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corporate plans and budgets » Plan & Budget 2002/03 - executive summary

'we have introduced our new business process and supporting case-handling system'

introduction

2.1 The purpose of this document is to report on the performance of the Financial Ombudsman Service during 2001/02 and to consult on costs and funding for the year to March 2003. The Financial Services and Markets Act came into force in December 2001 and this will be the first year that we will recover our costs directly from firms by way of a general levy and case fees. The arrangements for the funding of the Financial Ombudsman Service were consulted on in consultation papers CP33 and 74 and finalised in the Policy Document, Dispute Resolution: the Complaints Sourcebook.

2.2 This document also consults on the rule to apply the relevant funding rules in the FCA Handbook, Module DISP Chapter 5, to the funding of the Voluntary Jurisdiction, from April 2002. This will be included in the Standard Terms (FCA Handbook, Module DISP, Chapter 4).

2.3 The focus of this year has been preparation for ‘N2’, the date when we assumed our full responsibilities under the Financial Services and Markets Act. This has included the introduction of a new business process and case- handling system, finalising new eligibility, process and funding rules, and harmonising ombudsman policy. We have also had to react to the high level of mortgage endowment complaints and to maintain quality targets in call handling and processing.

key points of the current year 2001/02

2.4 A summary of the key points of the current year - 2001/02 - is as follows:

a) new complaints There are indications that the level of new complaints is finally slowing. Overall, we are still forecasting an increase of 21% in new complaints in 2001/02 compared with the previous year, largely due to mortgage endowment complaints. The number of new complaints overall is still increasing, but the last few months have seen a perceptible slow down in the rate of increase, which is welcome news.

b) case closures During the year, we have introduced our new business process and supporting case-handling system. Developing a new system poses a significant risk for any organisation but despite the inevitable disruption, we still expect to achieve our 2001/02 case closure forecast of 38,500.

c) unit cost In our plan and budget for 2001/02, we forecast a fall in the unit cost from £764 to £688. In cash terms, this was a decrease of £76 (allowing for inflation, it was a decrease of around £100). At present, we expect to meet the target of £688.

2.5 As we look towards 2002/03, our main area of uncertainty is the level of new complaints. At present, we have differing indicators as to the future trend. As mentioned above, there are indications of a slowdown in the level of new complaints reaching us, but several other factors - discussed in Chapter 5 - suggest that this might not be a long-term trend.

key points of the budget year 2002/03

2.6 Key points for the budget year 2002/03 are as follows:

a) new complaints Given the uncertainty over the level of new complaints, we have assumed that there will be no significant change in the number of new complaints - so the number of new cases is expected to be 37,500. But we have also tested two alternative scenarios: a 10% increase and a 10% fall in new cases.

b) productivity Our assumption for the base case of ‘no growth’ is that we will continue to improve productivity. Overall, we aim to increase productivity by 25% in the three years from 2000/01 to 2002/03. This will result in case closures for 2002/03 rising to 40,000.

c) service quality Following the introduction of our new business process and introduction of the new case-handling system - and the changes associated with N2 - it is important that we introduce formal internal quality control benchmarks from the beginning of the next financial year. These will include quality measurements for both decisions and process and will enable us to monitor the expected improvements in the timeliness and quality of our casework.

d) budget and unit cost The result of these assumptions is a total budget for 2002/03 of £28.2m, an increase of 2.2% over the current year. The forecast unit cost remains in line with this year - in absolute terms - at £688 (ie £27.5m costs before interest, divided by the forecast 40,000 case closures). This represents a fall, allowing for inflation, of £20 after absorbing the improved timeliness and service efficiency standards noted above, staff salary increases, and a higher depreciation charge.

conclusion

2.7 We welcome any comments on the different aspects of the plan, its assumptions, the level of the case fee and the tariff for the Voluntary Jurisdiction. We also welcome any comments on the proposed additional rule in the Standard Terms for funding the Voluntary Jurisdiction. Any comments on the general levy tariff rates and establishment levy should be made to the FSA, as these matters form part of the FSA’s consultation document, CP119.