skip tocontent

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.

voluntary jurisdiction levy

The 2008/09 rates of levy proposed for voluntary jurisdiction (VJ) participants are set out in annex D.
image of corporate plan and 2008/09 budget

For printed copies of this or any of our publications, phone 020 7964 0092 or email publications.