Corporate report

DLUHC annual report and accounts 2022 to 2023: Financial statements

Updated 14 December 2023

This was published under the 2022 to 2024 Sunak Conservative government

Financial statements

Consolidated Statement of Comprehensive Net Expenditure

For the year ended 31 March 2023

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.

					£’000
			2022-23		2021-22
	Note	Core Department & Agency	Departmental Group	Core Department & Agency	Departmental Group
Staff Costs	3	276,010	437,691	244,067	395,645
Operating Expenditure	4	36,852,467	38,977,315	44,522,037	45,969,026
Operating Income	5	(7,557,130)	(8,548,481)	(9,919,623)	(10,978,397)
Grant-in-aid to ALBs		1,589,889	–	2,065,136	–
Net Operating Expenditure for the year ended 31 March		31,161,236	30,866,525	36,911,617	35,386,274
Total Expenditure		38,718,366	39,415,006	46,831,240	46,364,671
Total Income		(7,557,130)	(8,548,481)	(9,919,623)	(10,978,397)
Net Operating Expenditure for the year ended 31 March		31,161,236	30,866,525	36,911,617	35,386,274
Other Comprehensive Net Expenditure:
Items that will not be reclassified to net operating expenditure:
Net (Gain) / Loss on:
Pension Schemes	16	57,249	(92,003)	(153,984)	(256,074)
Revaluation of property, plant and equipment		–	–	(430)	(430)
Income tax on items in other comprehensive expenditure		–	15,942	–	16,006
Total comprehensive expenditure for the year ended 31 March		31,218,485	30,790,464	36,757,203	36,757,203

Consolidated Statement of Financial Position

as at 31 March 2023

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 2023		31 March 2022
	Note	Core Department & Agency	Departmental Group	Core Department & Agency	Departmental Group
Non-current assets
Property, plant and equipment		22,840	26,843	22,671	27,866
Right of use assets		68,654	78,019	-	-
Intangible assets		46,317	57,061	26,534	33,478
Investments in associates and joint ventures	6	5,000	66,932	5,000	60,123
Financial assets at fair value	7	142,175	20,046,823	121,905	19,682,334
Financial assets at amortised cost	9	167,089	1,014,068	206,655	1,133,193
Investment properties		64,600	64,600	71,000	71,000
Trade and other receivables	12	154,977	170,820	205,910	293,227
Total non-current assets		671,652	21,525,166	659,675	21,301,221
Current assets
Inventories	11	458,665	1,528,024	343,159	1,511,816
Assets held for sale		-	-	-	2,450
Financial assets at fair value	8	12,289	121,959	6,226	90,246
Financial assets at amortised cost	10	106,781	677,347	104,062	589,131
Trade and other receivables	12	482,521	731,611	539,120	675,957
Cash and cash equivalents	13	1,682,114	1,929,965	3,630,224	3,849,067
Total current assets		2,742,370	4,988,906	4,622,791	6,718,667
Total Assets		3,414,022	26,514,072	5,282,466	28,019,888
Current liabilities
Trade and other payables	14	3,743,041	4,320,555	5,854,640	6,267,546
Provisions	15	22,916	26,915	20,549	26,022
Total current liabilities		3,765,957	4,347,470	5,875,189	6,293,568
Non-current assets plus/less net current assets/liabilities		(351,935)	22,166,602	(592,723)	21,726,320
Non-current liabilities
Trade and other payables	14	367,732	394,303	304,195	419,307
Provisions	15	73,357	78,178	103,974	114,328
Pensions	16	124,109	(135,831)	62,532	(64,010)
Financial guarantees		110,899	110,899	112,398	112,398
Total Non-current liabilities		676,097	447,549	583,099	582,023
Assets less liabilities		(1,028,032)	21,719,053	(1,175,822)	21,144,297
Taxpayers’ equity
General fund		(938,781)	21,518,085	(1,144,549)	21,024,737
Revaluation reserve		(1)	(1)	728	728
Pension reserve		(89,250)	200,969	(32,001)	118,832
Total taxpayers’ equity		(1,028,032)	21,719,053	(1,175,822)	21,144,297

Sarah Healey CB CVO

Accounting Officer

Department for Levelling Up, Housing and Communities

14 July 2023

Consolidated Statement of Cash Flows

For the year ended 31 March 2023

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
			2022-23		2021-22
	Note	Core Department & Agency	Departmental Group	Core Department & Agency	Departmental Group
Cash Flows from Operating Activities
Net Operating Expenditure	SoCNE	(31,161,236)	(30,866,525)	(36,911,617)	(35,386,274)
Adjusted for:
Finance (income)/costs	4,5	(29,944)	(779,216)	14,708	(836,879)
(Profit)/loss on disposal of non-current assets	4,5	3,917	(37,274)	–	(25,163)
Depreciation and amortisation	4	26,449	32,885	12,984	17,770
Revaluation of non-current assets passing through the SoCNE	4	6,400	6,400	(4,200)	(4,200)
Impairment of non-current assets	4	959	284,487	6,631	(159,620)
Other non cash transactions	4,5	1,256	(34,787)	217	16,669
(Increase) / decrease in inventories	11	(115,506)	(16,208)	(20,012)	(77,783)
(Increase) / decrease in trade & other receivables		115,101	41,301	(229,926)	(134,413)
Increase / (decrease) in trade & other payables		132,832	208,329	447,553	234,686
Adjustment to NNDR/BRR payables		(114,156)	(114,156)
Movement in provisions	4	(13,299)	(12,445)	60,455	56,643
Utilisation of provision	15	(14,951)	(22,811)	(26,178)	(27,291)
Pension fund adjustments	16	(11)	18,236	–	20,865
Local share (business rates retained by local authorities)	4	11,744,365	11,744,365	7,482,007	7,482,007
Adjustments for Corporation Tax		–	(15,942)	–	(16,006)
Net Cash outflow from operating activities		(19,417,824)	(19,563,361)	(29,167,378)	(28,838,989)
Cash Flows from Investing Activities
Purchase of property, plant and equipment		(15,693)	(16,361)	(10,995)	(12,680)
Purchase of intangible assets		(26,755)	(32,361)	(15,391)	(21,308)
Financial assets issued		–	(2,799,279)	–	(3,057,822)
Proceeds of disposal of property, plant and equipment		9	2,459	–	2,250
Proceeds from disposal of joint ventures		–	6,905	–	2,699
Proceeds on disposal of financial assets		–	2,317,468	–	2,076,809
Repayment of financial assets	7,8,9,10	35,890	605,359	35,256	538,842
Interest received	5	11,521	108,625	(1,125)	59,500
Other adjustments – investing activities		(1,389)	(10,601)	–	26,481
Net Cash inflow/(outflow) from investing activities		3,583	182,214	7,745	(385,229)

					£’000
			2022-23		2021-22
	Note	Core Department & Agency	Departmental Group	Core Department & Agency	Departmental Group
Cash Flows from Financing Activities
From the consolidated fund (supply) – current year		20,090,500	20,090,500	29,750,000	29,750,000
From the consolidated fund (non-supply) – current year		980	980	58,616	58,616
Capital element of payments in respect of finance leases		(16,710)	(18,081)	(4,954)	(4,954)
Interest paid	4	(24)	(497)	(4,897)	(5,299)
Foreign exchange movements		4,390	4,390	(8,863)	(8,863)
Adjustments for changes in accounting policy (financing)		(102,802)	(105,044)	–	–
Net Cash inflow/(outflow) from financing activities		19,976,334	19,972,248	29,789,902	29,789,500
Net increase/(decrease) in cash and cash equivalents in the period before adjustment for receipts and payments to the Consolidated Fund		562,093	591,101	630,269	565,282
Receipts due to the Consolidated Fund which are outside the scope of the Department’s activities		–	–	–	–
Payments due to the Consolidated Fund		(2,510,203)	(2,510,203)	(1,988,730)	(1,988,730)
Net increase/(decrease) in cash and cash equivalents in the period after adjustment for receipts and payments to the Consolidated Fund		(1,948,110)	(1,919,102)	(1,358,461)	(1,423,448)
Cash and cash equivalents at the beginning of the period	13	3,630,224	3,849,067	4,988,685	5,272,515
Cash and cash equivalents at the end of the period	13	1,682,114	1,929,965	3,630,224	3,849,067

*Adjustments for changing in accounting policy relates to adjustments to lease balances on the implementation of IFRS 16 Leases.

Consolidated Statement of Changes in Taxpayers’ Equity

For the year ended 31 March 2023

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 2021		19,762,254	298	(134,509)	19,628,043
Comprehensive Net Expenditure	SOCNE	(35,402,280)	430	256,074	(35,145,776)
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)	(59)	–	(59)
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 - excess vote		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		29,179,622	–	–	29,179,622
Balance at 31 March 2022		21,024,737	728	118,832	21,144,297
Change in Accounting Policy	SOCNE	(17,956)	–	–	(17,956)
Balance at 1 April 2022		21,006,781	728	118,832	21,126,341
Comprehensive Net Expenditure		(30,882,467)	–	92,003	(30,790,464)
Non cash charges – auditor’s remuneration	4	512	-	–	512
Local share (business rates retained by local authorities)	4	11,744,365	–	–	11,744,365
Other adjustments to reserves		(49)	(160)	368	159
Transfers between reserves		10,781	(569)	(10,234)	(22)
Total recognised income and expenses for 2022-23		(19,126,858)	(729)	82,137	(19,045,450)
Net Parliamentary Funding – drawn down		20,090,500	–	–	20,090,500
Net Parliamentary Funding – deemed supply		3,602,697	–	–	3,602,697
Consolidated Fund Standing Services -non supply – drawn down:		980	–	–	980
Supply (payable)/receivable		(1,659,173)	–	–	(1,659,173)
CFERs payable to the consolidated fund	SoPS4.1	(2,396,842)	–	–	(2,396,842)
Sub Total of Net Parliamentary Funding and CFERs payable		19,638,162	–	–	19,638,162
Balance at 31 March 2023		21,518,085	(1)	200,969	21,719,053

*Change in Accounting Policy relates to adjustments to lease balances on the implementation of IFRS 16 Leases.

Core Department and Agency Statement of Changes in Taxpayers’ Equity

For the year ended 31 March 2023

					£’000
	Note	General Fund	Revaluation Reserve	Pension Reserve	Total Reserves
Balance at 31 March 2021		(894,868)	298	(185,985)	(1,080,555)
Comprehensive Net Expenditure (restated)	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 Parlimentary Funding – drawn down		29,750,000	–	–	29,750,000
Net Parliamentary Funding – excess vote		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		29,179,622	–	–	29,179,622
Balance at 31 March 2022		(1,144,549)	728	(32,001)	(1,175,822)
Change in Accounting Policy	SOCNE	(16,595)	–	–	(16,595)
Balance at 1 April 2022		(1,161,144)	728	(32,001)	(1,192,417)
Comprehensive Net Expenditure		(31,161,236)	-	(57,249)	(31,218,485)
Non cash charges – auditor’s remuneration		512	–	–	512
Local share (business rates retained by local authorities)	4	11,744,365	–	–	11,744,365
Other adjustments to reserves		(9)	(160)	–	(169)
Transfers between reserves		569	(569)	–	–
Total recognised income and expenses for 2022-23		(19,415,799)	(729)	(57,249)	(19,473,777)
Net Parliamentary Funding – drawn down		20,090,500	–	–	20,090,500
Net Parliamentary Funding – deemed supply		3,602,697	–	–	3,602,697
Consolidated Fund Standing Services -non supply – drawn down:		980	–	–	980
Supply (payable)/receivable	(1,659,173)	(1,659,173)	–	–	(1,659,173)
CFERs payable to the consolidated fund		(2,396,842)	–	–	(2,396,842)
Transfers between reserves	SoPS4.1	–	–	–
Sub Total		19,638,162	–	–	19,638,162
Balance at 31 March 2023		(938,781)	(1)	(89,250)	(1,028,032)

*Change in Accounting Policy relates to adjustments to lease balances on the implementation of IFRS 16 Leases.

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 2022-23 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 23.

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 2023. 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:

• The International Accounting Standards Board (IASB) has issued International Financial Reporting Standards (IFRS): IFRS 17 Insurance Contracts, which replaces IFRS4 Insurance Contracts. IFRS 17 has an effective date of 1 January 2023 and has been approved for adoption in the UK by the UK Endorsement Board. HM Treasury have agreed with the Financial Reporting Advisory Board (FRAB) to delay the implementation of IFRS 17 in central government by two years to 1 April 2025. The impact of this standard cannot yet be determined.

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.

Fair Value Financial Assets

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. Further information is provided in Note 17.

The majority of financial assets measured at fair value are investments in homes, such as those under the Help to Buy scheme, as analysed in Note 7 and 8. These assets are valued with reference to regional house price indices, supplemented by adjustments for experience of actual disposals since the inception of the schemes. Together, these provide a reasonable estimate of the fair value of these assets because house price indices alone cannot accurately predict the value of individual homes; and disposal proceeds to date, although a good indicator of market performance, may not occur at the same level in the future. As security over the Help to Buy investment is via a second charge over the property with the main mortgage provider holding the first charge, if the amount needed to settle the homeowner’s main mortgage does not leave sufficient sale proceeds available to settle our original percentage share, then the Departmental Group will not receive its full percentage share of the proceeds. Instead, it will receive the available remaining cash after the first charge has been settled. In an economic scenario where there was a significant decrease in house prices, there is a risk that the Departmental Group may not recover the full amount of its equity loan balance due to this first charge effect.

The valuation of investments in homes (through equity-loan programmes such as Help to Buy) is highly sensitive to changes in assumptions about market prices. Investments in homes are also the most significant asset category so the judgement exercised by management, both in the application of indexation to the home equity portfolio and in the experience adjustments applied to this indexation, is a source of estimation uncertainty in the Financial Statements.

Analysis showing the sensitivity of the valuation of these assets to changes in market prices, and therefore to management’s judgement in estimating this valuation, is shown in Note 17.

Other financial assets measured at fair value are generally valued with reference to cash flow forecasts, which are by their nature based on estimates. Exceptions to this are quoted values or net asset values.

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. 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 £770 million employer assets at 31 March 2023 disclosed in Note 16, only £96 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. 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 D.

7. Right of Use assets

The Departmental Group implemented IFRS 16 Leases in the current year. The impact of this standard is to show £77.9 million right of use assets on the balance sheet and an increase in the finance lease liabilities within trade and other payables.

8. 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 an area of estimation and judgement 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.

9. 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.

10. Reinsurance Liabilities

In September 2022, the Department launched the External Wall System Professional Indemnity Insurance scheme (EWS PII), which is accounted for under IFRS 4 Insurance. The Department is the reinsurer of the scheme. The contractual cost of an insurance liability is recognised when a policy is issued.

11. 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 an area of estimation and judgement within the accounts.

12. Principal Civil Service Pension Scheme and Other Pension Schemes

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.

13. 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.

14. 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 D.

15. 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 2023-24 in the Central Government Main Supply Estimates 2023-24.

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
						2022-23					2021-22
	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	30,458,293	206,968	5,635,529	2,606,109	38,906,899	38,817,336	168,209	4,686,745	2,218,835	45,891,125
Income	SoPS1.1	(6,182,738)		(1,400,872)	(515,228)	(8,098,838)	(8,687,449)		(1,478,576)	(582,819)	(10,748,844)
Net Expenditure		24,275,555	206,968	4,234,657	2,090,881	30,808,061	30,129,887	168,209	3,208,169	1,636,016	35,142,281

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
	Note	2022-23 Total	2021-22 Total
Total net expenditure reported for operating segments	2	30,808,061	35,142,281
Reconciling items:
Income		(449,643)	(229,553)
Expenditure		432,046	233,048
Prior period adjustment
Total net expenditure per Statement of Comprehensive Net Expenditure	SoCNE	30,790,464	35,145,776

Note 3. Staff Costs

					£’000
			2022-23		2021-22
	Notes	Core Department & Agency	Departmental Group	Core Department & Agency	Departmental Group
Staff Costs		276,010	437,691	244,067	395,645§

The Staff Report, page 76, contains a full breakdown of staff costs.

Note 4. Operating Expenditure

					£’000
			2022-23		2021-22
	Notes	Core Department & Agency	Departmental Group	Core Department & Agency	Departmental Group
Non-Cash Items
Depreciation and amortisation		26,449	32,885	12,984	17,770
Impairment/(revaluation) of Property, Plant and Equipment		-	–	–	(1,460)
Impairment/(revaluation) of other financial assets		959	284,487	6,631	(158,160)
Impairment of inventory		–	106,924	–	18,985
Impairment/(revaluation) of assets		6,400	6,400	(4,200)	(4,200)
Loss on disposal of assets		1,054	1,054	–	–
ERDF write-offs and disallowances		–	–	(4)	(4)
ERDF exchange rate losses (unrealised)		4,192	4,192	–	–
Auditors remuneration1		512	512	460	460
Increase/Decrease in provisions (Provisions provided for in year less any release)	15	(13,299)	(12,445)	60,455	56,643
Write-off of bad debt		744	(35,299)	(239)	16,213
Net interest on pension scheme liabilities	16	1,722	(554)	4,112	2,726
Admin charge on pension assets	16	2,617	2,769	2,975	3,246
Notional costs		176	176	146	146
Local share (business rates retained by local authorities)		11,744,365	11,744,365	7,482,007	7,482,007
Other non cash costs		3,747	3,747	(6,992)	(6,992)
Total Non Cash Items		11,779,638	12,139,213	7,558,335	7,427,380
Cash Items
Rentals under leases		676	1,277	471	1,198
Accommodation including rentals under leases		4,372	9,427	16,462	24,771
Research and development		25,431	25,431	16,711	16,711
Legal and professional services		81,241	149,806	72,411	132,573
Consultancy		4,571	4,660	6,514	6,562
Marketing and communications		7,522	9,343	11,017	13,800
Training and development		3,910	5,648	3,807	4,989
Auditors remuneration1		61	972	52	797
IT expenditure		47,226	56,406	30,789	38,548
Travel and subsistence		3,692	6,675	1,817	3,210
Returning Officer Expenses2		111	111	54,930	54,930
ERDF exchange rate losses (realised)		–	–	8,863	8,863
Interest payable		24	497	4,897	5,299
Taxation		3,939	(3,687)	896	(3,333)
ERDF grants		450,058	450,058	540,626	540,626
Revenue support grant and PFI grant		1,870,117	1,870,117	1,831,617	1,831,617
Business rates retention (top ups)		2,643,270	2,643,270	3,072,370	3,072,370
Other capital grants to local authorities		3,565,431	3,946,816	2,844,454	3,252,294
Other current grants to local authorities3		16,300,958	16,308,073	28,386,472	28,391,164
Other grants		49,601	1,334,314	44,654	1,115,118
Other cash costs		10,618	18,888	13,872	29,539
Total Cash Items		25,072,829	26,838,102	36,963,702	38,541,646
Total		36,852,467	38,977,315	44,522,037	45,969,026

Footnotes”

1 The external auditors total group fees (notional and cash) for all statutory audit work were £1.357 million. Of the £0.972 million cash charge for auditor’s remuneration, £0.845 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 B.

3 A breakdown of significant grant programmes is provided below:.

Grant Programme	Amount £000
BRR – Local Share	11,744,365
Revenue Support Grant and PFI grant	1,870,117
Other current grants to local authorities:
Social Care Support Grant	2,346,368
Better Care Fund	2,039,256
Deficit on collection	1,764,618
Expanded Retail Discount	1,732,872
Business Rates 2% Inflation Cap	1,265,998
Ukraine	1,170,026
Doubling of Small Business Rates	987,698
Business Rates Section 31 Grant Reconciliations	828,603
Services Grant	822,000
New Homes Bonus	556,003
Homelessness Prevention Grant	363,698
Other current grants to Local Authorities	2,423,821
ERDF Grants	450,058
Other current grants	49,600
Total current grants	30,415,101
Building Safety Fund non-ACM remediation	662,346
Disabled Facilities Grant	573,000
Towns Fund	539,553
Future High Streets Fund	253,217
Levelling Up Fund	249,885
Other capital grants to Local authorities	1,287,430
Total capital grants	3,565,431
Total grants	33,980,532

Note 5. Operating Income

					£’000
			2022-23		2021-22 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		–	126,324	–	109,366
Increase in fair value – FVTPL assets		26,334	673,542	–	790,020
ERDF exchange rate gains (unrealised)		1	1	1	272
Notional income		176	176	146	146
Share of profit of joint ventures and associates	6	–	3,309	-	229
Total Non Cash Items		26,511	803,352	418	900,033
Cash Items
CFER income		186,712	186,712	48,155	48,155
Grant income		609,024	629,147	583,583	610,880
Business rate relief returns		3,555,606	3,555,606	5,624,692	5,624,692
ERDF grant income		514,480	514,480	582,171	582,171
Business rates retention (tariff)		2,625,096	2,625,096	3,059,760	3,059,760
Goods and services		4,669	4,717	4,816	4,871
Accommodation		(222)	4,594	19	4,280
Fees		14,416	26,821	13,760	26,266
ERDF exchange rate gains (realised)		4,390	4,390	–	–
Interest and dividends		11,521	108,625	(1,125)	59,500
Miscellaneous		4,927	84,941	3,374	57,789
Total Cash Items		7,530,619	7,745,129	9,919,205	10,078,364
Total		7,557,130	8,548,481	9,919,623	10,978,397

Note 6. Investments in associates and joint ventures

	£’000
	Investment in Associates & Joint Ventures
Opening balance at 1 April 2021	50,732
Additions	11,861
Revaluation	(2,699)
Profit/(loss) on JV or Associate	229
Balance at 31 March 2022	60,123
Additions	10,405
Disposal	(6,905)
Profit / (loss) on JV or Associate	3,309
Balance at 31 March 2023	66,932
Of which:
Core Department	5,000
Agencies	–
Designated bodies	61,932

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 2023 include:

Name of undertaking	Share capital	Nature of business
English Cities Fund Limited Partnership	46%	Property development
Countryside Maritime Limited	50%	Development of land
Tilia 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
Newton Development Partners LLP	25%	Property development

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

				£’000
	Investments in Help to Buy Programme	Other Investments & Equity Schemes	Due from Disposal of Land & Property	Total Non Current Financial Assets
Balance at 1 April 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)
Transfer to receivables < 1year	–	–	(669)	(669)
Transfers in/(out)	–	193,796	(1,907)	191,889
Balance at 31 March 2022	18,428,201	944,584	309,549	19,682,334
Additions	2,224,473	80,023	–	2,304,496
Write down/ Impairments	(122,113)	(131,946)	–	(254,059)
Fair value gains/(losses)	615,230	26,767	26,334	668,331
Disposal	(2,211,609)	(121,262)	–	(2,332,871)
Transfers in/(out)	–	11,785	(27,131)	(15,346)
Transfer to receivables < 1year	–	–	(6,062)	(6,062)
Balance at 31 March 2023	18,934,182	809,951	302,690	20,046,823
Of which:
Core Department	–	–	142,175	142,175
Agencies	–	–	–	–
Designated bodies	18,934,182	809,951	160,515	19,904,648

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.

The Coalfields Enterprise Fund closed in 2021-22, and the Coalfields Growth Fund closed in 2022-23. 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 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).

Note 7.2 Financial Instruments – Recognised fair value measurements

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

				2022-23
£’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	–	18,934,182	–	18,934,182
Other property investments		–	1,112,641	1,112,641
Investments	66,932	–	–	66,932
Total financial assets	66,932	18,934,182	1,112,641	20,113,755
of which
Core Department	5,000	–	142,175	147,175
Agencies	–	–	–	–
Designated bodies	61,932	18,934,182	970,466	19,966,580
Total financial assets	66,932	18,934,182	1,112,641	20,113,755
Financial liabilities at fair value through profit or loss
Financial guarantees	–	–	(110,899)	(110,899)
Other financial liabilities	–	–	(4,684,120)	(4,684,120)
Total financial liabilities	–	–	(4,795,019)	(4,795,019)
of which
Core Department	–	–	(4,442,054)	(4,442,054)
Agencies	–	–	–	–
Designated bodies	–	–	(352,965)	(352,965)
Total financial liabilities	–	–	(4,795,019)	(4,795,019)

				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)

Changes in level 3 Instruments Financial assets £’000		Other property investments
	2022-23	2021-22
Balance 1 April	1,254,133	982,044
Additions	80,023	203,166
Repayments/disposals	(121,262)	(204,334)
Reclassifications	(21,408)	191,220
Gains/losses recognised in SOCNE	(78,845)	82,037
Balance 31 March	1,112,641	1,254,133
of which
Core Department	142,175	121,905
Agencies	–	–
Designated bodies	970,466	1,132,228
Balance 31 March	1,112,641	1,254,133

Changes in level 3 Instruments Financial assets £’000		Financial guarantees
	2022-23	2021-22
Balance 1 April	(112,398)	(117,388)
Additions	1,499	4,990
Balance 31 March	(110,899)	(112,398)
of which
Core Department	(110,899)	(112,398)
Agencies	–	–
Designated bodies	–	–
Balance 31 March	(110,899)	(112,398)

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

		Current financial assets at fair value through profit or loss
	2022-23	2021-22
Balance 1 April	90,246	233,327
Reclassifications (to)/from >1 year	31,713	(143,081)
Balance 31 March	121,959	90,246
Of which:
Core Department	12,289	6,226
Agencies	–	–
Designated bodies	109,670	84,020

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 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 1 April 2022	898,780	233,592	821	1,133,193
Additions	446,943	–	–	446,943
Write down/ Impairments	36,361	–	–	36,361
Expected loss allowance	(28,684)	(1,327)	-	(30,011)
Repayments	(437,707)	(46,495)	–	(484,202)
Transfer to receivables <1year	–	(88,216)	–	(88,216)
Balance at 31 March 2023	915,693	97,554	821	1,014,068
Of which:
Core Department	–	166,268	821	167,089
Agencies	–	–	–	–
Designated bodies	915,693	(68,714)	–	846,979

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 2023, 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 2021	485,069	50,997	536,066
Transfer from receivables > 1year	–	53,065	53,065
Balance at 1 April 2022	485,069	104,062	589,131
Transfer from receivables > 1year	85,497	2,719	88,216
Balance at 31 March 2023	570,566	106,781	677,347
Of which:
Core Department	–	106,781	106,781
Agencies	–	–	–
Designated bodies	570,566	–	570,566

Note 11. Inventories

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

				£’000
		2022-23		2021-22
	Core Department & Agency	Departmental Group	Core Department & Agency	Departmental Group
Land and buildings
Opening balance at 1 April	–	1,168,657	–	1,110,886
Additions	–	182,429	–	230,174
Disposals	–	(174,803)	–	(153,418)
Impairments	–	(106,924)	–	(18,985)
Closing balance Land and buildings as at 31 March	–	1,069,359	–	1,168,657
ERDF Work in Progress
Opening balance as at 1 April	343,159	343,159	323,147	323,147
Payments to Projects	494,579	494,579	341,939	341,939
Disposals	(379,073)	(379,073)	(321,927)	(321,927)
Closing balance ERDF as at 31 March	458,665	458,665	343,159	343,159
Total inventory closing balance as at 31 March	458,665	1,528,024	343,159	1,511,816

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 England’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
		2022-23		2021-22
	Core Department & Agency	Departmental Group	Core Department & Agency	Departmental Group
Amount falling due within one year:
Trade receivables	2,407	9,741	2,390	3,744
Deposits and advances	–	5	–	7
VAT receivables	4,336	4,421	2,680	2,721
Other receivables	180,268	421,570	254,010	388,850
ERDF accrued income	(5,101)	(5,101)	(5,014)	(5,014)
Prepayments and accrued income	231,669	232,033	177,431	178,026
Elections Advances	68,942	68,942	107,623	107,623
Sub Total	482,521	731,611	539,120	675,957
Amounts falling due after more than one year:
Trade receivables	–	1,138	–	2,053
Other receivables	35,147	49,852	55,940	141,204
ERDF advances	119,818	119,818	149,657	149,657
Prepayments and accrued income	12	12	313	313
Sub Total	154,977	170,820	205,910	293,227
Total	637,498	902,431	745,030	969,184

Note 13. Cash and cash equivalents

				£’000
		2022-23		2021-22
	Core Department & Agency	Departmental Group	Core Department & Agency	Departmental Group
Balance at 1 April	3,630,224	3,849,067	4,988,685	5,272,515
Net change in cash and cash equivalent balances	(1,948,110)	(1,919,102)	(1,358,461)	(1,423,448)
Cash Balance at 31 March	1,682,114	1,929,965	3,630,224	3,849,067
The following balances at 31 March were held at:
Other bank and cash	–	62,573	–	56,022
Commercial banks and cash in hand	–	22,005	–	9,591
Government Banking Service	1,666,698	1,829,971	3,603,397	3,756,627
Government Banking Service (Elections)	15,416	15,416	26,827	26,827
Balance at 31 March	1,682,114	1,929,965	3,630,224	3,849,067

Note 14. Trade and other payables

				£’000
		2022-23		2021-22
	Core Department & Agency	Departmental Group	Core Department & Agency	Departmental Group
Amounts falling due within one year:
Taxation and social security	5,426	17,069	5,231	8,613
Trade payables	(3,919)	511,733	(46)	377,602
Other payables	140,380	170,366	21,088	39,119
Accruals	1,121,531	1,125,404	1,413,168	1,416,230
Accruals – Elections	76,101	76,101	142,884	142,884
Leases	18,878	19,995	10,000	10,000
Deferred income	53,887	69,130	53,857	64,640
ERDF deferred income	664,709	664,709	605,061	605,061
Amount issued from the Consolidated Fund for supply but not spent	1,665,203	1,665,203	3,602,697	3,602,697
Consolidated fund extra receipts to be paid to the Consolidated Fund
– received	845	845	700	700
Sub Total	3,743,041	4,320,555	5,854,640	6,267,546
Amounts falling due after more than one year:
Leases	124,680	125,929	71,352	71,352
ERDF deposits held	241,174	241,174	231,438	231,438
Other payables	–	25,322	–	115,112
Deferred income	1,228	1,228	1,405	1,405
CFER Liability	650	650	–	–
Sub Total	367,732	394,303	304,195	419,307
Total	4,110,773	4,714,858	6,158,835	6,686,853

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
		2022-23		2021-22
	Core Department & Agency	Departmental Group	Core Department & Agency	Departmental Group
Opening balance at 1 April	124,523	140,350	90,244	110,996
Increase	17,012	17,012	68,285	68,285
Utilisation	(14,951)	(22,811)	(26,178)	(27,291)
Reversal	(30,311)	(28,646)	(7,923)	(11,784)
Unwinding of discount	–	(812)	–	49
Transfer	–	–	95	95
Balance at 31 March	96,273	105,093	124,523	140,350
Of which:
Current liabilities	22,916	26,915	20,549	26,022
Non-current liabilities	73,357	78,178	103,974	114,328
Balance at 31 March	96,273	105,093	124,523	140,350

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 aim to publish their final report outlining their vision this autumn before running a design competition in 2024. 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	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
Not later than one year	10,399	16,516	26,915
Later than one year and not later than five years	65,785	12,393	78,178
Later than five years	–	–	–
Balance at 31 March 2023	76,184	28,909	105,093

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
		2022-23		2021-22
	Core Department & Agency	Departmental Group	Core Department & Agency	Departmental Group
Reconciliation of defined benefit obligation
Opening balance	1,352,032	2,495,417	1,441,029	2,609,466
Current service cost	-	42,502	-	45,381
Interest charges	36,072	66,769	27,809	51,299
Admin charge on pension liabilities	-	-	-	(92)
Contribution by members	-	6,361	-	6,305
Remeasurement of (gains) /losses on liability	(471,778)	(811,299)	(86,916)	(163,249)
Losses/(gains) on curtailment	-	(322)	-	-
Funded benefits paid	(32,151)	(67,490)	(29,890)	(53,386)
Unfunded benefits paid	(11)	(322)	-	(307)
Closing defined benefit obligation	884,164	1,731,616	1,352,032	2,495,417
Reconciliation of fair value of employer asset
Opening balance	(1,289,500)	(2,559,427)	(1,231,600)	(2,444,238)
Interest income on scheme asset	(34,350)	(67,323)	(23,697)	(48,573)
Admin charge on pension assets	2,617	2,769	2,975	3,246
Contributions by members	-	(6,361)	-	(6,305)
Contributions by employer	-	(26,091)	-	(26,239)
Remeasurement of (gains)/losses on asset	529,027	719,295	(67,068)	(92,826)
(Losses)/gains on curtailment	-	2,469	-	2,028
Assets distributed on settlement	32,151	67,222	29,890	53,480
Closing fair value of employer asset	(760,055)	(1,867,447)	(1,289,500)	(2,559,427)
Closing net pension liability	124,109	(135,831)	62,532	(64,010)
of which:
Funded	124,063	(138,482)	62,475	(67,999)
Unfunded	46	2,651	57	3,989

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 18 years (2021-22: 22 years).

The valuation of the scheme liabilities as at 31 March 2023 was completed by the department’s actuaries using the projected unit credit method. The Trustees have agreed a new funding valuation for the Scheme as at 31 March 2022 which was used as a basis for the valuation assumptions.

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:

		£’m
Fair Value of Scheme Assets	2022-23	2021-22
Diversified Growth Funds	525	672
Liability Driven Investment	0	366
Infrastructure	22	102
Property	95	106
Cash	118	44
Total	760	1,290

In common with many pension schemes, the Scheme’s Liability Driven Investments (LDI) were impacted by the sharp spike gilt yields at the end of September / beginning of October 2022. The Scheme was unable to meet the calls on collateral which resulted from the spike in yields and as such the LDI position had to be ‘unwound’ so that the Scheme lost most of its interest rate and inflation protection. Overall, the Scheme’s assets have reduced over the year to 31 March 2023.

Pensions disclosures continue to be affected by risks arising from the impact of the COVID-19 pandemic, in particular its effect on investment market volatility and implications for mortality. At this stage, the full impact of the COVID-19 pandemic is not known, and uncertainties are likely to remain for some time.

The net liability has decreased due to an increase in the discount rate because of the rise in gilt yields as at 31st March 2023.

Principal assumptions

The financial assumptions used for purposes of the IAS 19 calculations for the five years to 2023 are shown in the table below.

	2023	2022	2021	2020	2019
Principal assumptions	% pa	% pa	% pa	% pa	% pa
Rate of inflation	3.55	3.90	3.40	2.70	3.35
Rate of salary increase	n/a	n/a	n/a	n/a	n/a
Discount rate for liabilities	4.80	2.70	1.95	2.25	2.50
Rate of increase of pensions in payment	3.55	3.90	3.40	2.70	3.35
Rate of increase of deferred pensions	3.55	3.90	3.40	2.70	3.35

The assumed life expectations on retirement at age 60 were: for males retiring today, 29 years (2021-22: 29 years), for females retiring today, 30 years (2021-22: 30 years) and for males retiring in 20 years, 30 years (2021-22: 30 years), for females retiring in 20 years, 32 years (2021:22: 32 years).

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

			£’m
Assumption	Change in assumption	Impact on scheme liabilities	Impact on scheme liabilities
Discount rate	-0.5% a year	9%	80
Rate of inflation	+0.5% a year	8%	71
Rate of mortality	Mortality table rated down by one year	3%	27

Note 17a. 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 D. The following table shows the balances held by the department as at 31 March 2023 that are subject to exchange rate risk. (Exchange rate at 31 March 2023 £1 = €1.1375).

Currency Risks		Floating rate financial liabilities
	£’000	£’000
Total assets at 31 March 2023	114,718	130,494
Total assets at 31 March 2022	144,643	171,185
Total liabilities at 31 March 2023	(241,174)	(274,342)
Total liabilities at 31 March 2022	(231,438)	(273,907)

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 2023	Euro Rate at 31 March 2023				Impact of rate change to
	£’000		1:1.00	1:1.10	1:1.30	1:1.40
Assets	£114,718	1:1.1375	£15m gain	£4m gain	£14m loss	£21m loss
Liabilities	(£241,174)	1:1.1375	£333m loss	£8m loss	£30m gain	£45m gain
Net gain/loss	(£126,457)		£17m loss	£4m loss	£15m gain	£23m 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 2023, 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%	22,962.1	3,832.9	20.0%
10.0%	21,047.3	1,918.1	10.0%
0.0%	19,129.2	-	0.0%
-5.0%	18,148.7	(980.5)	-5.1%
-10.0%	17,064.2	(2,065.0)	-10.8%
-20.0%	14,503.9	(4,625.3)	-24.2%
-30.0%	11,075.8	(8,053.4)	-42.1%

Private sector developments, overage and infrastructure – market risk

At 31 March 2023, if development returns had been 10% higher/lower and all other variables were held constant, the effect on Homes England’s net expenditure arising from movements in investments in private sector developments and infrastructure projects, before the effects of tax, would have been an increase/decrease of £25.8 million /£25.8 million from that stated.

Land portfolio – market risk

The table below shows the effect on net expenditure at 31 March 2023, before the effects of tax, if at 31 March 2023 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%	1,195.3	(125.9)	11.8%
10.0%	1,135.2	(65.8)	6.2%
0.0%	1,069.4	-	0.0%
-5.0%	1,031.1	38.3	-3.6%
-10.0%	990.6	78.8	-7.4%
-20.0%	908.5	160.9	-15.0%
-30.0%	819.7	249.7	-23.3%

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

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. More detail on the magnitude of those schemes can be found on page 104. 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.

		£’000
Expected Credit Loss Allowances	2023	2022
Opening balance	44,505	46,013
Net movements in Expected Credit Loss Allowances	30,205	(1,508)
Closing balance	74,710	44,505

		£’000
Credit impairment loss charges to Net Expenditure in relation to assets held at Amortised Cost	2023	2022
Net movements in Expected Credit Loss Allowances	30,205	(1,508)
Amounts written-off loan balances as irrecoverable under IFRS 9	36,361	(15,829)
Total credit impairment loss charge	66,566	(17,337)

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 assessed for risk of default based on the scenarios. The outcome of expected losses are combined on a weighting basis, on a 65%/20%/15% 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 80% : 5% : 15% applied	66,428	(2,770)	-4.0%
Weighting of 70% : 15% : 15% applied	68,275	(923)	-1.3%
Base assumption of 65% : 20% : 15% applied	69,198	–	0.0%
Weighting of 70% : 20% : 10% applied	70,308	1,110	1.6%
Weighting of 60% : 30% : 10% applied	72,155	2,957	4.3%

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 2023, the department had approved £3.2 billion worth of debt finance raised by Affordable Housing Finance (2013 scheme) and £722.5 million (2020 scheme) on behalf of Private Registered Providers, of which £648.5m 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 2023 is £ 29.1 million for the 2013 scheme and nil for the 2020 scheme. This valuation takes account of the liquidity reserve, which is 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 £9.4m (5% LGD, Low PD) to £199.8m (25% LGD, High PD). When liquidity reserves are accounted for in the sensitivity analysis, the valuation ranges from £4.2m (5% LGD, Low PD) to £177m (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 2023, 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 is £76.1 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 £76.1 million and the top five counterparties represent 70% (based on guaranteed loan exposure). There are 14 counterparties for the 29 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 2023 accounted for £1.05 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 90.3% of the £277.1 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 2022 and 31 March 2023. 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.
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. This is supplemented by adjustments for experience of actual disposals since the inception of the schemes, also at a regional level.
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. Therefore these fair values are categorised as level 2 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 17b. 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. In addition, the estimate is sensitive to significant assumptions that Homes England makes within the valuation model. We have disclosed below the individual impact of the assumptions that currently have a material impact on the estimates. Other assumptions within the valuation model, including estimated rates of first charge mortgage arrears and discount to sales on repossession, do not have a material impact at present, but could do if there was a significant decrease in house prices.

Assumptions of market adjustments

Office for National Statistics House Price Indices – which are used by Homes England to estimate the effect of house price inflation over time – are based on all market activity. Help to Buy is only available on new-build properties purchased with a mortgage, and redemptions can occur via staircasing as well as by sale. This means that the market price of the property on redemption may differ from that estimated by HPI alone. Homes England therefore makes regional market adjustments using its accumulated experience of gains and losses on disposals across different redemption transaction types to allow for these differences. These assumptions have a significant effect on the fair value because they modify the expected market price of properties from which Homes England’s percentage share is calculated.

Combined impact of assumptions

The assumptions applied by Homes England will 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 1.5% might be an increase in accounts likely to be repossesed). In this situation Homes England would model a fair value of £15,364m: a reduction of £3,570m or 18.9% 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

Note 18. 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 £3,608 million at 31 March 2023 (31 March 2022: £4,283 million). The profiling of the commitments reflects Homes England’s best estimate of when cashflows will arise, however the actual timing may vary based on factors not wholly within Homes England’s control.

Homes England has entered into financial commitments in relation to affordable housing grant programmes totalling £4,557 million at 31 March 2023 (31 March 2022: £5,197 million). One of these grants is individually material. An amount of £239 million is payable before 31 March 2026 to a strategic partner under the Affordable Homes Programme 2021‑26.

Homes England has also 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 2023 was £20 million (31 March 2022: £993 million). Applications for the Help to Buy scheme closed on 31 October 2022, and following Secretary of State consideration all homebuyers were required to reach legal completion on their home before 31 May 2023. The decrease in Help to Buy commitments at the year-end compared to the prior year is reflective of the closure of the scheme to new applicants.

In addition to the above, Homes England has entered into financial commitments in relation to land development and building leases totalling £205m.

Note 19. 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
		2022-23	2021-22
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.	237	118
b	Claim for repair or repurchase of defective Right to Buy homes sold by local authorities between 1980 and 1985.	250 to 750k per house	250 to 750k per house
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
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: 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
h	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
i	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	96	64
j	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.	185	243
k	Estimated £2.5 million self-correction to the European Regional Development Fund (ERDF) programme to reduce the total error rate below 2% following the European Commission audit.	2,500	15,400

Note 20. Contingent assets disclosed under IAS 37

			£’000
		2022-23	2021-22
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 the Homes England. 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 by the Agency.	Unquantifiable	Unquantifiable

Note 21. Related party transactions

The department is the parent of a number of sponsored bodies listed in Note 23. 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.

• Jeremy Pocklington CB is a trustee of Business in the Community. It is a charity dedicated to responsible business in creating a skilled, inclusive workforce today and for the future, and building thriving communities in which to live and work. The trustees’ role is to determine the charity’s mission and purpose, while guarding its ethos and values. The department paid a total of £164,886 to the NI Business in the Community during 2022-23 (2021-22: £164,888). This was related to UK Community Renewal Fund.

• Lucy Frazer’s husband is the CEO of Alexander Mann Solutions (AMS). Lucy Frazer was a Minister at DLUHC between 26 October 2022 and 7 February 2023. The Departmental Group spent £9 million with Alexander Mann during the entire year 2022-23 in relation to the supply of temporary staff. The majority of this cost relates to payments to agency staff but an element covers the services provided by AMS to source these temporary workers. The Minister had no role in the decisions relating this expenditure.

• Lord Gary Porter was leader of South Holland District Council. During 2022-23, DLUHC paid various grants totalling £6 million (2021-22: £16 million) to South Holland District Council as part of normal business.

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

Related parties of Special Advisors are monitored by Cabinet Office.

Note 22. 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.

Responsibility for His Majesty’s Land Registry was transferred to DLUHC from the Department for Business and Trade on 1 June 2023. This is a non-adjusting event after the reporting period.

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

Note 23. 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.

*The Building Regulations Advisory Committee ceased to exist on 1 April 2023 and has been replaced by the Building Advisory Committee which reports under The Health and Safety Executive and is not part of this Departmental Group.

**Responsibility for His Majesty’s Land Registry was transferred to DLUHC from the Department for Business and Trade on 1 June 2023. The Land Registry is a non-Ministerial department and will not be consolidated into the accounts of the Departmental Group.