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plan & budget 2005/06 for the year ending 31 March 2006 - budget for 2005/06 and case fee information

introduction

4.1 During 2005/06, we plan to meet the demands made by the rapid growth of our organisation by further strengthening our management structure. In particular, our human resources function will be substantially enhanced to meet our continuing need for training and development and management support. We also plan a process improvement project to examine options for further streamlining case-handling where possible.

funding 2005/06

4.2 The funding required for the annual levy is £12.8m, compared with £12.5m in 2004/05. 25% of the funding we require will be raised through the levy, with the remaining 75% being raised through case fees. This compares with figures of 28% and 72% respectively for the financial year 2004/05.

income analysis
actual 2003/04 £m
budget 2004/05 £m
forecast 2004/05 £m

budget 2005/06 £m

levy
13.1
12.5
12.4
12.8
return of surplus
0.0
0.0
0.0
(1.7)
net levy
13.1
12.5
12.4
11.1
case fees
27.4
34.9
32.1
40.0
other income
0.5
0.0
0.0
0.0
total
41.0
47.4
44.5
51.1

surplus

4.3 Last year, following consultation, it was agreed that the Financial Ombudsman Service would normally retain 5% of its annual budget expenditure as reserves, with any remainder being returned to firms as a reduction in the annual levy. Allowing for the anticipated deficit of £1.7m in 2004/05 and reserves carried forward at 31 March 2004, our accumulated surplus at the end of the current financial year is likely to be approximately £6.5m. With expenses of £53.1m (see para 4.5), this leaves approximately £3.5m that could be returnable to firms. The board of the Financial Ombudsman Service has decided that it would be prudent to return half of the available surplus (£1.7m), and to retain the remainder, so that it is available for items such as the process improvement project, or for returning to firms in future years.

case fees

4.4 We propose to keep the case fee at £360 but to reduce from £550 to £475 the “special” case fee (mainly relating to complaints by small businesses and complaints about firms that are no longer authorised by the FSA, but remain covered by the ombudsman service). In 2004/05 we introduced the “two free cases” arrangement, whereby firms are invoiced for case fees only for the third and any subsequent “chargeable” complaint referred to us about them in a year. This initiative has been broadly welcomed and appears to be working well. During 2005/06 we plan to evaluate in more detail how it has operated over the course of its first full financial year. In the meantime, we propose to continue the arrangement, allowing authorised firms to receive two free cases in 2005/06. This will also be extended to firms who have resigned authorisation but remain covered by the ombudsman service. The financial impact of this is likely to be immaterial to our budget. The text of a rule change to bring these provisions into effect is at appendix D.

budget 2005/06

4.5 We expect our income to increase by 15% to £51.1m in 2005/06, largely as a result of the increased number of case fees charged to firms for 2004/05. Expenditure - at £53.1m - is 15% higher than the forecast. The increase is almost wholly due to the cost of recruiting additional staff, primarily adjudicators and ombudsmen, during 2004/05. Average staff numbers are forecast to be 860 in 2004/05 and 960 in 2005/06. A detailed headcount analysis is shown at para 4.7.

actual 2003/04 £m
budget 2004/05 £m
forecast 2004/05 £m

budget 2005/06 £m

income
41.0
47.4
44.5
51.1
staff and staff-related costs
26.6
37.4
34.8
41.1
professional fees
0.5
0.5
0.8
0.8
IT costs
1.5
1.7
1.6
1.7
premises and facilities
4.1
5.3
5.1
5.7
other costs
0.7
0.5
0.6
0.6
depreciation
2.9
3.0
3.0
2.9
operating costs
36.3
48.4
45.9
52.8
financing costs
0.2
0.3
0.3
0.3
total costs
36.5
48.7
46.2
53.1
surplus (deficit)
4.5
(1.3)
(1.7)
(2.0)
cases resolved
76,704
103,000
93,000
116,000
unit cost
£473
£470
£495
£456

capital expenditure

4.6 Capital expenditure of £1.3m is planned for 2005/06, with £0.7m to be spent on software development, £0.3m on hardware and £0.3m for building improvements.

staff numbers

4.7

actual 2003/04
budget 2004/05
forecast 2004/05

budget 2005/06

casework divisions and ombudsmen
542
657
726
751
customer contact division
93
101
96
96
external liaison
19
21
22
22
knowledge management and information
12
12
16
16
policy
0
0
4
4
service quality
9
11
14
14
support services
50
58
66
66
total
725
860
944
969

4.8 Our staffing strategy for 2005/06 is based on the fact that we expect by then to have a full complement of staff in post and fully integrated. There is provision to increase the number of adjudicators by 25 during the latter part of 2005/06, depending on the level of new cases.

unit cost

4.9 We expect our unit cost to be £456 in 2005/06, compared with a forecast outturn of £495 in 2004/05. The fall in the unit cost - the average cost of resolving a complaint at the Financial Ombudsman Service - reflects the increase in the number of cases we expect to resolve and close in 2005/06.

overall impact on firms

4.10 The proposals for the Financial Ombudsman Service levy (reproduced in appendix A), on which the FSA is expected to consult in January 2005, would have - by way of example - the following impact on firms, assuming constant business year-on-year. The methodology for allocating expenditure to blocks, consulted on in the FSA’s consultation paper, CP74, is based on the number of case-handling staff required to handle the complaints expected in that block. The increase in tariff rates for advisory firms holding and controlling client money and/or assets, for example, reflects the increase in the workload relating to mortgage endowment complaints, compared with the workload assumed in the budget for 2004/05.

A bank or building society with 2 million relevant accounts would pay a net levy of £7,660 in 2005/06, compared with a levy of £13,800 in 2004/05.

A general insurer with £100m of relevant gross premium income would pay a net levy of £4,400 in 2005/06, compared with a levy of £8,100 in 2004/05.

A life office with £200m of relevant adjusted gross premium income would pay a net levy of £18,800 in 2005/06, compared with a levy of £18,600 in 2004/05.

An adviser with 50 relevant approved persons, who holds client money, would pay a net levy of £4,500 in 2005/06, compared with a levy of £3,250 in 2004/05.

A three-partner firm of IFAs (independent financial advisers) not holding client money would pay a net levy of £75 in 2005/06, compared with a levy of £90 in 2004/05.

A mortgage or insurance intermediary firm would pay a flat fee levy of £50 in 2005/06. Unless we receive more than two complaints about the firm during the year, the firm would not be required to make any further payment. It would, however, pay a case fee for the third and any subsequent complaint referred to us in the year.