Annual Report and Accounts 1999-2000 Accounts and Financial Information

Notes To The Accounts

1. Accounting policies

(a) The financial statements have been prepared in accordance with the Resource Accounting Manual

issued by HM Treasury. The Agency's accounting policies have been applied consistently in dealing with items considered material in relation to the accounts.

(b) Accounting convention

The financial statements have been prepared under the historic cost convention modified to account for the revaluation of fixed assets at their value to the business by reference to their current cost.

(c) Income recognition

(i) Income from licences issued under the Wireless Telegraphy Act 1949 and 1998 is recognised on the issue of a new licence, or on the renewal date.

(ii) Income from government departments is recognised on invoice date, provided that this is not earlier than the date from which the licence is provided.

(iii) Other income is recognised on completion of the work.

(d) Fixed assets and depreciation

Depreciation is provided on a straight line method to write off the cost or valuation, less any residual value, of each asset evenly over its anticipated useful life as follows:

All assets, except for assets under construction and computer software, which are recorded at cost, are revalued monthly by reference to a series of indices published by the Office for National Statistics.

A sample of all assets is regularly checked and the book value of each asset is compared with an estimate of its current replacement cost. Where the difference is significant, the asset valuation is adjusted to reflect the estimate of its current replacement cost.

(e) Research and development

Research and development expenditure is written off as incurred.

(f) Consumable stores

The Agency has no significant stocks. Expenditure on consumable items such as fuel oil, stationery, and small items held as spares or for repairs is written off as incurred.

(g) VAT

Most of the Agency's supplies are outside the scope of VAT. Input tax is not normally recoverable on inputs relating to such supplies. However, under Treasury directions, certain contracted-out services are eligible for recovery of VAT and the Agency recovers this quarterly in arrears. The remaining irrecoverable VAT is charged to the income and expenditure account in the year in which it is incurred, except that which is capitalised as part of asset values.

(h) Cash

The Agency has an account with the Paymaster General for the purpose of banking money received. The balance is regularly remitted to DTI. The Agency does not retain any of the cash it receives. Payments to staff and suppliers are made from DTI's bank account.

(i) Early Retirement Scheme

DTI operates an Early Retirement Scheme which gives retirement benefits to certain qualifying employees, including those at its On-Vote Agencies. These benefits conform to the rules of The Principal Civil Service Pension Scheme. Since DTI accepts full liability for the costs of these benefits until the normal retirement age of the employees retired under the Early Retirement Scheme, the Agency does not provide in its accounts for the cost of future pension payments under the scheme.

The Agency also operates its own Early Retirement Scheme. This has the same terms as DTI Scheme, except that the Agency bears all the additional costs of early retirement, which are not met by The Principal Civil Service Pension Scheme. Provision has been made for these additional costs. See note 4.

(j) Insurance

The Agency does not generally purchase commercial insurance. Instead, it self-insures from its own resources for minor uninsured losses, and looks to DTI as its insurer for major uninsured losses. Where DTI meets material uninsured revenue losses on the Agency's behalf, the losses are accounted for as exceptional costs and the recoveries from DTI as income in the Agency's accounts.

(k) Operating leases

Rentals due under operating leases are charged over the lease term on a straight line basis or on the basis of actual rentals payable where this fairly reflects usage.

(l) Investment

The Agency holds an investment in a joint venture company. See note 9.

(i) The investment is recorded at cost.

(Ii) Dividends from the company are recognised as income when they are declared.

(Iii) The accounts are not consolidated as the company is outside the DTI boundary, as defined in the Resource Accounting Manual.

2. Operating income

The Agency has only one class of business and all income arises in the United Kingdom.

The analysis below is given to satisfy the disclosure requirements of HM Treasury Fees and Charges Guide. The Guide applies only to other activities.

Other activities consists of income from investigation of domestic interference complaints and type approval work.

3. Performance against key financial target

The Agency's key financial target is to deliver an agreed net cash surplus to DTI. The target for the year of £3m (1999 £2.2m) was met.

4. Staff costs

Pensions

Employees contributions, for the year ended 31 March 2000, were paid to the Paymaster General at rates of 12.0% to 18.5% (according to range) of pensionable pay, as determined by the Government Actuary and advised by the Treasury.

Management Board

The salary and pension entitlements of the Management Board are as follows:

"Salary" includes gross salary; performance pay or bonuses; overtime; reserved rights to London Weighting or London Allowances; recruitment and retention allowances; private office allowances and any other allowance to the extent that it is subject to UK taxation.

Pension benefits are provided through the Principal Civil Service Pension Scheme. This is a statutory scheme which provides benefits on a "final salary" basis at a normal retiring age of 60. Benefits accrue at the rate of 1/80th of pensionable salary for each year of service. In addition a lump sum equivalent to three years pension is payable on retirement. Members pay contributions of 1.5% of pensionable earnings. Pensions increase in line with the Retail Price Index. On death, pensions are payable to the surviving spouse at a rate of half the member's pension. On death in service, the scheme pays a lump sum benefit of twice pensionable pay and also provides a service enhancement on computing the spouse's pension. The enhancement depends on length of service and cannot exceed ten years. Medical retirement is possible in the event of serious ill-health. In this case pensions are brought into payment immediately without actuarial reduction and with service enhanced as for widow(er) pensions.

Early retirement

One member of staff (1999: seven members) retired early from the Agency. The estimated cost of future payments for employees retiring early during the year in terms of the Agency's Early Retirement Scheme have been provided in the income and expenditure account. See note 16.

The cost for the year of early retirement benefits paid in respect of Agency staff retiring early amounted to £111,073 (1999: £138,766). Since DTI accepts full liability for these costs, they have not been charged to the Agency's income and expenditure account. See note 1(i). At 31 March 2000, the estimated cost of future pension payments under DTI scheme for Agency staff who had retired early amounted to £423,254 (1999: £533,571).

5. Operating surplus

6. Capital charge

The capital charge is calculated according to the Treasury formula (currently based on a rate of 6% of capital employed).

7. Disaster recovery

The Agency's headquarters operations were disrupted by the Docklands bombing in February 1996. All costs arising from the need to move the Agency's headquarters to temporary premises and then back to its refurbished Docklands offices, which occurred in August 1999, have been treated as uninsured losses.

Funding from DTI for assets, which were required as a result of the disaster, for the period until the return to Docklands, was recorded as exceptional income.

8. Tangible fixed assets

Freehold land and buildings were valued at 30 June 1999, by Messrs England and Company, Chartered Surveyors, on the basis of existing use value, in accordance with the Statement of Asset Valuation Practice and the Royal Institution of Chartered Surveyors Guidance Notes.

Included in Property is a long lease the net book value of which is £169,000 (1999 £174,000).

Where the difference between the deficit on revaluation and the related backlog depreciation represents a diminution of value, such difference £702 (1999 £184,000) has been charged to the income and expenditure account. See note 5.

9. Investments

The Agency entered into a joint venture agreement with CMG UK Ltd on 8 June 1998. The agreement has an initial term of seven years, with the objectives of supplying IT services to the Agency, and developing an international spectrum management consultancy, through a joint venture company. Radio Spectrum International Consulting Ltd [RSI] was incorporated with an issued share capital of 1000 ordinary shares of £1 each, of which 30% was issued to the Agency, who appointed two directors, and 70% to CMG, who appointed four directors.

RSI produced accounts for the year ended 31 December 1999. These showed net assets of £1,000 (1998 £63,000) after provision for a dividend. The Agency's share of the dividend was £240,600 (1998 nil).

10. Debtors

Other debtors for 1999 include £2,211,000 of uninsured losses due from DTI. See note 7.

11. Creditors

12. General fund

13. Revaluation reserve

The surplus on revaluation represents the increase in the gross current replacement cost of fixed assets.

14. Commitments under operating leases

15. Capital commitments

16. Provisions for liabilities and charges

The relocation provision relates to staff costs associated with the Agency's move to London Docklands in August 1999, other than costs which have been treated as disaster recovery.

17. Auction of spectrum for Third Generation Mobile Services.

Bidders were required to lodge deposits with the Agency at the commencement of the auction in January. The deposits were invested by the National Investment and Loans Office, and the interest was held for the benefit of the bidders. At the conclusion of the auction, the unsuccessful bidders would receive their deposits plus interest less any penalties incurred; the deposits plus interest less penalties of successful bidders would be retained against payment of the full licence fees. The auction was still in progress at 31 March 2000.

18. Related party transactions

The Radiocommunications Agency is an executive agency of DTI.

DTI is regarded as a related party with which the Agency had various material transactions during the year.

In addition the Agency had various material transactions with other government departments, namely the Ministry of Defence, PPARC, the Home Office, and the Foreign & Commonwealth Office. See note 2.

The Agency also had transactions with its Joint Venture Company. See note 9

19. Post balance sheet event

Auction of spectrum for Third Generation Mobile Services.

The auction concluded on 27 April 2000. The final bids for the five licences totalled £22,477,400,000. This money will be accounted for when the licences are issued.

20. Contingent liabilities

Legal proceedings have been lodged in respect of the issue of the 3G licences. The determination of the proceedings may result in partial refunds of the licence fees. The proceedings are not expected to come to court before October 2000. They will be vigorously defended. The amount cannot be accurately estimated, but should not exceed £550 million. The refunds would be funded from the proceeds of the issue of the 3G licences.

Accounts Direction given by the Treasury in accordance with Section 5(1) of the Exchequer and Audit Departments Act 1921:

1. When preparing its accounts for the financial year ended 31 March 1999 and subsequent financial years, the Radiocommunications Agency shall comply with the accounting principles and disclosure requirements of the edition of the Resource Accounting Manual which is in force for the financial year for which the accounts are prepared.

2. In addition to the requirements of the Manual, the Foreword to the accounts shall disclose a brief history of the Agency and its statutory background.

3. This Direction replaces the Direction dated 21 July 1993.

Jamie Mortimer
Treasury Officer of Accounts
29 June 1999

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