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corporate plan and 2009/10 budget

January 2009

2009/2010 budget and case fees

income and expenditure

For 2008/09 we forecast a surplus of £1.7 million, which is £1.0 million lower than the figure originally budgeted. Income was above budget, because we settled and closed more cases than planned. But this was more than offset by higher expenses, as we recruited new directly-employed and outsourced adjudicators to deal with the large volume of new cases. These new adjudicators did not cover their costs within the year because of the 'lead-in' time needed before they became fully-trained and effective.

For 2009/10, we have budgeted for a small surplus of £0.3 million, in order to maintain our reserves at about 5% of budget expenditure. The significant increase in the total budget is in line with the substantial increase in our workload, and reflects:

  • a major increase in employment costs to cover the additional staff required to resolve 165,000 cases;
  • around £3 million to improve accessibility and transparency, enhance our quality-assurance systems, and cover increased rent and service charges (arising partly from accommodation for additional staff and partly from rent reviews); and
  • £1.0 million capital expenditure on upgrading our IT hardware, continuing to develop our casework system, and office refurbishments.

Out of the total income budgeted for 2009/10:

  • 95.1% relates to our compulsory jurisdiction;
  • 3.9% relates to our consumer credit jurisdiction; and
  • 1.0% relates to our voluntary jurisdiction.
  actual
2007/08
£ million
budget
2008/09
£ million
forecast
2008/09
£ million
budget
2009/10
£ million
income        
levy 19.6 19.0 18.7 19.5
case fees 35.9 43.7 45.7 73.4
other income 0.4 0.4 0.4 0.4
provision for bad/doubtful debts (0.4) (0.4) (0.4) (0.5)
total 55.5 62.7 64.4 92.8
         
expenditure        
staff and staff-related costs 41.2 48.2 50.6 77.5
professional fees 1.3 0.9 1.1 1.6
IT costs 1.8 1.6 1.6 1.6
premises and facilities 4.3 4.2 4.6 6.5
other costs 2.6 2.5 2.6 3.0
depreciation 1.7 2.2 2.0 2.1
operating costs 52.9 59.6 62.5 92.3
financing costs 0.2 0.4 0.2 0.2
total costs 53.1 60.0 62.7 92.5
restructuring costs 2.9 0.0 0.0 0.0
surplus (deficit) (0.5) 2.7 1.7 0.3
cases resolved 99,699 110,000 115,000 165,000
unit cost £530 £542 £544 £559

unit cost

Our unit cost represents our total costs (apart from the cost of financing) divided by the number of cases resolved.

The unit cost for 2008/09 is expected to be close to budget, at £544. The unit cost budgeted for 2009/10 shows a small increase of 2.8% to £559.

This represents a significant reduction on our original unit cost of £684 in 2001/02. If that figure had increased in line with inflation, it would now be nearer £900.

staff

For 2009/10 the year-end headcount budget is distributed as follows:

  budget
March
2009
forecast
March
2009
budget
March
2010
casework divisions and ombudsmen 523 846 918
customer contact division 91 121 121
support services 109 116 131
total 723 1,083 1,170

The additional caseworkers are needed to resolve the record number of 165,000 cases, while the increase in the customer contact division is to handle the higher level of consumer enquiries, both written and by phone. Support-service numbers are increasing in order to service a larger organisation, to implement our accessibility and transparency projects, and to implement our enhanced quality initiatives.

2009/10 case fees and levy

In line with the feedback we have received from the financial businesses which provide our funding, we aim to collect around 75% of our total income from the case fees we receive. We propose doing this by increasing the case fee to £500 in all three jurisdictions.

In order to limit the overall increase in the annual levy to 3%, we plan to leave the number of 'free cases' unchanged, at three for each business each year. We will review that number in future years when there may be less pressure on the levy.

Resolving 165,000 cases should raise £73.4 million in case fees, after allowing for the expected cost of the 'free cases'.

The rest of our expenditure, amounting to £19.5 million (compared with £19.0 million in the 2008/09 budget), would be raised through the 2009/10 annual levy across our three jurisdictions.

compulsory jurisdiction levy

The FSA will consult separately on the levy payable by FSA-regulated firms in the compulsory jurisdiction. The method of allocating that levy was consulted on in the FSA's 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.

This means that the levy for an individual industry block may change by a greater or lesser amount than the overall levy - to reflect the sectors from which our workload comes. We estimate that nearly 83% 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:

  2007/08 levy £ 2008/09
levy £
2009/10
levy £
bank or building society with 2 million relevant accounts 18,000 46,000 54,000
general insurer with £100 million of relevant gross premium income 6,500 12,600 12,600
life office with £200 million of relevant adjusted gross premium income 24,000 9,800 5,000
investment adviser that holds client money and has 50 relevant approved persons 7,500 4,000 2,750
three-partner firm of independent financial advisers that does not hold client money 135 120 105
mortgage intermediary firm 50 60 65
insurance intermediary firm with £0.5m commission income 50 60 80

consumer credit jurisdiction levy

The total levy for the consumer credit jurisdiction in 2009/10 has been set at £2.4 million (net of the OFT's collection costs), which is the same figure as for 2008/09. This is in line with our aim to average this levy over the 5-year renewal period for consumer credit licences. The OFT sets the amount of the levy payable by individual licensees who take out or renew licences during the year.

voluntary jurisdiction levy

The 2009/10 rates of levy proposed for voluntary jurisdiction (VJ) participants are set out in annex D.