skip tocontent

annual review 2007/08

1 April 2007 to 31 March 2008

chairman's foreword

In my foreword to last year's annual review, I wrote that the number of new complaints to the ombudsman service had fallen for the first time since we were set up in 2001. This was a significant event. It indicated that we were at last in a position to take stock and plan a future course in a world no longer dominated by mortgage endowment complaints.

The sharp fall in new cases involving mortgage endowments has continued this year, with the number of endowment complaints falling from 46,100 in the year ended 31 March 2007 to 13,800 in the year ended 31 March 2008 - less than half the number we had initially forecast. Our forecast had anticipated that the number of mortgage endowment complaints would continue to decline - as the impact of "time barring" meant that consumers ran out of time to bring mortgage endowment disputes to us. But there has been a much steeper decline in these cases than we or the financial services industry - with whom we consult on these matters - had expected.

As I have observed in previous annual reviews, predicting future volumes of (and trends in) financial complaints is an art, not a science. The only guaranteed constant in our work is that - regardless of detailed budgets and workload forecasts agreed in advance with our stakeholders - the ombudsman service has to be capable of changing plans, revising assumptions and shifting resources flexibly, as we respond to what real life throws at us.

The sharp fall in the number of mortgage endowment complaints had a significant operational impact on the ombudsman service during the year. At the time of consulting on our budget in January and February 2007 we had already embarked on a policy of halting new recruitment, and releasing those of our staff who were on temporary contracts, in order to re-align staff numbers with the expected workload going forward.

Halfway through the year, however, it became clear that the scale of the reduction in new mortgage endowment complaints was such that additional action was required. In the subsequent organisational restructure and redundancy programme, some 150 staff left the ombudsman service during the second half of the year. This was the first time in our short history that we reduced - rather than increased - our staff numbers. I am very mindful of the effect this must have had on all our staff, who have withstood with commendable professionalism the demands and challenges we have faced this year.

The organisational restructure has not just been a question of scaling down the ombudsman service. We have taken the opportunity to make further improvements in the quality and efficiency of our operations - and to look at how we could enhance the value of our role.

We are committed to monitoring the quality and consistency of our work. One of the key measures of our performance is the timeliness of our complaints handling. This is not just a question of statistics. In our customer satisfaction surveys, consumers and businesses constantly rate as a top priority the importance of dealing with complaints promptly.

The time it takes us to settle disputes has improved on the previous year - partly reflecting the increase in the large number of banking-related cases which we were able to settle relatively quickly and informally. The fact that we met - and in some cases exceeded - our timeliness targets, in a year that included a period of unsettling organisational change for our staff, is an achievement of which our service can be rightly proud.

Our ability to resolve disputes by means of mediation and recommended settlements, rather than by using formal ombudsman powers, has also continued to benefit our productivity levels. However, the small increase in our unit cost this year is something we have long anticipated, as we lose the economies of scale achieved in earlier years with the large volumes of mortgage endowment complaints.

During the year, my board commissioned an independent external review of the ombudsman service, led by Lord Hunt of Wirral. This review, which at the board's request looked in particular at the accessibility and transparency of the ombudsman service, is covered in more depth in the chief ombudsman's report. I am grateful to Lord Hunt for the wise advice he has given us.

Even as our organisational restructure was under way, early indications were emerging that suggested the workload could start rising in other areas. For whilst mortgage endowment complaints fell more steeply than anticipated during the year - by some 70% - the total number of new complaints referred to the ombudsman service increased by 30%.

This meant that the previous year's decline in overall complaint numbers - which we had interpreted as the possible start of a new downwards trend in complaint volumes - was sharply reversed. In fact, by the end of the 2007/08 financial year we had received more new complaints than in any year since the ombudsman service was established.

The challenge for us, as ever, was to predict what kind of resource this might mean we could need - and whether any such resource would be required for more than just a short-term blip.

Banking-related disputes, for example, had risen by almost 50% in the previous year - fuelled largely by consumer dissatisfaction with the level of unauthorised-overdraft charges. In the first quarter alone of the 2007/08 financial year, we received some 20,000 new complaints about these charges. This looked as though it could lead to our needing substantial additional resource to deal with these complaints.

In the event, however, pending a test case in the High Court, individual cases involving unauthorised-overdraft charges - being pursued through the formal complaints procedures of the banks, as well as with the ombudsman service and the courts - were put on hold in July 2007.

Last year I noted the increase in the number of disputes referred to us about payment protection insurance (PPI). I said that commentators were suggesting we would be seeing much larger volumes of complaints about this product in future. This proved to be the case during the year - probably reflecting the continued media focus and significant regulatory activity in this area, including fines by the Financial Services Authority (FSA) against a number of firms selling payment protection products.

However, it was only in the final quarter of the 2007/08 financial year that payment protection became the area of insurance most complained about to the ombudsman service. During that quarter we received record numbers of complaints about payment protection insurance, and in the first three months of 2008 we received more payment protection complaints than in the whole of 2007.

The sudden surges we have seen in complaints relating to payment protection and unauthorised-overdraft charges - driven largely by media and internet campaigns - mean that predicting, managing and dealing with complaint volumes looks strategically and operationally as challenging for us as ever.

Again this year - as part of this annual review - we have published in full the separate report of the independent assessor, Michael Barnes. The independent assessor's role is to investigate complaints from businesses and consumers about the level of service provided by the Financial Ombudsman Service. He reports directly to me and my board colleagues - as part of the framework we have in place for feedback and scrutiny on all aspects of our performance - and I am very grateful for his observations and insights. As in previous years, all the independent assessor's recommendations in individual cases have been accepted - and his helpful suggestions more generally for further improving some specific aspects of our service and procedure are being implemented.

Sir Christopher Kelly KCB
May 2008

image of Sir Chris Kelly

photo: Sir Christopher Kelly KCB

This annual review is published in accordance with paragraph 7 of schedule 17 of the Financial Services and Markets Act 2000.