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corporate plans and budgets » Plan & Budget 2003/04 - executive summary

introduction

1.1 This plan & budget reports on the performance of the Financial Ombudsman Service during 2002/03. It also consults on

  • costs and funding for the year to March 2004;
  • the changes to the special case fee in Chapter 5 of the Complaints sourcebook in the FCA Handbook; and
  • the voluntary jurisdiction tariff.

effect of the budget proposals on consumers

1.2 Consumers will benefit from our new timeliness targets, summarised in chapter five. We aim to close cases faster than last year. And we will introduce additional performance indicators at three and nine months to assess our timeliness in closing cases. Our determination to reduce the level of work-in-progress will also help us improve our service to consumers.

effect of the budget proposals on the industry

1.3 The industry will benefit from a lower unit cost, and from a reduction in the annual levy. This levy will, on average, be 24% lower than in 2002/03. Firms whose unresolved complaints are referred to us will pay a greater proportion of our total costs than those firms that are able to resolve any complaints satisfactorily without the need for our direct involvement. The standard case fee will remain at £360 for 2003/04.

managing the workload

1.4 Events during 2002 have already demonstrated the importance of our being sufficiently flexible to cope with unpredictable variations in workload. The need to match our resources to varying levels of demand will be a permanent feature of the ombudsman service.

Within months of the Financial Services Authority (FSA) approving our budget in March 2002, it became clear that the forecasts on which we had based the budget had underestimated complaint volumes. We needed to act quickly in the short term and to establish a plan of action for the longer term, to ensure that the unexpected surge in complaints did not result in substantial and unacceptable backlogs of cases. Our success in achieving this owes much to the investment made over the last two years in our management, premises and technology. Because of this investment, we managed to prevent backlogs and maintain our service levels.

Because of our earlier investment in our infrastructure, the additional expenditure we incurred reflects, in the main, only the direct costs of employing and equipping the new staff. We were able to act quickly to recruit these staff because our financial control framework, agreed with the FSA, is based on our unit cost rather than on a cash limit.

The overall result will be a substantially lower unit cost this year and in 2003/04. The unit cost will have fallen from £753 in 2000/01 to £684 last year, and is expected to be under £560 this year and in 2003/04.

re-structuring

1.5 On 1 October 2002 we undertook a structural reorganisation, replacing the three divisions based on the three product areas - insurance, banking and investment - with four general business units. Each of these units deals with all areas of our business. This allows the three principal ombudsmen, previously responsible for managing their respective divisions as well as for policy, to concentrate solely on policy issues. Our operations director is responsible for the resources and service standards in the four business units. The reorganisation will increase our flexibility and enable us to respond speedily and effectively to peaks and troughs of work related to different product areas.

key points of the current year 2002/03

1.6 The key points of the current year - 2002/03 - are as follows:

  • new complaints. By the end of December 2002, we had received 43,000 new complaints. We expect that total to have risen by April 2003 to 55,000. This is 47% above the 2002/03 budget and is largely due to complaints about dual variable mortgage rates and mortgage endowment policies.
  • case closures. During the year, as the inflow of new complaints exceeded our projections, we recruited significantly more case-handlers than originally planned. At the end of December 2002 we had closed in excess of 40,000 cases. In total, we expect to close 54,500 cases this year, compared with the budget assumption of 40,000.
  • unit cost. Our budget was to achieve a unit cost of £688. After allowing for the costs of the additional staff recruited to handle the extra volume of work, we expect to achieve a figure of £544 in 2002/03. This will be the result of an increase in productivity and the fact that our fixed costs are spread over a larger number of cases.

key points for the budget year 2003/04

1.7 Key points for the budget year - 2003/04 - are as follows:

  • new complaints. It is always very difficult to predict the level of new complaints. We have assumed that there will be no significant change from the revised forecast for this year and that we will handle 55,000 new complaints. However, we have also tested two alternate scenarios: a 10% increase and a 10% fall in new cases.
  • productivity. We aim to increase our productivity further. Our target of 4.4 cases closed per case-handler per week is 40% higher than that achieved in 1999/2000.
  • case closures. In view of the level of new complaints and our need to achieve our productivity and timeliness targets, we have decided to increase the average number of case-handling staff by 30. With case-handling staff at this level, we expect to close 59,000 cases in 2003/04.
  • timeliness. We will include two further indicators that will monitor the timeliness of our case closures at three months and nine months. We will also increase from 75% to 80% our target for the percentage of cases closed within six months.
  • unit cost. The effect of these assumptions will be a total expenditure of £33.1m. This is an increase on the 2002/03 budget of 17%. However, it is equivalent to a unit cost of £551 compared with the £688 in the budget for 2002/03.

conclusion

1.8 We welcome comments on any aspect of this plan & budget or on the level of case fees and the tariff for the voluntary jurisdiction. Please direct any comments on the general levy tariff for the compulsory jurisdiction to the Financial Services Authority, as this forms part of a separate consultation on funding the ombudsman service (CP161).