• observe the Accounts Direction issued by HM Treasury, including the relevant accounting and disclosure requirements, and apply suitable accounting policies on a consistent basis;
• make judgements and estimates on a reasonable basis;
• state whether applicable accounting standards, as set out in the FReM, have been followed, and disclose and explain any material departures in the account;
• prepare the Trust Statement on a going concern basis; and
• confirm that the Trust Statement as a whole is fair, balanced and understandable and take personal responsibility for the Trust Statement and the judgements required for determining that it is fair, balanced and understandable.

As the 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 department’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.

Governance Statement in respect of the Trust Statement

The department’s Governance Statement covers both the Resource Accounts and the Trust Statement.

Jeremy Pocklington CB    15 July 2022

Accounting Officer
Department for Levelling Up, Housing and Communities

Statement of Revenue, Other Income and Expenditure

For the period ended 31 March 2022

			£’000
	Note	2021-22	2020-21
National Non Domestic Rates		1,773,976	1,837,458
Business Rates Retention		18,060,944	27,231,753
Local Share
Deduction of Local Share		(7,482,007)	(16,345,279)
Total Revenue after deduction of Local Share	3	12,352,913	12,723,932
Net Revenue for the Consolidated Fund Account		12,352,913	12,723,932

There were no recognised gains or losses accounted for outside the above Statement of Revenue, Other Income and Expenditure.

Statement of Financial Position

as at 31 March 2022

			£’000
	Note	2021-22	2020-21
Current Assets
Accrued Revenue Receivable		160,004	112,540
Cash and Cash Equivalents	CfS	101,508	5,211
Total Current assets		261,512	117,751
Accrued Revenue Payable		101,508	5,211
Total Current Liabilities		101,508	5,211
Total assets less current liabilities		160,004	112,540
Balance on Consolidated Fund Account	2	160,004	112,540

Jeremy Pocklington CB    15 July 2022

Accounting Officer
Department for Levelling Up, Housing and Communities

Statement of Cash Flows

for the period ended 31 March 2022

			£’000
	Note	2021-22	2020-21
Cash flows from operating activities		12,209,152	12,690,622
Cash paid to the Consolidated Fund		(12,305,449)	(12,699,885)
Increase/(decrease) in cash in this period		(96,297)	(9,263)
A: Reconciliation of Net Cash Flow to Movement in Net Funds
Net Revenue for the Consolidated Fund	3	12,352,913	12,723,932
(Increase)/Decrease in receivables		(47,464)	(24,047)
Increase/(Decrease) in payables		(96,297)	(9,263)
Net Cash Flow from Operating Activities		12,209,152	12,690,622
B: Analysis of Changes in Net Funds
Increase/(decrease) in Cash in this Period		96,297	(9,263)
Net funds at 1 April		5,211	14,474
Net Funds as 31 March		101,508	5,211

Notes to the Trust Statement

Trust Statement Note 1 - Statement of Accounting Policies

Basis of accounting

The Trust Statement is prepared in accordance with:

• the Accounts Direction issued by HM Treasury on 9 February 2015 under section 7(2) of the Government Resources and Accounts Act 2000
• the Financial Reporting Manual (FReM) issued by HM Treasury. The accounting policies contained in the FReM apply International Financial Reporting Standards (IFRS) as interpreted for the public sector.

The Trust Statement has been prepared on an accruals basis and in accordance with the historical cost convention.

This Trust Statement reports the income collectable under the Business Rates Retention system as also reported in the Main Non-Domestic Rating Account and the Levy Account.

Revenue recognition

Revenue is collected from local authorities, central list companies and the Ministry of Defence.

Business Rates income represents the tariff retention by the department and is accounted in accordance with IFRS15. As there are no performance obligations revenue is recognised when the revenue is wholly non-refundable, can be measured reliably, and it is probable that the associated economic benefits from the taxable event will flow to the collecting entity. All these elements must be satisfied. Revenue is determined via NNDR1 claim forms submitted by local authorities. The amounts recognised also include final adjustments to prior years’ figures where eligibility has been confirmed by inclusion of audited figures in local authority NNDR3.

Local share

Under Business Rates Retention, local authorities retain a percentage of the Business Rates collectable as their local share. Following the Office of National Statistics classification of the entire system as a central government tax, the local share is included in this Trust Statement as income collectable in respect of the tax and is then deducted as an allowable expense to calculate the amount due to the Consolidated Fund.

The cost of collection borne by local authorities included within the local share is £84 million (£84 million in 2020-21).

Trust Statement Note 2 - Balance on the Consolidated Fund

		£’000
Consolidated Fund	2021-22	2020-21
Balance on Consolidated Fund Account as at 1 April	112,541	88,494
Net Revenue of the Consolidated Fund	12,352,913	12,723,932
Less amount paid to the Consolidated Fund	(12,305,450)	(12,699,885)
Balance on Consolidated Fund Account as at 31 March	160,004	112,541

Trust Statement Note 3 - Revenue collected on behalf of the Consolidated Fund

		£’000
Revenue	2021-22	2020-21
Central list and others: NNDR revenue collectable on behalf of the Consolidated Fund	1,773,976	1,837,458
Local authorities: BRR revenue collected on behalf of the Consolidated Fund	10,578,937	10,886,474
Balance on Consolidated Fund Account as at 31 March	12,352,913	12,723,932

Trust Statement Note 4 - Cash at Bank

The cash and cash equivalents and net funds disclosed in the Statement of Cash Flows are held with the Government Banking Service.

Trust Statement Note 5 - Impact of Covid-19 on Business Rates Transactions

The introduction of additional business rate reliefs in 2020-21 in response to the Covid pandemic, which was made after local authorities had submitted their estimate of non-domestic rating income for the year, had a significant impact on the collection of business rates at a local level.

That is because the transactions that flow into this account are governed by legislation and dictated by the local government finance settlement and the annual national non-domestic rating (NNDR1) process which took place prior to March 2020. By law sums had to be paid and collected as if the pandemic had not disrupted the business rates yield. Any other arrangement would have required a change to primary legislation. At year end this resulted in local authorities reporting large deficits in their business rates collection funds (£4,243 million in 2021-22).

To help local authorities manage the financial impact, the on account additional business rate relief grant payments to them were deliberately inflated to help with shortfalls resulting from the announcement of additional reliefs in year. A total of £10.7 billion was paid to local authorities. This led to significant adjustments at year end with the return of £5.6 billion from local authorities and additional payments of over £1.5 billion, mainly major precepting authorities. These transactions pass through the department’s resource accounts, not through these accounts. At 31st March 2022, £5.3 billion of the £5.6 billion total had been returned to the Exchequer.

Going forward we expect the loss of business rates income collected in 2021-22 to be reflected in another large deficit on local authority collection funds. This is due to the extension of the additional business rates reliefs in response to the Covid pandemic for 2021-22 again being announced following the submission of local authority NNDR1 forms. In total, local authorities received over £5.8 billion in additional business rate relief grant payments in 2021-22. As part of the NNDR1 process for 2022-23, local authorities have estimated the latest deficit on collection to be in the region of £1.8 billion. Government will make “on account” payments to local authorities for this amount during the course of 2022-23 which will be presented in the 2022-23 Main Rating accounts and adjusted once the outturn position is established.

Trust Statement Note 6 - Events after the reporting period

The department’s financial statements which includes this Trust Statement are laid before the Houses of Commons by HM Treasury. In accordance with the requirements of IAS 10 ‘Events After the Reporting Period’, post Statement of Financial Position events are considered up to the date on which the Accounts are authorised for issue. This is interpreted as the same date as the date of the Certificate and Report of the Comptroller and Auditor General.

Account Direction given by HM Treasury

This direction applies to the Department for Levelling Up, Housing and Communities for the reporting of the Business Rates Retention and Non-Domestic Rates.

The department shall prepare a Trust Statement (“the Statement”) for the financial year ended 31 March 2015 and subsequent financial years for the revenue and other income, as directed by HM Treasury, collected by the department as an agent for others, in compliance with the accounting principles and disclosure requirements of the edition of the Government Financial Reporting Manual by HM Treasury (“FReM”) which is in force for that financial year.

The Statement shall be prepared, as prescribed in appendix 1, so as to give a true and fair view of (a) the state of affairs relating to the collection and allocation of Business Rates; (b) the revenue and expenditure; and (c) the cash flows for the year then ended.

The department shall report the total amount of Business Rates revenue, comprising the central and local share, including those elements that are recorded separately. These include levy income receivable from local authorities and other income following reconciliation adjustments. The department shall show the local share as an allowable deduction from the total amount of Business Rates revenue recognised and correspondingly reduce revenues payable to the consolidated fund by the amounts retained by local government in the form of the local share.

The Statement shall also be prepared so as to provide disclosure of any material expenditure or income that has not been applied to the purposes intended by Parliament or material transactions that have not conformed to the authorities which govern them.

When preparing the Statement, the department shall comply with the guidance given in the FReM. The department shall also agree with HM Treasury the format of the Principal Accounting Officer’s Foreword to the Statement, and the supporting notes, and the accounting policies to be adopted, particularly in relation to revenue recognition. Regard shall also be given to all relevant accounting and disclosure requirements in Managing Public Money and other guidance issued by HM Treasury, and to the principles underlying International Financial Reporting Standards.

Compliance with the requirements of the FReM will, in all but exceptional circumstances, be necessary for the accounts to give a true and fair view. If, in these exceptional circumstances, compliance with the requirements of the FReM is inconsistent with the requirement to give a true and fair view, the requirements of the FReM should be departed from only to the extent necessary to give a true and fair view. In such cases, informed and unbiased judgement should be used to devise an appropriate alternative treatment which should be consistent with both the economic characteristics of the circumstances concerned and the spirit of the FReM. Any material departure from the FReM should be discussed in the first instance with HM Treasury.

The Statement shall be transmitted to the Comptroller and Auditor General for the purpose of his examination and report by a date agreed with the Comptroller and Auditor General and HM Treasury to enable compliance with the administrative deadline for laying the audited accounts before Parliament before the Summer Recess.

The Trust Statement, together with this direction (but with the exception of the related appendices) and the Report produced by the Comptroller and Auditor General under section 7(2) of the Government Resources and Accounts Act 2000 shall be laid before Parliament at the same time as the department’s Resource Accounts for the year unless HM Treasury have agreed that the Trust Statement may be laid at a later date.

This Accounts Direction supersedes any previously issued Accounts Directions in respect of Business Rates Retention.

Ross Campbell
Deputy Director, Government Financial Reporting
Her Majesty’s Treasury
9 February 2015

Annex A: Restatement of Prior Year Balances

During the 2021-22 financial year a Machinery of Government transfer saw functions previously carried out under the Cabinet Office transferred to the department. These included the Union and Constitution Units as well as advisory bodies Parliamentary Boundary Commission for England and Parliamentary Boundary Commission for Wales. Responsibility for processing expenditure claims by Returning Officers for the cost of holding national elections also transferred to the department.

As a transfer between two central Government Departments, it is a requirement of the FReM, ‘Transfer by Merger’, to treat these activities as if they were always performed by the Department for Levelling Up, Housing and Communities. Consequently, the prior year financial statements have been restated to reflect these activities. The change compared to the 2020-21 published Annual Report and Accounts is shown in the tables below.

Core & Agency for the year ended 31 March 2021	2020-21 Published Accounts	MOG	2020-21 Restated Accounts
Staff Costs	205,702	10,970	216,672
Operating Expenditure	46,462,119	6,796	46,468,915
Operating Income	(3,218,223)	27	(3,218,196)
Grant-in-aid to ALBs	4,770,372	-	4,770,372
Net Operating Expenditure for the year ended 31 March	48,219,970	17,793	48,237,763
Total Expenditure	51,438,193	17,766	51,455,959
Total Income	(3,218,223)	27	(3,218,196)
Net Operating Expenditure for the year ended 31 March	48,219,970	17,793	48,237,763
Other Comprehensive Net Expenditure:			-
Items that will not be reclassified to net operating expenditure:			-
Net (Gain) / Loss on:		-	-
Pension Schemes	132,063	-	132,063
Revaluation of property, plant and equipment	-	-	-
Revaluation of intangibles	-	-	-
Revaluation of inventories	-	-	-
Income tax on items in other comprehensive expenditure	-	-	-
Total comprehensive expenditure for the year ended 31 March	48,352,033	17,793	48,369,826

Departmental Group for the year ended 31 March 2021	2020-21 Published Accounts	MOG	2020-21 Restated Accounts
Staff Costs	344,663	10,970	355,633
Operating Expenditure	48,383,303	6,796	48,390,099
Operating Income	(3,904,824)	27	(3,904,797)
Grant-in-aid to ALBs	-	-	-
Net Operating Expenditure for the year ended 31 March	44,823,142	17,793	44,840,935
Total Expenditure	48,727,966	17,766	48,745,732
Total Income	(3,904,824)	27	(3,904,797)
Net Operating Expenditure for the year ended 31 March	44,823,142	17,793	44,840,935
Other Comprehensive Net Expenditure:
Items that will not be reclassified to net operating expenditure:
Net (Gain) / Loss on:
Pension Schemes	132,020	-	132,020
Revaluation of property, plant and equipment	-	-	-
Revaluation of intangibles	-	-	-
Revaluation of inventories	-	-	-
Income tax on items in other comprehensive expenditure	4,932	-	4,932
Total comprehensive expenditure for the year ended 31 March	44,960,094	17,793	44,977,887

Departmental Group for the year ended 31 March 2021	2020-21 Published Accounts	MOG	2020-21 Restated Accounts
Non-current assets			-
Property, plant and equipment	26,643	-	26,643
Intangible assets	19,042	1,443	20,485
Investments in associates and joint ventures	50,732	-	50,732
Financial assets at fair value	18,035,589	-	18,035,589
Financial assets at amortised cost	1,304,456	-	1,304,456
Investment properties	66,800	-	66,800
Trade and other receivables	376,461	-	376,461
Total non-current assets	19,879,723	1,443	19,881,166
Current assets
Inventories	1,434,033	-	1,434,033
Assets held for sale	2,250	-	2,250
Financial assets at fair value	233,327	-	233,327
Financial assets at amortised cost	536,065	-	536,065
Trade and other receivables	408,910	83,284	492,194
Cash and cash equivalents	5,246,960	25,555	5,272,515
Total current assets	7,861,545	108,839	7,970,384
Total Assets	27,741,268	110,282	27,851,550
Current liabilities
Cash and cash equivalents	-	-	-
Trade and other payables	7,189,933	111,785	7,301,718
Provisions	34,749	-	34,749
Total current liabilities	7,224,682	111,785	7,336,467
Non-current assets plus/less net current assets/liabilities	20,516,586	(1,503)	20,515,083
Non-current liabilities			-
Trade and other payables	528,177	-	528,177
Provisions	76,247	-	76,247
Pensions	165,228	-	165,228
Financial guarantees	117,388	-	117,388
Total Non-current liabilities	887,040	-	887,040
Assets less liabilities	19,629,546	(1,503)	19,628,043
Taxpayers’ equity			-
General fund	19,763,798	(1,544)	19,762,254
Revaluation reserve	257	41	298
Pension reserve	(134,509)	-	(134,509)
Total taxpayers’ equity	19,629,546	(1,503)	19,628,043

Departmental Core and Agency for the year ended 31 March 2021	2020-21 Published Accounts	MOG	2020-21 Restated Accounts
Non-current assets
Property, plant and equipment	19,488	-	19,488
Intangible assets	15,885	1,443	17,328
Investments in associates and joint ventures	5,000	-	5,000
Financial assets at fair value	145,762	-	145,762
Financial assets at amortised cost	280,327	-	280,327
Investment properties	66,800	-	66,800
Trade and other receivables	184,279	-	184,279
Total non-current assets	717,541	1,443	718,984
Current assets
Inventories	323,147	-	323,147
Assets held for sale	-	-	-
Financial assets at fair value	4,319	-	4,319
Financial assets at amortised cost	50,997	-	50,997
Trade and other receivables	256,101	83,284	339,385
Cash and cash equivalents	4,963,130	25,555	4,988,685
Total current assets	5,597,694	108,839	5,706,533
Total Assets	6,315,235	110,282	6,425,517
Current liabilities
Cash and cash equivalents	-	-	-
Trade and other payables	6,640,193	111,785	6,751,978
Provisions	33,267	-	33,267
Total current liabilities	6,673,460	111,785	6,785,245
Non-current assets plus/less net current assets/liabilities	(358,225)	(1,503)	(359,728)
Non-current liabilities			-
Trade and other payables	337,032	-	337,032
Provisions	56,977	-	56,977
Pensions	209,429	-	209,429
Financial guarantees	117,388	-	117,388
Total Non-current liabilities	720,826	-	720,826
Assets less liabilities	(1,079,051)	(1,503)	(1,080,554)
Taxpayers’ equity			-
General fund	(893,323)	(1,544)	(894,867)
Revaluation reserve	257	41	298
Pension reserve	(185,985)	-	(185,985)
Total taxpayers’ equity	(1,079,051)	(1,503)	(1,080,554)

Annex B: Disaggregated Information on Arm’s Length Bodies

The following table provides details of how totals included within the Statement of Comprehensive Net Expenditure (SoCNE) are broken down between the department and its Arm’s Length Bodies.

	Total Operating Income £000	Total Operating Expenditure £000	Total Net Expenditure £000	Permanently employed staff		Other Staff
Arms’ Length Body [1]				Number employed	Cost £000	Number employed	Cost £000
Core Department	(9,906,966)	44,705,372	34,798,406	2,566	187,469	353	10,972
Commission for Local Administration in England	(56)	16,439	16,383	188	9,119		2
Homes England	(1,035,524)	1,543,021	507,497	1,203	60,347	224	12,271
Leasehold Advisory Services	(62)	1,689	1,627	16	1,249	7
Planning Inspectorate	(12,657)	60,732	48,075	752	44,880	8	566
Regulator of Social Housing	(12,527)	20,116	7,589	181	12,003	6
The Housing Ombudsman	(10,376)	11,069	693	104	5,529	26	1,164
Valuation Tribunal Service		6,004	6,004	59	2,552		15
Departmental Group [2]	(10,978,168)	46,364,442	35,386,274	5,069	323,148	624	24,990

[1] The entities shown are the ALBs consolidated to form the financial statements in this Annual Report and Accounts. Note 24 provides details of the status of the ALBs above and other departmental ALBs not consolidated.

[2] The balances allocated to each ALB are after deduction of transactions between the ALBs. This may result in differences to the financial statements presented in the underlying ALBs’ Annual Report and Accounts. These form the Departmental Group totals that can be seen in the SoCNE and in the table of Average Number of Persons Employed.

Annex C: Returning Officer expenditure

The following tables provide further detail on the breakdown by election of the impact on the financial statements and disclosures of reimbursing Returning Officer costs of holding national elections.

								£’000
							2021-22	2020-21
								restated
	Outturn			Estimate
	Programme						Outturn vs Estimate, saving/(excess)
Type of Spend (Resource)	Gross	Income	Net	Net Total	Virements	Total inc. virements(2)		Prior Year Outturn Total
Spending in Departmental Expenditure Limit (RDEL) - DLUHC Housing and Communities
Non-voted expenditure
Returning Officers’ expenses England, Wales and Scotland
Elections	54,929	-	54,929	90,900	-	90,900	35,971	(5,485)
- 2019 UK Parliamentary General Election	(536)	-	(536)	-	-	-	536	(7,387)
-2017 UK Parliamentary General Election	-	-	-	-	-	-	-	(64)
- UK Parliamentary by-election	-	-	-	-	-	-	-	(7)
-Petition to recall an MP	(4)	-	(4)	750	-	750	754	(6)
- 2019 European Parliamentary election	-	-	-	-	-	-	-	(1,337)
- Police and Crime Commissioner by elections	(20)	-	(20)	-	-	-	20	(105)
- 2020 Postponed Police and Crime Commissioner elections	(1,025)	-	(1,025)	-	-	-	1,025	3,420
2021 UK Parliamentary by-election	2,438	-	2,438	2,750	-	2,750	312
2021 Police and Crime Commission by-election	2,908	-	2,908	7,500	-	7,500	4,592
2021 Police and Crime Commissioner Election	51,168	-	51,168	79,900	-	79,900	28,732
- Elections bank charges						-	-	1
Total non-voted	54,929	-	54,929	90,900	-	90,900	35,971	(5,485)

Removal of non-voted budget items:
			2021-22
SoPS Note	Outturn	Estimate	Outturn vs Estimate, saving/(excess)
Returning Officers’ expenses, England, Wales and Scotland	54,929	90,900	35,971
- 2019 UK Parliamentary General Election	(536)		536
-2017 UK Parliamentary General Election			0
- UK Parliamentary by-election			0
-Petition to recall an MP	(4)	750	754
- 2019 European Parliamentary election			0
- Police and Crime Commissioner by elections	(20)		20
- 2020 Postponed Police and Crime Commissioner elections	(1,025)		1,025
2021 UK Parliamentary by-election	2,438	2,750	312
2021 Police and Crime Commission by-election	2,908	7,500	4,592
2021 Police and Crime Commission Election	51,168	79,900	28,732
- Elections bank charges

Statement of changes in taxpayers’ equity

			£’000
Note	General Fund	Revaluation Reserve	Total Reserves
Balance at 31 March 2020
Returning Officers’ expenses England, Wales and Scotland
Consolidated Fund Standing Services - non supply - drawn down:
- 2019 UK Parliamentary General Election	25,000		25,000
-2017 UK Parliamentary General Election	(3,200)		(3,200)
2019 European Parliamentary elections	(1,300)		(1,300)
Balance at 31 March 2021
Returning Officers’ expenses England, Wales and Scotland
Consolidated Fund Standing Services - non supply - drawn down:
2021 UK Pariliamentary by-election	(1,811)		(1,811)
2020 Postponed Police and Crime Commissioner election	(2,495)		(2,495)
2021 Police and Crime Commissioner by-election	(2,692)		(2,692)
2021 Police and Crime Commissioner election	(51,618)		(51,618)

Note 4 expenditure

	2021-22	2020-21
		restated
	Core Department	Core Department
Returning Officers’ expenses England, Wales and Scotland
(includes conduct of the poll and Royal Mail costs)
2019 UK Parliamentary general election	(536)	(7,387)
2017 UK Parliamentary general election		(64)
UK Parliamentary by-elections
Lewisham East		(2)
Brecon & Radnorshire		(5)
Petition to recall a member of Parliament
Brecon & Radnorshire	(4)	(6)
2019 European Parliamentary Election		(1,337)
Police and Crime Commissioner by-elections	(20)	(105)
2020 postponed Police and Crime Commissioner by elections election		3,420
2020 Postponed Police and Crime Commissioner elections	(1,025)
2021 UK Parliamentary by-election	2,438
2021 Police and Crime Commission by-election	2,908
2021 Police and Crime Commission Election	51,168
Elections bank charges		1

Annex D: Section 70 Grant Payments to Charities

Section 70 of the Charities Act 2006 (the Act) sets out the powers for ministers to give financial assistance to charitable, benevolent or philanthropic institutions and requires that payments made under this power are reported.

Institution	Payments £’000	Purpose
Antisemitism Policy Trust - Secretariat for the Independent Antisemitism Adviser	100	To provide independent advice to Government, drawing on perspectives from Jewish communities, academics and experts on antisemitism, to inform Government policy work and improve the public response to antisemitism
Big Ideas Community Interest Company - Foundation Stones	77	Foundation Stones supports engagement with the UK public with the UK Holocaust Memorial and Learning Centre
Church Urban Fund - Near neighbour/Windrush Day Grant Scheme	1,500	To bring people together in communities that are religiously and ethnically diverse, so that they can get to know each other better, build relationships of trust and collaborate together on initiatives that improve the local community they live in, building well connected inter-faith communities with resilient structures for times of need
Clapton Common Boys Club - Holocaust Awareness Raising	40	Connect and Reflect - Personal Stories from Bergen Belsen. The project will engage with young people who will learn basic research skills and speak to survivors in the community, many of whom have never shared their stories
Cranfield University - Oxford-Cambridge Arc/OxCam Spacial Framework	250	To support the Arc Universities Group that connects central and local government to key academic partners in the region
Faith Matters - Tell Mama	841	To encourage people to report instances of anti-Muslim hatred via Tell MAMA and carry out community engagement to educate people about anti-Muslim hatred and improve the recognition and reach of Tell MAMA in communities
Harwich Kindertransport Memorial and Learning Trust Limited - Holocaust Awareness Raising	25	To mark the place where most of the 10,000 children came to Britain as part of the Kindertransport. The initiative has the support of the local council and the family of Sir Nicholas Winton (the key player in the Kindertransport)
Holocaust Educational Trust - Holocaust Memorial and Learning Centre/Lessons from Auschwitz Universities	148	Developing the Holocaust Memorial content
Holocaust Memorial Day Trust - Holocaust Memorial Day	900	Support for the UK’s annual Holocaust Memorial Day
Holocaust Survivors’ Friendship Association - Holocaust Awareness Raising	26	Memorial Gestures in the North of England – Huddersfield to develop new temporary content for the learning programme for schools
Institute of Structural Engineers - Confidential Report On Structural Safety (CROSS) expansion phase 3&4	428	For setting-up a functional framework for Confidential Reporting on Structural Safety (CROSS) to extend into fire safety and strengthen its capacity to receive structural reports.
Inter Faith Network for the Uk - Interfaith Network	350	To promote understanding and cooperation between organisations and people of different faiths across the country
Learning from the Righteous - Holocaust Awareness Raising	40	A film to raise awareness of the Kitchener transport - a little-known part of Britain’s response to the refugee crisis; the rescue from Germany of around 4,000 men, many of whom had been in Sachsenhausen, Dachau, and Buchenwald concentration camps
Muscular Dystrophy UK - Changing Places Toilets	273	To provide bespoke training sessions; dedicated advice and support; support with complex queries; registration of completed Changing Places toilets; promotion and publicity. This was a shared objective with DLUHC and aligned closely with Muscular Dystrophy UK’s wider charitable aims to promote better access to society for disabled people.
National CLT Network - Community Housing Fund	4,000	Pre-development revenue grants to community groups to support local house building projects
National Custom & Self Build Association - Bacon Review	40	Support on Richard Bacon MP’s review into scaling up self-build and custom housebuilding
National Holocaust Centre & Museum - Holocaust Awareness Raising	138	An exhibition to debunk potent, dangerous and persistent antisemitic myths. It will describe how anti-Jewish myths developed in England in medieval times and contributed to antisemitism in other parts of Europe, which in turn shaped the Nazi world view and contributed to the Holocaust
Newcastle United Foundation - Newcastle United Foundation	27	Funding for established community groups and civil society organisations across England to tackle religious and racial discrimination and hate crime, and champion social cohesion
Open Doors Education and Training Centre - Gypsy Roma Traveller children	194	The Catch-up tutoring programme for Gypsy Roma Traveller children aims to support Gypsy, Roma and Traveller children and young people in education
Ostro Fayre Share Foundation - Strengthening Faith Institutions	700	To strengthen and support places of worship of all faiths in order to improve governance, increase their capacity to engage with women and young people, challenge intolerance and develop resilience
Romani Cultural and Arts Company - Holocaust Awareness Raising	50	To create educational materials about the destruction of Roma and Sinti communities across occupied Europe, to address the lack of awareness about the ‘forgotten Holocaust’
Spatial Economics Research Centre - Community Champions Evaluation and Training	150	Community Champions Evaluation and Training. To develop an online training package for Community Champions programme in partnership with the Royal Society of Public Health, and funding for a Spotlight evaluation of the impact of the programme in three funded areas
The Linking Network - Schools Linking	195	To develop and facilitate effective links between schools of different demographic backgrounds, creating sustained social mixing and supporting them to develop a positive, cohesive ethos.
Trees and Design Action Group - Planning Reform: Design	10	To produce street tree planting technical guidance to support the Manual for Streets
Ummah Help - Remembering Srebrenica	250	To commemorate and raise awareness of what happened in the Bosnian genocide of 1995, and commit to using the lessons from Srebrenica to tackle hatred and intolerance in the UK
Vision Schools Scotland - Holocaust Awareness Raising	50	A partnership between the School of Education at the University of the West of Scotland and schools in Scotland. Vision Schools will engage students in exploring the contemporary relevance of the Holocaust
Wiener Library Holocaust - Researcher Wiener Library	96	To ensure the International Tracing Service (ITS) Arolsen Archive remains open to relatives of those murdered during the Holocaust to access information about family members
Women’s Aid Federation - No Women Turned Away Project	387	To enable women experiencing gender-based violence to access safe accommodation, help and support and influence national and local policy
Woodland Trust - Ancient Woodland Inventory Update	15	To create an accurate record of ancient woodland and ancient wood pasture in England
Total	11,300

Annex E: European Regional Development Fund

European Regional Development Fund (ERDF).

The information in the following paragraphs gives additional information about entries included in the financial statements and notes regarding the ERDF.

The ERDF was set up in 1975 to stimulate economic development in the least prosperous regions of the European Union (EU). The department acts as Managing Authority (the organisation responsible for the efficient management and implementation of the programme) currently for the 2014-2020 programme and previously for the 2000-06 and 2007-13 programmes. In London, ERDF continues to be delivered by an intermediate body, the Greater London Authority (GLA). A more limited range of Managing Authority functions has been delegated to devolved intermediate bodies either as part of the delivery of the mainstream ERDF programme or Sustainable Urban Development element.

Under the terms of the EU-UK Withdrawal Agreement, which was signed in January 2020, the UK will continue to participate in the EU programmes funded through the current 2014-20 Multiannual Financial Framework (which includes ERDF). There will be no change to the existing arrangements for the current EU funded operation.

Within ERDF when project expenditure is not in accordance with ERDF regulations it becomes ineligible for ERDF grant funding. The department seeks to recover such ineligible expenditure from grant recipients in the first instance. Where recovery is not possible or feasible, the liability ultimately falls to the department to manage and, where appropriate, write off.

ERDF income is recognised once the relevant claim has been certified by the department’s ERDF Certifying Authority team. Payments to projects that were made by the department have been treated as current asset inventories on the Statement of Financial Position (31 March 2022: £343 million, 31 March 2021: £323 million) and only transferred to expenditure on certification.

All projects have an associated intervention rate. This is the percentage of project expenditure which can be funded by the ERDF. Projects can be offered an ERDF grant at differing intervention rates but claims made to the European Commission (EC) are based on a combination of the priority axis (the policy theme) and the GDP-based category of the region’s intervention rate. Differences therefore arise between the amounts claimed from the EC and that paid out to projects. The differences between these amounts are posted to the Statement of Financial Position either as current asset inventories (31 March 2022: £0, March 2021: £0) or as deferred income within current payables (31 March 2022: £605 million, 31 March 2021: £501 million).

During 2020-21 the EC recognised the financial burden on public budgets, due to the response to the COVID-19 pandemic, and to alleviate this burden allowed member states to have the option to request a co-financing rate of 100%. This would allow member states to receive the amount claimed to be paid back at 100% intervention rate between 1 July 2020 and 30 June 2021 to assist in helping with fluidity of cash. This additional funding is held in the deferred income account.

European Regional Development Fund 2014-2020

The department agreed the 2014-20 ERDF Programme in 2015-16 and the first payments were made in June 2016. The programme is expected to close in in the first half of 2025. The department has been provided with an initial advance which is held as a payable until utilised (31 March 2022 £86 million, 31 March 2021 £87 million). In the 2014-20 Programme, there is an advance for the whole programme plus annual advances paid each year, for use on an annual basis. Any annual advance not used by the Department has to be paid back to the EC once the annual accounts have been agreed, however the EC has allowed member states to offset the amount owed against the next year’s yearly advance. The 2014-20 programme differs from the 2007-13 programme as the EC hold back 10% of each requested amount from each payment application made. Once the annual accounts have been agreed this amount is released and is taken from the annual advance, along with any adjusted amounts that have been made to previous payment applications through the annual accounts. The EC will pay any additional monies that are owed to the Department at this stage (31 Mar 2022: £150 million, 31 Mar 2021: £128 million).

In 2020 the EC delayed the recoupment of pre-financing, normally occurring at the end of the financial year (February 2020), to improve programme liquidity due to the response to addressing the consequences of COVID 19. This has also resulted in the EC delaying the hold back of 10% payment, due in early 2020, until the closure of the programme.

From December 2020 the Department made a decision to take up the EC regulation changes to the way Technical Assistance (TA) is calculated and has, from the December 2020 EC payment application, been calculating TA using 4% of eligible expenditure where appropriate. For the December 2020 EC payment application this has resulted in 100% of the TA amount being re-imbursed under the changes to regulations implemented due to COVID-19 pandemic mentioned above.

The Audit Authority function (the designated UK body that audits the ERDF), which is delivered by the Government Internal Audit Agency, tested the validity of 48 claims and finalised results for all claims, despite the challenges faced as a result of the COVID 19 pandemic. The Audit Authority examined €345 million out of total declared expenditure of €945 million were audited. This statistically representative sample revealed 90% of claims contained less than 2% of error (2% is the EC’s materiality threshold). Most claims (67%) contained zero error. Where errors were identified, they had limited financial impact although they did identify some instances in relation to public procurement breaches (by ERDF beneficiaries) and state aid infringements. A “residual total error rate” for the EC’s 2020-21 accounting period was confirmed at 1.08%, below the EC’s 2% materiality threshold. In their February 2022 annual report to the EC, the Audit Authority provided an unqualified opinion, specifically that:

• the ERDF accounts submitted to the EC by the department for the EC accounting period 2020-21 give a true and fair view, as established by Article 29(5) of Regulation (EU) No 480/2014;
• the expenditure in these accounts for which reimbursement has been requested from the Commission is legal and regular; and
• the ERDF management and control system put in place by DLUHC functions properly.

The EC accepted the Audit Authority’s annual report on 24 March 2022, and they accepted the departments accounts for ERDF accounting year 2020-21 on 06 May 2022.

European Regional Development Fund 2007-13 programme

The department submitted formal closure documents for all ten programmes to the EC by 31 March 2017. The Commission has approved the Managing Authority’s Final Implementation Reports (FIRs), the Audit Authority’s Final Control Report (FCR) and Closure Declaration, and the Certifying Authority’s claim for the final balance, for all ten programmes. During the end of March 2022 the programmes were finally closed on SAP and it was agreed to pay over the remaining intervention balance of £39 million, and the £6 million balance relating to the interest gained on the interest bearing bank account held during the programme, to HM Treasury. The final programme, SW Convergence, was finally closed on SAP, during 2021-22. The EC issues a closure letter for each programme which fixes the date from which the three-year document retention period runs. We may still be subject to audit during this period, should the EC elect to complete a review.

1. Source: Bank of England spot rate: http://www.bankofengland.co.uk/boeapps/iadb/Rates.asp? ↩