corporate plan and 2008/09 budget
January 2008
2008/09 budget and case fees
income and expenditure
We need to restore our reserves to a prudent level following the forecast deficit of £5.4m in 2007/08 (largely because of our costs associated with restructuring the service). We also expect to incur £1.0 million capital expenditure on upgrading our IT hardware, continuing to develop our casework system, and minor office refurbishments. We are therefore proposing a budget surplus of £5.8m for 2008/09.
Out of our total income and expenditure:
- 96.0% relates to our compulsory jurisdiction;
- 3.2% relates to our consumer credit jurisdiction; and
- 0.8% relates to our voluntary jurisdiction.
| income | actual 2006/07 £m |
budget 2007/08 £m |
forecast 2007/08 £m |
budget 2008/09 £m |
|---|---|---|---|---|
| levy | 16.6 | 19.4 | 19.4 | 21.7 |
| case fees | 36.1 | 37.9 | 33.3 | 33.6 |
| other income | 0.4 | 0.4 | 0.3 | 0.3 |
| provision for bad and doubtful debts | (0.6) | (0.4) | (0.4) | (0.4) |
| total | 52.5 | 57.3 | 52.6 | 55.2 |
| actual 2006/07 £m |
budget 2007/08 £m |
forecast 2007/08 £m |
budget 2008/09 £m |
|
|---|---|---|---|---|
| staff and staff-related costs | 42.4 | 43.6 | 42.0 | 37.7 |
| professional fees | 0.7 | 0.8 | 0.8 | 0.9 |
| IT costs | 1.8 | 2.3 | 1.8 | 1.7 |
| premises and facilities | 6.0 | 6.4 | 6.2 | 5.8 |
| other costs | 0.6 | 0.7 | 0.7 | 0.7 |
| depreciation | 2.5 | 3.2 | 2.2 | 2.2 |
| operating costs | 54.0 | 57.0 | 53.7 | 49.0 |
| financing costs | 0.2 | 0.3 | 0.3 | 0.4 |
| total costs | 54.2 | 57.3 | 54.0 | 49.4 |
| restructuring costs | 0 | 0.0 | 4.0 | 0 |
| surplus (deficit) | (1.7) | 0.0 | (5.4) | 5.8 |
| cases resolved | 111,673 | 106,500 | 94,000 | 84,000 |
| unit cost | £484 | £535 | £571 | £584 |
In 2007/08, income was below budget, owing to fewer than expected chargeable cases, but this was partially offset by a saving in staff costs and staff-related costs. Restructuring costs include redundancy payments, professional fees and outplacement services. The deficit of £5.4 million (which includes restructuring costs of £4.0 million) is expected to be recovered in 2008/09 through the annual levy. Cash flow during the year has been managed by way of a revolving credit facility.
Our expenditure budget for 2008/09 is 9% lower than 2007/08 (excluding restructuring costs) reflecting lower staffing levels.
unit cost
In previous publications we warned that our unit cost would inevitably rise when mortgage-endowment cases fell from their previously high volume. This is partly because of differences in the relative productivity achievable in different types of cases, and partly because fixed costs must be spread over a falling number of cases overall.
Our unit cost for 2008/09 will rise to £584, from a forecast of £571 (and a budget £535) in the current year. To put the figures in context, if the unit cost in 2001/02 of £688 had increased in line with inflation, it would now be nearer £850. This demonstrates that we have implemented longer-term efficiencies, as well as benefiting from shorter-term economies of scale.
staff
For 2008/09 the year-end headcount budget can be analysed as follows:
| actual March 2007 |
budget March 2008 |
forecast March 2008 |
budget March 2008 |
|
|---|---|---|---|---|
| casework divisions and ombudsmen | 762 | 657 | 540 | 540 |
| customer contact division | 98 | 101 | 85 | 95 |
| support services | 98 | 95 | 80 | 85 |
| total | 958 | 853 | 705 | 720 |
case fees for 2008/09
In line with the feedback we have received from the businesses which provide our funding, we aim to collect a greater proportion of our income by way of case fees as well as increasing the number of ‘free’ cases. But in view of the volatility of case numbers and their effect on our financial planning, we need to move incrementally.
In all three jurisdictions, we propose to increase the case fee from £400 to £450. But we will charge the case fee only after a financial business has received three ‘free’ cases (rather than two ‘free’ cases as now). Allowing for the expected cost of three ‘free’ cases, our closure target of 84,000 should raise £33.6 million.
When our consumer credit jurisdiction was introduced, we promised to keep under review the position of not-for-profit advice agencies – such as debt advisers – who hold a standard consumer credit licence issued by OFT and so come within our consumer credit jurisdiction. It is difficult to provide special case-fee arrangements for them, because they hold the same type of licence as other consumer credit businesses.
But we have analysed all our consumer credit cases to date, and none relates to a not-for-profit advice agency. Bearing in mind that all licensees will receive three ‘free’ cases per year in any event, there appears little risk to such agencies. But we will continue to keep the position under review.
annual levy for 2008/09
The remainder of our expenditure, £21.7m (£19.4m in 2007/08), would be raised through the 2008/09 annual levy. However, of this, £4.0 million relates to the one-off costs of the restructuring that took place in 2007/08.
compulsory jurisdiction levy
The FSA will consult separately on the levy payable by firms in the compulsory jurisdiction. The method of allocating the total levy amongst FSA-regulated firms was consulted on in consultation paper CP74. Broadly, it involves two stages:
- The total levy is divided among industry blocks (based on activities) according to the number of case-handling staff we expect to need for cases from that sector.
- The levy for each industry block is divided among the firms in that block, according to a tariff rate (relevant to that sector) which is intended to reflect the scale of the firm’s business.
Although the total levy has increased, because of the one-off restructuring costs, the effect of this on firms in different industry blocks varies. That is because the levy depends on the number of cases expected from firms in that fee block. In any event, we estimate that nearly 90% of the firms liable to pay the levy will pay only the minimum levy for their industry block.
Subject to the FSA’s consultation, typical levies in the compulsory jurisdiction are likely to be:
| firm | 2006/07 levy £ |
2007/08 levy £ |
2008/09 levy £ |
|---|---|---|---|
| bank or building society with 2 million relevant accounts | 11,630 | 18,000 | 35,600 |
| general insurer with £100 million of relevant gross premium income | 5,500 | 6,500 | 16,500 |
| life office with £200 million of relevant adjusted gross premium income | 24,800 | 24,000 | 14,600 |
| investment adviser that holds client money and has 50 relevant approved persons | 8,000 | 7,500 | 6,500 |
| three-partner firm of independent financial advisers that does not hold client money | 135 | 135 | 150 |
| mortgage or insurance intermediary firm | 50 | 50 | 60 |
consumer credit jurisdiction levy
The total levy for the consumer credit jurisdiction in 2008/09 has been set at £2.4 million (net of OFT’s collection costs), the same figure as for 2007/08. This is in line with our aim to average this levy over 5 years, which is the renewal period for consumer credit licences. The Office of Fair Trading sets the levy payable by individual licensees who take out or renew licences during the year.