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corporate plan and 2009/10 budget

January 2009

overview

background

Each year the Financial Ombudsman Service produces a budget, setting out the resources and income required for our work, for approval by the Financial Services Authority (FSA). This paper consults on a draft of our budget for the 2009/10 financial year, in the context of our corporate plan for the next three years.

Planning and budgeting ahead involves adopting working assumptions on what the future may hold. This is doubly challenging against a background which even the Governor of the Bank of England has described - in a speech made in October 2008 - as 'financial turmoil' and 'an extraordinary, almost unimaginable, sequence of events'.

Our role of resolving complaints from consumers against financial businesses forms part of the statutory arrangements which exist to underpin confidence in financial services. In this, we continue to work closely with the FSA, the Office of Fair Trading (OFT) and the Financial Services Compensation Scheme, in accordance with our independent roles and differing statutory objectives.

As the task of rebuilding confidence in financial services proceeds, it is important to ensure that we are adequately resourced to fulfil our role. So our budget will need to increase significantly, in line with a substantial increase in our projected workload - although our unit cost (a benchmark for our overall productivity and cost-effectiveness) will remain broadly the same as in recent years.

We are committed to handling our significant workload efficiently and cost-effectively - in a way that is accessible and transparent. In developing our plans, we have been assisted by a report from Lord Hunt of Wirral, published in April 2008, which we commissioned as part of our wider review of accessibility and transparency.

casework

Chapter 2 of this document deals with our casework. We are a demand-led organisation, which has to deal with the cases that are referred to us.

Our workload is driven by (amongst other things): the way financial businesses treat consumers; consumers' readiness to complain when things go wrong; whether or not financial businesses' in-house complaint-handling is fair and effective; and the nature and extent of any interventions by the relevant regulators. Some of these factors are affected, in turn, by the state of the national economy.

Just over a year ago, when the financial world looked very different, everyone expected our overall workload to decline - following a steep fall in the number of mortgage-endowment cases, which had formed a significant part of our workload for some years. But, in the event, our overall workload has already risen considerably, with every expectation that the volume of new complaints referred to us by consumers will remain at a high level throughout 2009/10 and beyond.

Disputes have been referred to us on a wide range of issues - from direct debits to pet insurance, and from stock-broking to debt-collecting. But, as the flow of new mortgage-endowment cases slowed, we saw a sustained influx of complaints on three particular topics: unauthorised-overdraft charges, payment-protection insurance (PPI) and credit-card default charges.

We still have around 15,000 cases about unauthorised-overdraft charges on hold, pending decisions in the High Court. And we are continuing to receive an influx of cases about PPI and credit-card default charges. Between them, these two topics alone are currently producing around 160 new cases - about 40% of our incoming workload - every working day.

On top of this, we are beginning to see a growth in cases arising from the effects of the financial turmoil and economic recession on financial businesses and consumers. And our workload is also likely to increase as additional activities come within the scope of regulation by the FSA, and therefore within our compulsory jurisdiction.

As Lord Hunt indicated in his report, some of our workload challenges necessarily emerge from decisions taken by regulators about the extent to which they are (or are not) able and willing to step in and resolve generic problems when they arise - rather than leaving all the affected consumers to pursue individual complaints through financial businesses and then on to the ombudsman service.

This is an issue we are discussing with government and relevant regulators, as they think about the future shape of financial regulation. Unless and until we can be sure that regulators will take regulatory action to resolve generic problems involving potential widespread consumer detriment, it would be highly imprudent not to plan for continued surges of complaints on particular topics.

The significant increase in our expected workload naturally affects the number and type of staff we need to deal with the cases. Our organisational restructure last year, designed to deliver further improvements in service quality as well as to prepare for greater caseload volatility, has provided a firm foundation on which we have been able to start increasing capacity for the greater volume of work.

Given the training and experience needed to resolve fairly and consistently the wide range of cases that are referred to us, there is, necessarily, a limit to the speed at which we can grow our workforce. But by combining in-house recruitment with some judicious outsourcing, we have already increased our capacity by more than 50% in the six months to the end of December 2008.

All this comes at a price. Whilst the use of some outsourced staff enhances our ability to increase (or reduce) capacity quickly, the cost is significantly higher than for in-house staff. And the growth in capacity has required a significant strengthening of our quality-assurance systems, to oversee a higher proportion of newer in-house staff and outsourced staff.

Because of the time needed to recruit and train new staff, there has been an inevitable lag between the growth in incoming work and the growth in our capacity to deal with it, resulting in some slippage in timeliness. We aim to improve the position over the coming year. However, on top of the expected influx of new cases, it means that we will need to resolve a larger number of cases in 2009/10 than we have handled in any previous year.

accessibility and transparency

Chapter 3 deals with accessibility and transparency. Despite the challenges presented by our substantially increased caseload, we are continuing to progress our strategic review of accessibility (so that we continue to be accessible to the increasingly diverse range of people and businesses who use our services) and transparency (so that we continue to be appropriately open and transparent about our work).

As part of that review, we asked Lord Hunt of Wirral to talk to stakeholders and make recommendations - focused on transparency and accessibility - in order to help build consensus. His report set out his findings on many key issues concerning transparency and accessibility, and has been of considerable assistance in planning the way forward.

In July 2008 we published policy statements describing our plans on these important issues. Improving transparency and accessibility will have some impact on resources and costs, but we note Lord Hunt reported that he:

... was heartened by the willingness of most industry respondents to bear an increased burden for an improved service.

budget

Chapter 4 describes the currently expected outturn for 2008/9 (the year ending 31 March 2009), and chapter 5 sets out our proposed budget and case fees for 2009/10 (the year ending 31 March 2010).

The proposed budget for 2009/10 reflects the number of cases that we expect to have to deal with - the largest we have ever handled - in order to resolve existing cases within a reasonable time and to keep pace with new cases. It also reflects case-handling flexibilities, such as outsourcing, coupled with increased investment in quality assurance.

The significant increase in our budget is proportionate to the increase in our workload. But we should still be able to deliver our work at a unit cost that remains low by historic standards. Though staff numbers will need to rise in order to cope with the workload, our average salary in 2009/10 will be around £35,000.